Langton Capital – 2017-02-01 – AG Barr, 32 Red, Diageo, costs, inflation & other:
AG Barr, 32 Red, Diageo, costs, inflation & other:A DAY IN THE LIFE: So how on earth do those little ear-bud things for your phone manage to get so tangled? I mean it’s a challenge, isn’t it? You put them in your pocket or your laptop bag & then don’t touch them for a day or two but, when you retrieve them therefrom, they’re in some humungous Gordian Knot such that the incoming call goes to voice mail and you have to stop what you’re doing in order to untangle them. And then the little foam rubber ear-bud things fall off and into a muddy puddle or a handy cup of tea and you can’t use them. Or rather you can – but only if you think having a trickle of grimy water or cold tea trailing down your face is a good look – meaning that, what, you have to return to the Stone Age and hold the phone in your hand? On to the news: PUB, RESTAURANT & DRINKS PRODUCERS: • AG Barr updates on FY trading, says ‘UK soft drinks market has remained highly competitive’ • AG Barr says ‘the latest IRI data for the 48 weeks to 1 January 2017 [shows] value up c.1% and volume up c.1.5%.’ • AG Barr says ‘our second half trading performance strengthened, supported by successful product innovation, specifically through the launch of IRN-BRU XTRA and Rubicon Spring. Revenue for the 52 weeks ended 28 January 2017 is expected to be around £257m.’ • AG Barr reports ‘on a like for like basis revenue growth from ongoing business* is anticipated to be c.1.5%.’ • AG Barr says ‘we have maintained tight control of our costs’ with operating margin in line with expectations • AG Barr reports ‘we believe that the combination of strong trading execution, successful innovation and tight cost control will enable us to meet our profit expectation for the year ended 28 January 2017.’ • AG Barr says ‘2017 will be another challenging year for UK based businesses.’ It says, however, ‘our strong and flexible business model, our differentiated brands and our well-invested asset base ensure we are well placed to continue to deliver long-term value to shareholders.’ • Diageo is to re-enter the Irish whiskey market after a two-year absence by investing €25m (£18.6m) in its own start-up premium blend. The world’s largest distiller will begin its three-year investment by converting an old Guinness power station in Dublin into an Irish whiskey distillery, which will begin production in 2019. It will start selling Roe & Co from March this year by buying liquids from existing Irish distilleries and blending them. • Greencore, Britain’s biggest sandwich maker, anticipates higher labour and raw materials costs this year but also expects to absorb these costs. The group commented: ‘Inflation in raw material and packaging prices and labour costs are expected to increase for the remainder of the year, although we anticipate that the combination of supply chain, purchasing and pricing initiatives will mitigate these impacts.’ • Food prices rose 0.6% month-on-month in January as supermarkets moved away from discounting on vegetables but overall shop prices fell 1.7%, per the BRC. ‘For now, consumers continue to benefit from falling shop prices year on year’, said Helen Dickinson, chief executive of the British Retail Consortium. ‘However, fluctuations in the monthly figures belie an underlying trend of building cost pressures that are gradually feeding through from the fall in sterling combined with higher commodity prices.’ Suppliers including Premier Foods, AB InBev, Weetabix, and Unilever have already warned that they will need to raise prices. • Financier Guy Hands has agreed a deal to become the master franchiser and developmental licensee of McDonald’s 435-strong franchised Nordic operations for a reported $420m (€392m). McDonald’s is the biggest fast-food operator in the Nordics, but according to Business Insider is facing competition from chains like Max in Sweden and Friends & Brgrs in Finland. • Pizza Pilgrims is opening its fifth site at 136-137 Shoreditch High Street this March and has further units lined up in West India Quay and Oxford, per MCA. • The latest Bank of England figures show the rate of growth of personal borrowing in the UK stalled in December. Outstanding personal debt rose by just £1bn that month to £193bn, the smallest monthly increase since May 2015, leaving the annual growth rate of the UK’s personal debt mountain, which covers credit cards and other non-mortgage loans, steady at 10.6% a year. The Bank of England governor Mark Carney recently warned that personal borrowing was rising too fast. • Borrowing is an issue. Student debt is a new thing & isn’t in comp figures from a few years ago. It is unclear how consumer behaviour will adapt to deal with it. Interest rate rises, the NIESR says, may still be 2yrs away (and that 2yrs may roll forward, always be 2yrs) but, when rates rise, the cost of debt will increase. • Forecasts re interest rates are notoriously tough. History is cruel. Nobody, in July 2007 (when interest rates last rose), thought that there would not be another rate rise for 10yrs at least. What makes us think we understand the future any better than we did 10yrs ago? Other than arrogance, over-confidence etc., that is. • Charles Wells posted a 1% increase in profit to £7.1m as turnover grew by £4.8m in 2016, and the group is accelerating the roll out of its Pizza Pots and Pints concept, per Propel. LEISURE TRAVEL & HOTELS: • Yotel plans to open its third property in the UK on Clerkenwell Road, which will be a hub on the Crossrail line when it opens in late 2018. The hotel will feature signature facilities including adjustable ‘smart beds’, mood lighting, free wifi, smart TVs and monsoon rain showers, along with a Club Lounge offering ‘flexible meeting and co-working spaces that will be designed in keeping with the surrounding area’. • Queensway Group plans to open seven UK sites under its new budget brand Point A Hotels in the next ten weeks. • Airline association Iata said President Trump’s executive order banning travel to the US from seven countries had been issued ‘without warning’. The move has caused ‘confusion among airlines and travellers’ said Iata, which awaits ‘clarity from the US administration on the current situation’. OTHER LEISURE: • 32 Red updates on FY trading, says ‘record revenue and EBITDA performance [is] in 2016 in line with expectations’ • 32 Red says net gaming revenue +28% at £62.3m & adds it ‘moves to profitability in Italian market, in line with expectations’ • 32 Red says it is seeing ‘strong current trading, up 21% on the prior year’. CEO Ed Ware reports ’32 Red experienced another hugely successful year with profits and revenues breaking previous records, driven by excellent growth in our core Casino products.’ He adds ‘we have continued to deliver progress against our clear growth strategy underpinned by the strength of the 32Red brand, effective return on investment-driven marketing and an enhanced customer proposition.’ Ware concludes ‘the key strategically important contracts signed during the second half of 2016 will help the Company to deliver its stated growth strategy and the Board remains confident of delivering continued progress in 2017.’ • Nintendo has nearly doubled its annual profit outlook as a falling yen helped to counteract lukewarm sales of its gaming devices. Nintendo made its first serious foray into mobile gaming with the December 15 release of Super Mario Run, which has recorded 78m downloads, while Pokémon Go has also raised the group’s profile. FINANCE & MARKETS: • NIESR reports world growth is likely to rise to 3.1% in 2017 and 3.5% in 2018. Global GDP is thought to have grown by 3.0% this year. • NIESR says ‘inflation has picked up in the advanced economies, mainly reflecting the upturn in global energy prices.’ • NIESR says ‘threat of deflation has receded’ & adds ‘wage growth in the US adds to evidence that the economy’s employment and output gaps have shrunk.’ The NIESR says ‘our forecast shows a gradual strengthening of global economic growth, after a slowdown in 2016, towards an average annual rate of 3.4 per cent in the medium term that would still be below the 4.2 per cent rates of expansion that prevailed in the decade ending in 2007. New risks (both upside and downside) to the forecast arise from potential policy changes by the new US administration.’ • NIESR says UK GDP growth is likely to slow in the medium term. Expects UK to grow by 1.7% this year & 1.9% next. Growth is provisionally estimated to have been 2% in 2016. • NIESR says UK consumer spending has been strong but adds that spending power in late 2016 and into 2017 has been ‘eroded’. • NIESR sees inflation rising in the UK but believes Bank will keep interest rates at 0.25% into 2019. • Bank of England opines on interest rates tomorrow lunchtime. • Economic growth in the Eurozone was 1.7% last year. The single currency area grew more rapidly than the US but slower than the UK. • Eurozone inflation up to 1.8% in January. • Dollar weak yesterday on Trump comments. Which one(s), it is not quite clear. • World markets: UK FTSE100 down yesterday with Europe also lower. US markets down but Far East up in Wednesday trade • Brent a little higher over 24hrs at $55.45 per barrel • Sterling little changed against a weaker $ at $1.257. Sterling weaker against the Euro at 116.5c per Euro • UK 10yr gilt yields down at 1.43% vs 1.45% yesterday. US 30yr treasury yield down 3bps at 3.05% TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS: • AG Barr updates on FY trading, says ‘UK soft drinks market has remained highly competitive’ • AG Barr reports ‘on a like for like basis revenue growth from ongoing business* is anticipated to be c.1.5%.’ • AG Barr says ‘2017 will be another challenging year for UK based businesses.’ • The latest Bank of England figures show the rate of growth of personal borrowing in the UK stalled in December. Debt still rose, though • Borrowing is an issue. Student debt is new & isn’t in comp figures from years ago. It is unclear how consumer behaviour will adapt • Forecasts re interest rates not easy. History is cruel. Who, in July 2007 (when rates last rose), thought that would be the last time for 10yrs? • Diageo is to re-enter the Irish whiskey market after a two-year absence by investing €25m (£18.6m) in its own start-up premium blend • Greencore, Britain’s biggest sandwich maker, anticipates higher labour and raw materials costs this year • Food prices +0.6% m-o-m in Jan as grocers moved away from discounting on vegetables but overall shop prices fell 1.7%, per BRC. • Yotel plans to open its third property in the UK on Clerkenwell Road, which will be a hub on the upcoming Crossrail line • NIESR reports world growth is likely to rise to 3.1% in 2017 and 3.5% in 2018. Global GDP is thought to have grown by 3.0% this year. • NIESR says UK GDP growth is likely to slow in the medium term. Expects UK to grow by 1.7% this year & 1.9% next. • 32 Red updates on FY trading, says ‘record revenue and EBITDA performance [is] in 2016 in line with expectations’ • Later tweets: Markets up today after having had a Trump wobble yesterday. Not sure how to price in ‘Trump Risk’. There’s nothing to go on. • Carpetright & SCS suggest that big ticket items not yet coming under pressure. That may change if real incomes squeezed • Fitbit stalls as disruptor is disrupted. Can’t stand still in that business. Geddit? Anyway, evolution remains real, change is a constant RETAIL NEWS WITH NICK BUBB: • Apple Watch: The Apple Q1 came out in the US last night and Tim Cook, Apple’s CEO, gushed, in his usual fashion, that “We’re thrilled to report that our holiday quarter results generated Apple’s highest quarterly revenue ever, and broke multiple records along the way. We sold more iPhones than ever before and…we are very excited about the products in our pipeline”. It’s incredible that a company as huge as Apple (market cap $636bn) produces quarterly results so thin and there was very little detail in the release, but iPad sales continued to decline sharply and the iPhone accounted for c70% of Apple’s total revenue in the quarter (with sales +5%, year-on-year).
• Charles Dunstone Watch: Talking of phones…the big news today is that Charles Dunstone is stepping down as Chairman of Dixons Carphone to become Executive Chairman of his protégé, the telecoms company Talk Talk (market cap £1.5bn). The chain of events seems to be that the high-profile CEO Dido Harding has decided to move on in May after 7 years in charge to focus on “public service” and although one Tristia Harrison (currently MD, TalkTalk Consumer) will succeed Dido Harding as CEO, the non-exec Chairman Charles felt the need to get more involved. That means that he will have to step down as Chairman of Dixons Carphone…and will be replaced by the highly respected Ian Livingston (who was an excellent FD of Dixons back in the past). Lest anyone think that Charles is bailing out, 3 years after engineering the merger of Dixons and Carphone, he says that “…I know that the company has an • News Flow This Week: As February gets under way, tomorrow is “Groundhog Day” (!) and bring us the latest MPC interest rate announcement and the Bank of England Inflation Report, plus the Amazon Q4 out in the US. |
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