Services sector, Punch bid, inflation & other:

A DAY IN THE LIFE:

So, WH Smith’s big marketing push now seems to be to offer 25% off 2017 diaries – these being the produce shortly to go to landfill – and that’s only if you make a purchase of something else, first.

And the company is also offering 25% off printer ink (with an accompanying purchase) but that stuff has a margin of about a million percent and, unless I had to print something of enormous value and my Internet wasn’t working and I couldn’t wait, I wouldn’t be buying printer ink on the High Street any time soon in the first place.

80% off might do the trick. Though even then I’d smell a rat suggesting that the chain’s offers, which spout out as your receipt is being printed, could do with sharpening up.

Anyway, the Mighty Hull City managed somehow to demolish Liverpool over the weekend. I’m presuming the Scousers actually turned up but, after taking a point at Old Trafford midweek, we’re taking points where we can. On to the news:

bLangton has produced a piece of research on the outlook for 2017. It’s free & can be found here 

We look at the macro trends etc. out there & comment on current developments. If you would like to advertise in these documents going forward, please let us know.

PUB, RESTAURANT & DRINKS PRODUCERS:

• Casual Dining Group, operator of c300 restaurants including Café Rouge, Bella Italia & Las Iguanas, has agreed a franchising deal to open a minimum of 20 restaurants across South Africa in the next 5yrs

• Stonegate has agreed to take one freehold and two leasehold pubs in London from Faucet Inn, which will take the former’s portfolio of pubs up o 693 sites. Simon Longbottom, Chief Executive of Stonegate, commented: ‘This portfolio of pubs from Faucet Inn is an excellent bolt-on acquisition for Stonegate and further strengthens our presence in some key trading locations, enhancing our pub estate in Greater London.  We have a strong track record in integrating, investing in and maximising value from the acquisitions which we make and have every confidence that these pubs – and the teams within them – will thrive under Stonegate’s ownership.  I look forward to welcoming our new colleagues into the enlarged group.’

• Kout Food Group has sold its Little Chef portfolio to Euro Garages in a move that could see some Little Chef sites converted into other brands such as Greggs and Starbucks.

• Ruby Tuesday has said that it has remodelled its restaurants in Jacksonville & Charlotte. It says ‘our fresh, new look is representative of the many steps we have recently taken toward improving the guest experience, and we’re thrilled that the atmosphere of our newly remodeled Charlotte area restaurants is now on par with our new menu offerings. We are excited to welcome the Charlotte community into our restaurants to enjoy our new Endless Garden Bar and fresh dining environment.’

• Brexit readjustment. Less ‘education’ needed & more labour. IEA reports university applications have fallen by 5% this year. Says too many are going to university in the first place. Some 58% of graduates are now doing jobs that should not require a degree. FT quotes some leisure retailers as worried that EU staff are going home.

• UK services sector PMI still positive in January though at a slightly slower rate than in December. Markit says ‘the Index remained above 50.0 for the sixth consecutive month in January, indicating a continued recovery in growth following a contraction last July linked to the EU referendum. That said, the Index fell for the first time since September, and signalled the weakest expansion in three months. The rate of growth was solid overall, but slightly weaker than the 20-year long-run survey average. New business also increased for the sixth consecutive month in January.’

• The Markit/CIPS purchasing managers’ index (PMI) recorded its first slowdown in the services sector for four months and price pressures ‘remained intense’. Although the index fell to 54.5 in January from the previous month’s reading of 56.2, this indicates that the sector is still in growth and the UK economy remains on track for a ‘buoyant’ start to 2017.

• Welcome Break is said to be attempting to refinance its £350m of debt alongside talks to sell the entire business.

• Amazon is reported to be looking for physical shop sites in London in order to launch its proposed checkout-free grocery chain later this year

• Gruppo Campari has purchased London Dry Gin brand Bulldog for £46.8m to strengthen its premium position in the on trade and to ‘fully exploit the brand’s growth potential’. Bulldog was launched in America in 2007 by entrepreneur and ex-investment banker Anshuman Vohra. It quickly built a name for its distinctive black studded bottle and quirky botanicals like dragon eye, lotus leaf and poppy.

• Brewhouse & Kitchen has appointed David Maxwell Scott as chairman and Kris Gumbrell is becoming chief executive, while Simon Hayworth is being brought in as the group’s financial controller.

• JD Wetherspoon has come top of the YouGovBrand Index for UK fast food and pubs during 2016, while McDonald’s, Just Eat, and Domino’s Pizza all registered notable improvements.

• Brasserie Bar Co, which will open its 19th Brasserie Blanc unit this year and has 13 White Brasserie pubs, is looking to open restaurants in hotels as part of its expansion strategy.

PUNCH TAVERNS’ BID SITUATION:

• Following high volume in Punch’s shares on Friday, Patron Capital has confirmed that it bought 28.5% of the company at 180p

• Patron says that ‘as described in the Offer Announcement, each of Glenview, Avenue Capital and Warwick Capital Partners, and the Punch Directors who hold or are beneficially entitled to Punch Shares, entered into irrevocable undertakings with Bidco in respect of their entire holdings of Punch Shares immediately prior to the Offer Announcement.’

• It points out ‘the irrevocable undertakings represent in aggregate approximately 52.3 per cent. of the existing ordinary share capital of Punch.’

• Patron/Heineken (Bidco) is allowed to buy shares at anything below its 180p offer price. The ‘dawn raid’ would be more usual in a situation where the existing bidder thought that a rival was about to make an offer.

• This has become less likely at Punch since Emerald said last Wednesday that it would not make an offer. This comment has effectively locked it out for 6mths – unless it can agree an offer with Punch at more than 200p.

• This is not impossible but it is now looking extremely unlikely.

• Punch’s shareholders meet this Friday to vote on the deal.

INFLATIONWATCH:

• Labour said to be becoming scarce. FT reports food industry is ‘scrambling for staff as the supply of EU workers begins to dwindle.’

• FT quotes food operators in the chicken industry as saying some EU workers went home at Christmas & did not come back. James Hook, owner of PD Hook chicken hatcheries, says 80% of his 2,000 staff are eastern European.

• Wages rising among vegetable pickers. Pay higher wages or let food rot in the ground seems to be the choice

• FT quotes D&D restaurants as saying EU workers are put off by uncertainty about their domicile rights

• Whitbread’s Costa Coffee has confirmed price rises averaging 10p across its drinks range.

• Tesco and Morrisons have been rationing lettuces to guard against shortages. This is weather rather than Brexit-related

• BCC has reported more than 50% of SMEs will increase prices this year blaming the weak Pound. If half do, you can be sure others will too. BCC says ‘the depreciation of sterling…has been the main tangible impact that firms have had to grapple with since the EU referendum vote.’ A labour shortage may exacerbate the situation (alongside higher NWM, NLW, business rates etc.) later this year.

• Npower is to put up its electricity prices by 15% next month. Gas prices will rise by 4.8%. It blames world prices

• Npower told to “justify” to its customers why it is rising prices. Truth may be that it is because it can. Labour has said it would cap prices

• Rising Business Rates are said to favour online retailers. High Street operators will have to put up prices if they are to maintain margins. London shops are said to be facing an average 14% increase from April

• Brewers could face a sharp rise in the cost of raw materials as the UK exits the European Union, although the weaker pound is a short-term boost, per MA.

• In addition, CVS has suggested that pubs may have to put the price of beer up by 5p in order to recoup Business Rates increases. CVS says some 17k pubs will be paying around 20% more in business rates from April this year

LEISURE TRAVEL & HOTELS:

• Escorted tours specialist Collette has reported a 27% hike in January revenue with passenger volumes up 30% on the same peaks period last year.

• IAG reported a 4.4% year-on-year increase in Revenue Passenger Kilometres in January and group capacity rose by 5.1%.

OTHER LEISURE:

• Game maker Disruptor Beam has raised $8.5m in Series B funding after the Boston-based company reported a 300% increase in revenues last year.

FINANCE & MARKETS:

• The US added 227k jobs in January, broadly as expected. The rate of unemployment rose by 0.1% to 4.8%. Economists polled by Reuters had been looking for 175k. Average pay was barely changed

• A number of Tory MPs have criticised current Brexit plans. They are mentioning ‘falling off a cliff’ again.

• Brent around $57 per barrel

• Sterling lower at $1.2482 per US$. Down vs Euro at 115.8c.

• UK 10yr gilt yields down a little further at 1.36% (was 1.39%). US 30yr treasury yield up 2bps at 3.11%

• World markets: UK up on Friday with Europe also higher. US markets up with Asia mostly up in Monday trade

TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS:

• Brexit readjustment. Less ‘education’ needed & more labour. IEA reports university applications have fallen by 5% this year

• UK services sector PMI still positive in January though at a slightly slower rate than in December

• Welcome Break is said to be attempting to refinance its £350m of debt alongside talks to sell the entire business.

• Casual Dining Group agrees franchising deal to open minimum of 20 restaurants across South Africa in the next 5yrs

• Amazon is reported to be looking for physical shop sites in London to launch its proposed checkout-free grocery chain later this year

• Following high volume in Punch’s shares on Friday, Patron Capital has confirmed that it bought 28.5% of the company at 180p

• Rival offer now looking extremely unlikely. Punch’s shareholders meet this Friday to vote on the deal.

• Whitbread’s Costa Coffee has confirmed price rises averaging 10p across its drinks range.

• Labour said to be becoming scarce. FT reports food industry is ‘scrambling for staff as the supply of EU workers begins to dwindle.’

• FT quotes D&D restaurants as saying EU workers are put off by uncertainty about their domicile rights

• BCC has reported more than 50% of SMEs will increase prices this year blaming the weak Pound.

• Npower is to put up its electricity prices by 15% next month. Gas prices will rise by 4.8%. It blames world prices

• Brewers could face a sharp rise in the cost of raw materials as the UK exits the European Union, although the weaker pound is a short-term boost, per MA.

• CVS has suggested that pubs may have to put the price of beer up by 5p in order to recoup Business Rates increases

• Later Friday tweets: Milk price sharply higher. Was 20ppl in June & now >26p. Price was >34p in 2013. Good for farmers, Wynnstay etc. Less so for consumers

• Cocoa price down 18% (in $$s) over last 12mths & coffee +53% (in $$s or +77% in Sterling). Time for the sweet-toothed to switch drinks?

• M&B had a bad day yesterday. Incumbents struggling against vibrant new entrants? RTN had an up-day, though

• US earnings revisions now said to have swung negative. UK market still strong on weak Pound

• Bank says headline inflation to peak at 2.7% in Q1 next year. Sounds a bit low. UN says global food prices +16.4% (hence 35% in Sterling)

RETAIL NEWS WITH NICK BUBB:

• Saturday Press: There was more focus on Sports Direct in the Saturday papers, with the Times highlighting that it is also trying to buy the bankrupt American Eastern Outfitters business (the parent of discount chain Bob’s Stores and outdoor retailer Eastern Mountain Sports) and the Daily Mail speculating that Mike Ashley wants French Connection to stock his daughter’s make-up brand Sport FX. The FT commentator Neil Collins began his column by noting that the disastrous Safeway acquisition in 2003/2004 tarnished the late Sir Ken Morrison’s reputation. The Guardian had a big feature on the revival of Waterstones under MD James Daunt, highlighting that he spends a lot of his time on store visits and making sure the store lighting is good. And the stockmarket report in the Telegraph flagged that Dixons Carphone boss Seb James sold 300,000 shares at 315p on Thursday.

• Sunday Press: The big story in the Sunday papers was the Sunday Times scoop that Top Shop had a disastrous Christmas, with LFL sales 11% down, and that the whole of Arcadia was down by 6.5% LFL, with profits expected to be significantly down in y/e August (the embattled Philip Green said “the numbers are wrong” and he is “bored with this continual harassment by the Sunday Times”). The Sunday Times also flagged that Amazon is looking for London sites for its hi-tech Amazon Go convenience store format. The Observer had a double-page spread on the Tesco/Booker deal and the impact it will have on independent retailers (“Fears grow for small stores in a war of convenience”), subject to CMA investigations, noting one industry insider saying that it is not a done deal. The Observer’s review of the week highlighted Sir Ken Morrison’s penchant for plain speaking and its Business Leader
comment flagged that Mike Ashley and Stephen Marks are not a marriage made in heaven. The Mail on Sunday flagged that Tuesday’s Kantar grocery sales figures will show that Aldi has overtaken the Co-op to become the 5th biggest supermarket chain and also noted that Tesco is defending itself against investor lawsuits by saying that its bosses didn’t know that UK profits were being over-stated. Finally, Questor column in the Sunday Telegraph looked at Kingfisher, in the light of rival Bunning’s first UK DIY store opening last Thursday, highlighting that the shares have gone nowhere since Veronique Laury took over as CEO at the end of 2014 and concluding that “investors will find better value – and more sizzle – elsewhere”. 

• Boohoo: After a recent buffeting from Channel 4 about alleged employment practices in its Burnley warehouse, today has brought better news for mighty Boohoo, in the form of the announcement that its $20m Nasty Gal acquisition in the US is going ahead. At least we think that is good news, although it is surprising that nobody else was interested in bidding for the intellectual property assets and customer databases of the bankrupt business and therefore no auction will take place. Subject to final approval by the US Bankruptcy Court, expected on Wednesday, the transaction is expected to complete on 28 February, ie just around the end of Boohoo’s financial year.

• News Flow This Week: The BRC-KPMG Retail Sales survey for January is out overnight and it will be interesting to find out how weak Retail Sales were last month, after the boost to the end of December from the calendar shift. Tomorrow morning also brings the latest monthly Kantar and Nielsen grocery market share data and an AO.com analysts visit to Germany. The Dunelm interims are then on Wednesday and the DFS pre-close update is on Thursday.