Langton Capital – 2017-02-07 – Punch bid developments, retail sales, costs & other:
Punch bid developments, retail sales, costs & other:A DAY IN THE LIFE: I’ve not really gone in for dad-dancing. I mean there are limits to the extent to which I’m willing to humiliate myself. Or those around me for that matter but I exhibit similar tendencies in other directions such when I look at my new tablet, of which I am very proud, only to be told that I’ve got 57 Facebook notifications. Now I hesitate to ask what that means but I simply don’t know. All I’m sure of is that having that little flashing blue F with a 57 next to it in a red circle is vaguely annoying and I suspect that, if I check, it will only tell me that somebody I don’t know has done something that I don’t care about. Anyway, it’s chucking it down here and the Internet’s playing up. It’s probably drowning in a puddle somewhere so, whilst we still can, let’s move on to the news: LANGTON RESEARCH: • Langton 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. 60 SECONDS. OVER-FOCUSING ON SALES GROWTH? MARGINS MATTER… What gets measured, gets done. Sales & margin need managing together: • Getting the balance right: • There’s no single killer measure, don’t behave as though there is • LfL sales growth implies increase at the unit level • Whilst total sales growth is what turns up in terms of cash • And margin matters as giving away a tenner for nine quid has always been easy • Ultimately, ultimately, it’s free cash flow per share that drives value LfL sales growth; the Holy Grail? • This is the area of most focus. And it’s nice to be in growth at the unit level • But it’s not sufficient to live happily ever after. Nor is it even necessarily necessary… • Because total sales (x margin – expenses) matter re cash flow • Co A could have positive LfLs but be shutting shops & have declining margins • Co B meanwhile could have minus 1% LfLs but be adding stores & widening margins • But slavishly jacking margins can also end in disaster. Ask Restaurant Group LfL sales, the major weaknesses: • LfL sales ignore margins (discounting, delivery, marketing etc.) as well as capex & store closures • They drive certain actions. Sales managers may beggar their neighbours (in the firm) to hit target • What gets measured, gets done. Paying footballers to get corners will lead to more corners. • But corners don’t win matches. Goals are what matter So what? • Langton has banned the word ‘holistic’. So let’s just say you need a rounded approach • We’ve banned the phrase ‘balanced scorecard’ too • But if it was your business, yes, yours, what would you look for? • You’d look for cash. Free cash. Geld after costs. Everything else is incidental. • We go into more depth on this and other topics in our review, which is found here PUNCH TAVERNS’ BID SITUATION: • Shares in Punch Taverns were changing hands yesterday at above the Heineken / Patron offer price of 180p • Trade took place at 180.1p and 180.25p. • The (current) bidders for Punch Taverns are only permitted to pay 180p • Begs obvious question, who would buy Punch shares if they thought they would have to wait 3mths to get back less than they paid for them? • Odds on a rival bid must still be said to be slim. But perhaps not as slim as they were 24hrs ago. • Punch shareholders meet Friday to approve the Heineken deal. • If a rival move were to be made, one would expect it to happen before then. • Time value of money & payment for risk of further delay should see Punch’s shares trading at a c2% to 3% discount. • That is around 175p. The fact is, they are not. PUB, RESTAURANT & DRINKS PRODUCERS: • Wagamama will make its debut in Spain this April with a site in Madrid, having signed a franchise agreement last year with Grupo Vips. • JD Wetherspoon (JDW) has been ranked the highest on a YouGov BrandIndex poll as the best operator of pubs or fast-food chains in the UK. • Retail operational costs rose by 3.9% year-on-year in the fourth quarter four of 2016 — the fastest rate in two years, according to Retail Economics. The study found that retail labour costs, as a result of the National Living Wage (NLW), was the biggest area of increased cost, up 4.9% compared with Q4 in 2015. Richard Lim, chief executive, retail economics, said: ‘A toxic mix of rising operational costs and more expensive imports, driven by the collapse in sterling, has pushed up the cost of retailers doing business at the fastest rate in two years.’ • Retail sales growth slowed in Jan per BRC. Says sales +0.1% only after +1.7% in December (which is admittedly a much bigger month). • BRC says sales slowdown driven by lower non-food sales. Says ‘looking across the last three months, we’ve seen the slowest growth of the festive period since 2009.’ It adds ‘with the signs pointing to upward pressures on shop prices given rising import costs, all eyes will be on the impact of inflation on consumer spending.’ • BRC says online shopping +8.6% in the last quarter versus the same period last year. • US data. The National Restaurant Association’s most recent Restaurant Performance Index suggests that weak same-store sales and traffic did not affect US restaurant operators’ optimism in December. The association said that its index, a monthly measure of the state of the industry, finished the year at 100.5 compared to 100.7 in November, with anything above 100 signalling growth. LEISURE TRAVEL & HOTELS: • AccorHotels is to take over luxury holiday accommodation rental firm Travel Keys, which represents more than 5,000 villas in 100 destinations across the Caribbean, Mexico, the US, Europe, Asia and Africa. OTHER LEISURE: • US toymaker Hasbro’s shares rose 17% to an all-time high on the back of an 11% rise in global sales over the festive period. • President Trump has failed to reinstate a controversial travel ban after a US federals court rejected his administration’s appeal. The move means visa holders from Iraq, Syria, Libya, Iran, Somalia, Sudan and Yemen will be allowed to enter the US until the full case has been heard. FINANCE & MARKETS: • Schaeuble has told Tagesspiegel newspaper that the euro’s exchange rate is too low for Germany and has inflated the nation’s export surplus. • PM Theresa May has warned MPs not to try to amend her proposed Brexit legislation. She says ‘our European partners now want to get on with the negotiations, so do I, and so does this house.’ She adds ‘the message is clear to all, this house has spoken and now is not the time to obstruct the democratically expressed wishes of the British people. It is time to get on with leaving the European Union.’ • Ipsos Mori poll shows 58% of business respondents believe that their firms had suffered a negative reaction since 23 June Brexit vote. Mori says ‘unfortunately, it looks like business in this country is already feeling the pain of the economic upheaval of leaving the EU.’ It adds ‘according to respondents there is no sign that this is likely to ease this year, with two thirds saying they thought their business situation would get worse in the next 12 months.’ • PwC says 23 June decision will exert ‘some medium term drag’ on the UK economy. • Telegraph reports, on the other hand, quotes PwC as saying the UK will grow faster than other countries for the next 3 decades. Ironically, this is due to the UK having a younger population, largely because of immigration from elsewhere in the EU. • PwC says UK is ‘relatively flexible economy by European standards’. Will have to dismantle more safeguards if it is to swash its buckle on the world stage as a stand-alone country. • Brent a shade higher overnight at $55.90 per barrel • Sterling lower at $1.2463. Trading a little higher at 116.4 per Euro. • UK 10yr gilt yield drops to 1.31% (was 1.36% yesterday) on fears of slower growth. US 30yr bonds 3.05% (was 3.11%). • UK car registrations up in January by 2.9% on same month last year. Revised December figure shows 1.1% fall • World markets: UK down yesterday & Europe also lower. US down and Asian markets also lower in Tuesday trade TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS: • What gets measured, gets done. Are we over-focusing on sales? And LfL sales to boot? What about margins? Unit growth? See email. • Shares in Punch Taverns were changing hands yesterday at above the Heineken / Patron offer price of 180p • Current bidders for Punch Taverns are only permitted to pay 180p. Shares changing hands above that level. • Why would investors buy Punch shares if they thought they would have to wait 3mths to get back less than they paid for them? • Odds on a rival Punch bid must still be said to be slim. But perhaps not as slim as they were 24hrs ago. See email • JD Wetherspoon (JDW) ranked the highest on YouGov BrandIndex poll as the best operator of pubs or fast-food chains in UK • Retail operational costs rose by 3.9% year-on-year in the fourth quarter four of 2016 — the fastest rate in 2yrs per Retail Economics • Retail sales growth slowed in Jan per BRC. Says sales +0.1% only after +1.7% in December (which is admittedly a much bigger month). • AccorHotels is to take over luxury holiday accommodation rental firm Travel Keys, which has >5k villas in 100 destinations • Schaeuble has told Tagesspiegel newspaper that the euro’s exchange rate is too low for Germany • PM Theresa May has warned MPs not to try to amend her proposed Brexit legislation • Ipsos Mori poll shows 58% of business respondents believe that their firms had suffered a negative reaction since 23 June Brexit vote • PwC says 23 June decision will exert ‘some medium term drag’ on the UK economy. • UK ‘relatively flexible economy by European standards’. May have to dismantle more safeguards if it is to swash its buckle on world stage • Later Monday tweets: Gold rallied but only modestly. Gold/oil (no. barrels/ounce) is little changed at 21.5 (was 21.0 in Dec but as high as 34.0 in Q1 2016 • Top Shop has ‘disastrous’ Christmas w. LfL sales down 11%. Couldn’t happen to a nicer person implies Sunday Times • Aldi set to knock Co-op off no5 slot in UK grocery market. Changed times. • Casual Dining Group in S Africa. Brands OK but maybe not strongest in UK. Perhaps shows the way for other operators. • Punch bid effectively over? That would be the betting, yes. Hard to see anyone taking on an agreed bidder with 28.5% in the bag • Npower 15%, Costa Coffee 5%, NLW, NMW > inflation. So how does B of England get to a 2.7% inflation forecast by Dec? By Easter, maybe. RETAIL NEWS WITH NICK BUBB:
• BRC Retail Sales for December (4 weeks to Jan 28th): We flagged yesterday that it would be interesting to find out how weak Retail Sales were last month, after the boost to the end of December from the calendar shift and we are not too surprised to see in today’s survey that overall LFL sales were down by 0.6% (up 0.1% gross). Despite the survey headline “Food sales remain solid whilst Non-Food growth flags”, the extra Bank Holiday in the first week in January clearly worked against the supermarkets and overall Food LFL sales in the month were slightly down, but the IGD contributor notes “the rest of the month was positive, helped along by a small amount of inflation” (so we look forward to seeing what Kantar/Nielsen grocery market share figures for the same period look like at 8am today). But Non-Food must have been c1% down LFL overall in January, despite a calendar timing boost to • New Car Sales Watch: January may have been a mixed month for “big ticket “ retailers, but, as a comment on the state of discretionary spending, it is worth noting that the January new car sales figures from the SMMT yesterday showed some decent growth overall, with registrations up by 2.9% to c175,000 cars. And, interestingly, this was driven by private buyers, rather than fleet demand: fleet demand was just over 1% up at c91,000 cars, but private demand was 5% up at c77,00 cars. Mike Hawes, SMMT Chief Executive, said “2017 got off to a good start in the new car market, buoyed by a great range of new models which are safer and cleaner than ever before”. The rest of the year is expected to be pretty flat, but the big UK players should be in good heart when they report their upcoming finals eg Pendragon on Feb 14th and Lookers on March 9th. • AO World: This morning sees AO World (aka AO.com) take a bunch of analysts, investors and a few journos to Germany for a Capital Markets Day. As usual, on these occasions, “no new material information or update on trading will be provided”, but the group will be taken around the new distribution centre in Bergheim (which is a few miles west of Cologne) and there will be a presentation focusing on the development of the business model in Europe. Unusually, the event will be hosted by the Group’s COO, Steve Caunce, and CFO, Mark Higgins, and there is no mention of the ubiquitous CEO, John Roberts… |
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