Langton Capital – 2017-06-08 – Brown Forman, Compass, Molson Coors, GDP & other:

Brown Forman, Compass, Molson Coors, GDP & other:

A DAY IN THE LIFE:

My handwriting has evolved to a stage such that it’s pretty much unreadable.

Perhaps it’s a lack of practice but I think it’s at least partly because, when I’m half-way through a word or more, I lose interest in it mentally and just add a squiggle for the last three, four or five letters and move onto the next one.

Thus, if the word is ‘happy’, there aren’t many problems but, if it begins with ‘com’ and then has a wavy line a centimetre or so long, you can take your pick from about 20-odd pages of the Oxford English and hope for the best.

The same with words beginning with any of the common prefixes, ‘de-‘, ‘un-‘, ‘pre-‘ etc. hence writing about ‘previously comments’ and you might just as well be talking about ‘preliminary competition’ or the like as they would look just the same.

Anyway, it’s time for the news but if you would like to come off this email list please simply hit the unsubscribe button above. Similarly, if you are getting it forwarded and would like to go on directly or if you would like to recommend it to one of your colleagues, please just hit the subscribe button and/or suggest that your colleague does too.

PUB, RESTAURANT & DRINK PRODUCERS:

• Compass updates on Special Dividend saying ‘the Share Consolidation is expected to occur on 26 June 2017 and the payment of the Special Dividend is expected to occur on 17 July 2017.’ The Share Consolidation will consolidate every 26 Existing Ordinary Shares of 10 5/8 pence each into 25 New Ordinary Shares of 11 1/20 pence each.

• Molson Coors shares yesterday fell by 8% in afternoon trading after the co said it was facing rising costs. It guided down on EBITDA margin at its investor day. Capex will rise (as will depreciation) with the EBITDA margin now set to rise by less than had been previously expected.

• Jack Daniels maker Brown-Forman reported a sharp fall in Q4 earnings yesterday due to a strong dollar and its sale of the Southern Comfort brand. The group warned of a volatile global economy and rising competition in developed markets but Brown-Forman CEO Paul Varga commented: ‘Given the acceleration we experienced in the second half of the year, the investments we continue to make behind the business, and the expectation of improved contribution from innovation next year, we are forecasting another strong year in fiscal 2018.’

• Hawkes is launching ‘London’s first ever urban cidery’, Hawkes Cidery & Taproom, on Bermondsey Beer Mile near Maltby Street Market. The taproom will serve Hawkes’ flagship Urban Orchard and Ginger Beer products alongside a range of guest UK and world craft ciders. Simon Wright, ‘Chief Hawker’ of Hawkes said: ‘Cider has spent too long in the background, and that needs to end now.  In building London’s first urban cidery we’ve created a place where people can fully immerse themselves in the true potential of cider, sample our world class liquids and learn how to make, taste and enjoy this wonderful drink.’

• Emotive wine labels can compel consumers to spend more on a bottle of wine and enjoy it more, according to the findings of a study by the University of Adelaide.

• Seedlip, the world’s first distilled non-alcoholic spirits brand, is looking to expand into the US and major cities across the world. The brand, which seeks to answer the question of ‘what to drink when you’re not drinking’, has 75 accounts across the US and has taken on two US bar managers as Seedip brand ambassadors.

• Sparkling wine producer Gusbourne intends to raise £4.2m to invest in new vineyards and expand production.

• The BII has announced a new partnership with Butcombe Brewing Company whereby all of its tenants and lessees will benefit from BII membership. Butcombe Brewing Co managing director of UK pubs Jayson Perfect added: “By providing our tenants and lessees with membership of the BII, we can ensure they receive independent professional advice and assistance when they need it. Providing support to our tenants is very important to us and we felt the BII provided an additional valuable service that would enable and help our tenants to build better businesses.”

• Mexico has introduced new measures to combat obesity. Mexican national 33yr-old Juan Pedro Franco recently hit a world record weight of nearly 600kg (1,320lbs). Mexico is suffering an obesity epidemic with diabetes now the country’s number one killer. One in three Mexican adults and children are obese or overweight. New measures include health campaigns, calls to exercise more and measures against fizzy drinks though a move to double the soda tax has so far not succeeded.

• IGD research has reported that convenience supermarkets are expected to grow by nearly 18% by 2022 to an industry value of £47.1bn. The report anticipated the UK supermarket to grow by 15% over the same period, with discounters increasing 49.8% to £30.1bn. Online grocery sales have been forecast to rise by 53.8% to £16bn.

• Sir Philip Green’s retail empire has seen profits drop by 79% last year. The group, which includes Topshop, made a profit of £36.8m in the 12 months up to August 27 2016, down from £172.2m in 2015.

• Over-optimism. US journal NRN reports that it may have been the purchase of Macaroni Grill that led to the demise of Ignite Restaurant Group. It says Ignite, which had been ‘modestly profitable’, before it paid $55m for Mac Grill saying ‘we have a history of driving operational improvements…and we believe we have identified significant opportunities and synergies that we will leverage over the next 12 months and beyond.’ This did not happen. The group wrote off $47m of its purchase cost and the group filed for bankruptcy last week.

• Heineken has signed a 10-year distribution deal with Molson Coors for its Sol brand, which will continue to be brewed in Mexico but will be imported and marketed in the USA by Molson Coors.

TRENDS AND WHATNOT:

• Get the macro right and the micro will follow. Operate in a growing market & many sins will be forgiven. A bad company will defeat a good manager etc. etc.

• Overall, and while we accept that you can rent-a-quote to support any opinion, the above would suggest to us that ‘getting the themes right’ is critically important.

• I mean if you’d focused on vertical, male-led drinking over the last four decades, you may have succeeded but you would have certainly seen your market shrink.

• Indeed, if you look around the room and can’t see the competitor most likely to go bust, then you may be that competitor.

• With bigger themes in mind, Langton produces periodic pieces some of which are linked below:

o Apps; can you ignore them? Here

o Bricks or clicks? Here

o Focus on revenue or margins? Here 

o Inflation, friend or foe? Here

o Spectre of overcapacity – Here

HOLIDAYS, LEISURE TRAVEL & HOTEL

• Tui has seen an ‘enormous’ 1400% rise in holiday sickness claims from UK customers in the past two years and is blacklisting those it believes to have committed fraud. Nick Longman, UK managing director for Tui, which owns Thomson and all-inclusive brand First Choice, said: ‘This is clearly a massive issue for us – it’s a massive issue for the industry. We have seen an enormous 1,400% increase [in claims] in the past two years. It’s not something we could have anticipated. It’s been an absolute explosion.’ The percentage rise in claims at Tui UK is nearly three times that reported by Abta, which has reported a 500% rise in claims among members since 2013, leading other operators including Jet2Holidays and Thomas Cook to back Travel Weekly’s Fight Fake Claims campaign.

• The cost of all-inclusive holidays could grow by 15% for UK holidaymakers if the surge in false holiday sickness claims continues, insurers have warned. Phil Carr, director of sales at ROCK Insurance, said: ‘The travel and tourism market has seen a large increase in all-inclusive holidays in recent years… However, along with this boom in the budget sector has come a growing trend in fraudulent claims against all-inclusive holiday providers, specifically claims for gastric-type illnesses, such as food poisoning, as holidaymakers try to claim back money on their travels.’

• Some operators report seeing few cancellations in following 2017’s terrorist attacks and VisitBritain has pledged to continue promoting the UK in its overseas markets.

• HMRC’s attempt to keep VAT from travel companies under the Travel Operators Margin Scheme (Toms) has been dealt a blow by a First Tier VAT Tribunal. The judges ruled that the travel business Lowcost (now collapsed) had acted as an agent and therefore was not liable to pay Toms worth £2m.

• Jet2holidays has unveiled Jet2Villas, a brand that allows independent agents the ability to offer customers a villa holiday alongside the benefits of a package holiday. Destinations featured include Spain, Portugal, Croatia, Greece, Cyprus and Turkey, with “hundreds” of villas available.

• Per CBRE, Scotland has seen an increase of 30% in golf tourism in the last decade, with the industry now worth £286m per year and supporting 4,700 jobs.

• ‘Staycations’ for summer 2017 are up 23.8% yoy, according to research by travel marketing firm Sojern. The top five UK destination cities this summer are London, Edinburgh, Belfast, Glasgow and Manchester.

• A carpooling app for New York’s yellow taxis is being launched by tech companies Curb and Via.

• Uber is reported in The Times as having avoided a £40m VAT bill on its British cab fares.

OTHER LEISURE:

• Pinterest is now valued at $12.3bn after raising an additional $150m to develop its technology and fund overseas expansion.

FINANCE & MARKETS:

• The OECD has increased its prediction for world growth to 3.5% this year, its best performance since 2011. It expects growth to rise to 3.6% in 2018. The 2017 forecast has been increased from an earlier estimate of 3.3%. An OECD spokesman comments ‘everything is relative. What I would not like us to do is celebrate the fact we’re moving from very bad to mediocre’.

• OECD looking for 1.6% growth in UK in 2017 and 1.0% in 2018. Both numbers unchanged on earlier forecasts.

• The OECD says UK growth will slow in the coming years as Brexit uncertainty hampers growth and real incomes decline. It believes that UK consumers will save less in order to bolster spending.

• Halifax reports UK house prices up by 3.3% in the year to May, down from 3.8% in April. It says prices have not risen at all over the last 3mths. The Halifax comments ‘the fact that the supply of new homes and existing properties available for sale remains low, combined with historically low mortgage rates and a high employment rate, is likely to support house price levels over the coming months.

• RICS says uncertainty over the General Election has contributed to a recent slowdown in house price growth.

• Headhunter Robert Walters has told City AM that the London jobs market remains ‘robust’

• Oil down a buck and a half at $48.40

• Sterling up vs US$ at $1.2949

• Pound also up vs Euro at €1.1507

• UK 10yr gilt yield up 1bp at 1.00%

• World markets: UK mixed yesterday with FTSE100 down & midcap up. This on reduced worries re Labour winning today

• World markets: Europe lower yesterday but US higher. Far East mostly higher in Thursday trade

YESTERDAY’S LATER TWEETS:

• Later tweets: Farm gate milk prices (big input for many products) down a shade in April to around 27pence per litre. Still well above 20p low last June

• Domestics down yesterday on election (& travel & terrorism) jitters. MERL & MAB down. Retailers also lower.

• Sterling 10yr gilt yield now <1% on stagnation concerns. Sure, rates ‘will be lower for longer’ but why is that, huh?

• John Lewis lacklustre in May with early June likewise. JL down c1% LfL year to date. Home & electrical (bigger ticket) sales down

• e-sports could become a big thing. Pepsi is stepping up sponsorship. See email.

• Even dire Diane Abbott performances & resurrected Special Branch enquiries into Corbyn fail to put lacklustre Theresa 20, 30pts clear

• Halifax reports annual house price inflation down to 3.3% in May from 3.8% in June. Property prices down 0.2% since March

RETAIL NEWS WITH NICK BUBB:

• Boohoo: We said yesterday that with all eyes on the Election today this would be a very good day to bury bad news, but none was expected in the scheduled Q1 update today from mighty Boohoo, although good news came early in the form of a 4.35pm pre-release yesterday afternoon (on the back of the news of a £50m share placing, to fund a major warehouse expansion, and an accompanying Director share sale of up to 36.6m shares). And it says something about the extraordinary outlook for the business that all the shares have been snapped up at 220p, a minimal discount to the closing price last night. The new automated super-warehouse will provide £2bn in annual sales capacity (in addition to the £1bn capacity of the extended Burnley warehouse) and the way things are going Boohoo won’t take too long to get there…Helped by the recent acquisitions, Q1 sales more than doubled to £120m, with
“LFL” growth of 78% (Boohoo UK was up by a heady 41%), and management have raised their overall full-year sales growth target yet again, from c50% to c60%. This will push City profit forecasts up (yet again) to £48m/49m for y/e Feb and £61m/62m for the year after (on sales of nearly £600m) providing very solid support for the £2.55bn market cap…

• Quote of the Day: Here’s an insight for the General Election from Damon Runyon (1880-1946), the American journalist and writer: “The race is not always to the swift, nor the battle to the strong, but that’s the way to bet”.

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