Langton Capital – 2017-08-30 – Gym Group, credit, trade, craft beers, niche products etc.:
Gym Group, credit, trade, craft beers, niche products etc.:
A DAY IN THE LIFE:
So, after a fortnight in Wales, the Lake District and Scotland, we can report that, though the UK has some beautiful scenery, villages etc. and more history than you can shake a stick at, you needn’t necessarily pack your sunglasses if you’re straying west of the Pennines.
And the swimming trunks were an illustration of the triumph of hope over experience and any talk of a drought should be met with the derision it deserves because, whilst London was basking in temperatures of approaching 30 degrees over the long weekend, it was cold and wet in the Highlands and, with the amount of rain that was falling, I can only say it’s a good thing that Glasgow is on a slope.
Anyway, we’re back now. And, though it always looks as though it’s a long drag into Christmas, time will undoubtedly fly. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Private equity investor ECI has suggested that investing in fast growing companies could be the way to ‘banish Brexit blues’. This may be a bit circular as investing in good companies is often a good idea. ECI reports that ‘company culture is viewed as critical to success and increase in productivity’. However, it also says ‘70% of growth consumer companies say they fear an economic downturn, higher than any other sector’.
• Consumer companies expect easy credit conditions to continue reports ECI. The PE house says ‘almost seven in ten consumer companies believe accessing finance over the next 12 months will be ‘easy’ or ‘very easy’, a significant improvement on last year (54%)’. This brings the fast growing companies into line with the national average.
• What do fast growing companies want? ECI reports ‘access to the Single Market is still a priority for 73% of consumer companies down from 86% in 2016.’ The companies fear a slowdown. ECI reports ‘consumer companies overwhelmingly (at 70%) fear an economic downturn, which is listed as a bigger concern than a bad Brexit deal or a rise in borrowing costs.’ A look at the stats suggests that we may not get the former but are likely to see the latter.
• Marketing Week reports that Carlsberg is using its roots as the ‘first craft brewery’ to drive success. It is trying to appeal to niche beer drinkers without having to give up scale economies. Marketing Week suggests this is because ‘like many beer giants, Carlsberg is facing some tough challenges. Consumers are moving away from lager in favour of other alcoholic drinks, and mass-produced beer has been steadily overlooked for ‘craft’ drinks produced in small breweries.’ Carlsberg recently acquired Hackney-based London Fields Brewery.
• BrewDog has announced that it will give staff and charities 20% of its annual profits.
• Rum sales are anticipated to exceed £1bn this year if current consumption trends continue, the Wine & Spirit Trade Association. In the past five years, rum sales have increased 15% in volume and 32% in value.
• Carlsberg UK has announced plans to expand its San Miguel UK portfolio with new San Miguel Gluten Free this September.
• Innocent Drinks is to focus on ‘health and wellness’ as the group rebrands, reports Marketing Week. The group has seen sales grow by 23% in 2016 to £305.5m, with profit climbing to £8.5m from a loss of £700,000 in 2015.
• Domino’s and Ford have joined forces in order to research self-driving technology for pizza delivery.
• Catering equipment supplier Nisbets’ has found that 53% of caterers still have no idea of what impact Brexit will have on business. As many as 36% of catering businesses indicated that the increase in raw ingredient prices would ultimately have to be passed onto customers.
• Visa has enabled payments on Fitbit’s first smartwatches in the US, through Fitbit Pay.
• UK exports of beef, lamb and pork have increased 18% to £582m, during H1 2017, according to HMRC data.
• The Guardian reports that winemakers in France are predicting their smallest harvest since 1945, just 37.2m hectolitres, due to tough weather conditions earlier in the year. This represents an 18% decrease on last year’s volumes which was also well below average. Jérôme Despey, head of a governmental wine advisory board, predicted a 40% drop in output from Bordeaux – the largest wine region in France.
• China’s wine imports for the first seven months of the year were up, with volume increasing 15.49% yoy to 407.37m litres and value increasing 7.65% to $1.475bn. Major holidays in the second half of the year are expected to push sales up even further.
• The Times has pointed out that ASOS is only £100m short of overhauling M&S in terms of sales. ASOS’s market capitalisation is still £200m shy of that of M&S (which admittedly sells a lot more than just clothes).
• Starbucks postpones the closure of its poorly trading shopping centre sites pending the outcome of a hearing set for October on an injunction requested by the Simon Property Group. The Simon Property Group own the shopping centres in which the 78 stores are located. The sites were acquired by Starbucks when the company bought Teavana for $620m five years ago.
• British grocer share prices fell in response to Amazon slashing prices at Whole Foods. Tesco and Sainsbury’s share prices fell over 1.8%, with Morrison’s the worst affected down 3.3%.
• Brexit risks food shortages in the UK if a customs process cannot get sorted out, the British Retail Consortium has reported. The BRC warned of possible disruption and increased additional costs would ‘affect availability on the shelves, increase waste and push prices up’.
• Companies will have to show the relationship between the pay of its most highly paid and most lowly paid member of staff under new proposals being put forward by the government. The measure has the look of populism about it at a time when the economy is slowing and Brexit negotiations look troublesome.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• The Balearics have remained the most popular summer holiday destination for Tui Travel. The group carried over 195,000 passengers to 117 different locations over this summer.
• New border checks at European airports have been described by aviation groups as ‘chaotic’ in a letter written to the EU. IATA and four other organisations say the new checks have led to ‘significant delays’ and that it now takes an hour longer to process passengers on a typical flight. IATA regional vice president, Rafael Schvartzman, said ‘The number of delayed flights due to border control issues is up 97 per cent – this is totally unacceptable.’
• Consumer group Which? Travel has criticised car rental companies for unclear terms and conditions, surprise fees and penalties. ‘Concerning’ terms on deposits, late vehicle returns and collection, refuelling and admin fees can see consumers experiencing hundreds of pounds of additional charges. The investigation included more than 40 contracts from 18 providers in the UK and abroad. A Which? Survey found that only 14% of consumers read through their rental contracts in detail.
• The FT reports that the French tourism industry is recovering after the attacks in Paris in November 2015. It says international visitor numbers rose by 10.4% in Q2 this year versus the same period in 2016. In 2016, France slipped to number 6 in the league table for international visitor spend behind the US, the UK, China & Spain.
• Gym Group reports H1 numbers saying it has seen ‘continued growth in membership, revenue and profit as 100th gym milestone approaches’
• Gym Group reports revenue of £42.8m (+18.8%) with adjusted EBITDA of £13.7m (+19.1%). Adjusted PBT is £6.5m vs £4.6m with EPS of 3.9p. The H1 dividend is +20% at 0.3p.
• Gym Group opened six new gyms in H1, increasing the total estate to 95. It says ‘membership numbers increased by 19.8% to 508,000 (H1 2016: 424,000)’. CEO John Treharne comments ‘we have delivered another period of strong growth in membership, revenue and profit. We have continued to expand our footprint across the UK, opening six new gyms in the period, two in H2 to date, with several more currently in fit out.’
• Gym Group concludes ‘our strategy remains the same: to take advantage of the demand for high quality, low cost, 24/7 gyms whilst continuing to innovate through the use of technology and digital marketing. As usual, our openings programme is second half weighted and we anticipate achieving the top end of our guidance range of 15 to 20 site openings in 2017.’
• Hollywood Bowl has partnered with Bandai Namco to host the UK’s first virtual reality gaming suite at its O2 venue. Steve Burns, CEO of Hollywood Bowl Group, said ‘VR Zone Portal London at The O2 is a launchpad for bringing the fascinating world of virtual reality gaming to people on a larger and more accessible scale.’
FINANCE & MARKETS:
• House price growth fell to 2.1% in August from 2.9% in July reports Nationwide. Growth has slipped below inflation suggesting that house prices are now declining in real terms. Property prices fell 0.1% in the month of August itself.
• The oil price fell yesterday despite Louisiana plant shut downs and North Korea fears, both of which would usually be associated with price rises
• Oil $51.79 vs $52.05 yesterday morning
• Sterling down to $1.293 vs US dollar
• Pound at new 8yr lows vs Euro at €1.0798
• UK 10yr gilt yield down 7bps at 1.01%.
• World markets: UK down yesterday – though off its lows – with Europe also down. US higher & Asia up in Wednesday trade
o EU CEO Jean-Claude Juncker, not the leavers’ favourite person, has said the UK still has a ‘huge numbers of questions’ to answer.
o Michel Barnier has urged David Davis to ‘start negotiating seriously’. He says there can be no discussion over trade adding ‘first of all we settle the past before we look forward to the future.’
YESTERDAY’S LATER TWEETS:
• Steep price cuts by Amazon show that few business models are immune from disruption. UK supermarket share prices fall
• Five sixths of BHS stores still empty. And, if they didn’t exist, would you build them today at all? Answer a resounding no.
• Empty BHS stores. No rent cuts as it sets a precedent & risks re ‘visionary’ solutions (e.g. experiential leisure hubs) too great?
• RTN numbers tomorrow. Comments on turn around keenly awaited. Will likely take longer & require deeper cuts than previously expected?
• CBI & BCC say margins falling for service companies. UK services PMI next Tues, which is sales only, should be viewed in this light?
RETAIL NEWS WITH NICK BUBB:
• Dunelm: When we saw the announcement on the screen this morning “Directorate Change”, the thought that CEO John Browett is “moving along” came instantly to mind and, lo and behold, we are told that “John Browett will be stepping down as Chief Executive for personal reasons, with immediate effect. Dunelm has made good progress over the last two years during John’s tenure, however the next phase of growth requires different leadership”. How far he jumped and how far he was pushed is unclear, but Dunelm was always an odd choice after his time at Dixons and Apple etc and he never seems to stay in jobs for that long. What the next chapter of his career will be remains to be seen (surely not back to Dixons…), but in the meantime shareholders will be reassured to hear that, thanks to the autumnal weather, “trading in the first two months of the new financial year has started positively, with
• WH Smith: It would have been a big surprise if today’s pre-close update from WH Smith for y/e August was not in line with expectations and indeed the overall message is that “WH Smith expects the outcome for the year to 31 August 2017 to be in line with expectations”. There are no figures, but we are told that “Our Travel business continues to deliver a strong performance with good sales across all of our channels and our new store opening programme both in the UK and internationally is in line with our plans” and that “Our High Street business continues to perform in line with expectations. Cost savings and margin improvements have been delivered in line with our profit focused strategy”. It was ever thus…
• The Grocer Watch: We didn’t have time yesterday (given early morning IT/wifi problems) to bring you the outcome of the widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine…And the winner was the guest retailer Aldi, which came in 15.2% cheaper than 2nd placed Asda, a tad cheaper than the difference when Aldi last appeared back in May. The Asda basket of £51.32 was £1.08 cheaper than 3rd placed Tesco and Morrisons was 4th on £53.13, with Sainsbury just behind on £53.81. Poor old Waitrose was a long way off the pace, yet again, on £60.34 (28% behind Aldi). The separate regular Grocer “Mystery Shopper” weekly survey on Store Service and Availability was won by Asda, as its 50,000 sq ft store in Portlethen, Aberdeen came top, scoring 81 out of 100. The Aldi store in Chester came last in the survey, with a score of 63. The Grocer also had a
• Dixons Carphone: We flagged yesterday that the notoriously well-informed Mark Kleinman of Sky News has reported that there is “unrest” amongst leading investors in Dixons Carphone after last week’s profit warning, with some calling for “accelerated CEO succession planning”. Management credibility has been badly damaged and it is certainly unfortunate that the estimable Seb James allowed the recent speculation to persist that he was interested in the vacant ITV CEO role, as that opened him up to the accusation that he has had his “eye off the ball”. But in these situations it is usually the FD, rather than the CEO, who takes the blame for not being on top of the figures and we think that it is surprising that more fingers have not been pointed at the embattled Humphrey Singer for failing to clearly explain the nature of the frothy “one-offs” in last year’s results…
• News Flow This Week: After the Bank Holiday on Monday, things are relatively quiet this week, but the McColl’s Q3 update is out tomorrow, shortly after the monthly GFK Consumer Confidence survey is published. And the latest FTSE Quarterly index review is announced this evening.