Langton Capital – 2018-08-29 – GYM, Richoux, food prices, coffee shops, discounts…
GYM, Richoux, food prices, coffee shops, discounts…
A DAY IN THE LIFE:
Don’t you think that the suggestion that Wonga is about to be put out of business by a flood of mis-selling legal actions put in by claims management firms has a certain irony to it.
I mean ‘vulture devoured by buzzards’ comes to mind and, if Wonga, with its ‘it’s cheap, really’ 1,500%+ loans were to cease to exist, might that not be a good thing?
Some borrowers will be under pressure, yes, but is a usurious payday loan really the answer? If JAM consumers could just postpone a little bit of their consumption, they could get ahead of the curve, rather than always be behind it and save a little cash (albeit at 1%) rather than borrow it at the rates mentioned above.
I know this doesn’t happen in the real world but it’s an aspiration, surely? On to the news:
60 SECONDS – UK Coffee Market — Still Full of Beans?
Where are we now?
• The coffee bean supply glut and lower prices should be good news for coffee operators
• Much of this cost saving is offset by sterling weakness post-Brexit, however
• Add to this today’s news that the price of milk will rise by ‘at least’ 5% in the coming months and there is cause for both optimism and concern in the sector
• In Langton’s view, ultimately, growth trends for the UK coffee market remain favourable
The UK coffee market – where is the roof?
• Allegra is bullish on the market’s prospects and sees coffee shops outnumbering pubs by 2030
• 6,940 branded coffee outlets today. 22,845 total coffee outlets. 52,000 pubs. That certainly suggests room for growth
• The British Coffee Association (BCA) says that the UK’s coffee consumption has soared to 95 million cups a day in 2018, up from 70 million in 2008
• According to the same survey of 2,000 adults in the UK, 65% of coffee is still consumed at home
• Again, plenty of opportunity to grow the amount of instances of consumers buying coffee in bars, restaurants and coffee shops
Market correction averted?
• While higher input costs and increased business rates have proven too much for a number of casual dining operators, coffee shops appear to have fared better
• Landlords are struggling to fill sites, meaning rents might soon become more affordable
• The big 3 (Costa, Starbucks and Caffe Nero) are still at risk from low-cost competitors such as Greggs, McDonald’s, and easyCoffee
• But the attractive economics of the coffee market suggest that differentiated operators in this space should be able to thrive for the foreseeable future
FOOD PRICES ON THE RISE:
• CGA Prestige has reported that ‘weather issues and exchange rates [are] among the factors keeping prices of food and drink at historic highs’
• CGA says foodservice price inflation hit 3.2% in July. It says this is ‘extending an upward trend that has seen prices of many food and drink items hit record highs.’
• Consultancy Group CEBR yesterday warned that food prices would have to rise by at least another 5% in the coming months due to the extreme weather in the UK this year.
• CGA says ‘the figure of 3.2% is more than six times higher than levels measured earlier in 2018.’
• CGA points to ‘lower [farming] yields and smaller sizes of fruit and vegetables’ as a part of the reason that prices have already risen.
• Grain prices are higher & CGA says ‘inflation in the Oils and Fats category of the Index is also steep.’
• Sugar prices are lower. Prestige Purchasing says ‘the extreme summer weather has had a negative impact on prices in many areas. We expect this to ease as we progress through the autumn, but markets remain much more volatile in 2018 than they have been in recent years, so we are not out of choppy waters yet.’
• CGA adds ‘the record highs and lows revealed in this month’s edition of the Index indicate the volatility of foodservice prices at the moment.’
RICHOUX – H1 TRADING UPDATE:
• Richoux. Likely disposal, small fund-raise and sales in line with last year. Losses somewhat lower.
• 18-strong restaurant chain Richoux has updated on trading saying that it expects revenues for H1 to be in line with last year, with lower losses.
• Richoux says ‘in line with the Group’s guidance at the time of the final results in May 2018 and a number of other companies in the sector, the Group has seen continued pressure on trading during the period, with further impact from temporary restaurant closures due to conversion or refurbishment.’
• Richoux comments ‘in view of these continued headwinds, the Group has remained focused on cost reduction and, where necessary, refinement of both its brand and property portfolio.’
• Richoux is likely to sell at least one leased site. It says ‘the group is currently in advanced negotiations regarding a potential lease sale for one of the Group’s restaurant locations in Central London. While there can be no certainty at this stage that the sale will proceed, nor as to the final terms, it is expected that the sale would generate net proceeds of approximately £1.35 million. The Group will update shareholders in due course, as appropriate.’
• Richoux says ‘in view of the Group’s current cash position, as highlighted earlier in the year, the Group intends to raise approximately £1.1 million by way of a subscription at a price of 6 pence per ordinary share.’
PUBS & RESTAURANTS:
• Discounts still prevalent with Prezzo and Bella Italia offering 40% and 30% off mains respectively. M&B brands Harvester and Toby are offering kids’ meals for a quid and Pizza Express is 25% off.
• The UK based alcoholic drinks group, Diageo, has been linked to at least three leading cannabis producers as it considers marijuana-infused drinks.
• The pub group New World Trading Company has secured a £5.6m investment from NatWest, the MCA has reported. The group have opened seven sites since its last funding round in January 2017.
• Nestle and Starbucks have concluded their licensing deal for the Swiss food giant to market the coffee maker’s packaged coffees and teas around the world. The deal is believed to be valued around $7.15bn.
• UKHospitality has welcomed the announcement of the Food Tourism Scotland Action Plan, with the group’s Executive Director of Scotland, Willie Macleod stating: ‘Scotland’s fantastic food and drink sector is one of its best tourism assets and is enthusiastically supported by many of our hospitality businesses including some of the most exciting drinking and dining venues and concepts in the UK. Hospitality businesses in Scotland seek to use fresh, local produce wherever possible and enjoy close and long-lasting relationships with their suppliers’.
• Yum China, which operates the Pizza Hut, Taco Bell and KFC fast-food chains in Asia’s largest economy, has rejected a $17bn buyout offer from a consortium of private equity players led by Hillhouse Capital. The proposed offer marked a 30% premium over Yum China’s closing stock price on Monday.
• The Scottish Beer & Pub Association says the Scottish government’s new food and drink tourism plan is ‘welcome news for our industry’. SBPA chief Brigid Simmonds added: ‘Pubs have faced a number of challenges over the last decade and additional support, particularly in helping recruit and retain pub chefs will be hugely important. This is only more timely with Brexit providing challenges in that area specifically.’
Retail prices have gone up for the first time in more than five years, with overall shop prices up 0.1% in August as a result of the summer heatwave, according to figures from the British Retail Consortium (BRC). The figures from the BRC-Neilsen shop price index were released two days after the Centre for Economics and Business Research (CEBR) predicted that household food bills are set to rise 5%, equating to an estimated £7.15 a month, as a result of the UK’s extreme weather in 2018.
• Sonnet 43 Brew House has exported its first beer to Shanghai after attracting attention during the Northern Powerhouse UKTI trade mission to an exhibition in Shanghai last November.
• House of Fraser has criticised ‘greedy landlords’ for resisting attempts to cut rents on the chain’s 59 outlets. The retailer, now owned by Mike Ashley, has warned landlords that ‘time is running out’ to keep stores open.
• US-based lunch delivery platform Foodsby has secured $13.5m in Series B funding, bringing its total funding up to $21m and providing cash to invest in talent and market expansion. Ben Cattoor, Foodsby CEO, said: ‘We have established a successful model for new market entry with a tried and true combination of talent and technology. We look forward to building on our early successes and learnings to deliver continued growth for our investors and our team.’
• The FT reports that Filipino group Jollibee is expanding in the US. This year it raised its stake in Colorado-based Smashburger to 85%.
HOLIDAYS & LEISURE TRAVEL
• Thomas Cook’s CEO, Peter Fankhauser, said it will take more than a week to establish how a British couple died while on holiday in Egypt but has pledged to ‘get to the bottom’ of the case. Experts are testing food, water and air conditioning and the results will be available within ten days. In the meantime Thomas Cook has evacuated 301 holidaymakers from the Red Sea hotel as a ‘precautionary measure’.
• Hotstats data shows hotel chains across the UK enjoyed increases in revenues and profits in July, with London leading the way. A 5.6% increase in total revenue per available room (trevpar) helped UK chain hotels to hit a historic high, while revenue per available room (revpar) was up 7.9% to £114.34, exceeding the previous high of £107.14 achieved in September last year.
• HotStats reports US hotel RevPAR up 1.1% yoy but profit per room down 2.2% to $82.23 in August. The decline in profit was attributed to declining non-room revenues and rising costs.
• Toyota will invest $500m in Uber in a partnership deal which aims to bring an on-demand autonomous ride-hailing service to market.
• Gym Group reports H1 numbers saying it has seen a ‘strong first half with substantial growth across all key metrics’
• Gym Group reports H1 revenue of £58.3m (+36.1%) with adjusted EBITDA of £17.5m (up 28.0%) and adjusted PBT of £7.0m, up from £6.5m.
• GYM reports adjusted EPS of 4,2p (up 7.8%) with a H1 dividend of 0.35% (up 16.7% on last year).
• GYM says it opened 6 gyms in H1 and bought 13 units from easyGym. Pro-forma members now total 720k (up from 508k).
• GYM reports its CEO succession has been completed ‘with Richard Darwin to take over as CEO in September 2018; John Treharne to remain in the business and on the Board as founder director; CFO search making good progress, expect to make an appointment by end of September.’
• Current CEO John Treharne comments ‘this has been another excellent period for The Gym Group with the hard work of 2017 beginning to come to fruition. We now have systems and technology in place to support a business of considerable size and scale with our ERP system safely landed.’
• Mr Treharne comments ‘since the end of the half year we have expanded again with the acquisition of 13 easyGyms taking us close to 150 sites. In addition, we remain well set to achieve our target range of 15 to 20 organic openings for 2018.’ The outgoing CEO concludes ‘in n my last set of results as CEO, I am confident that the business is in as strong a position as ever to execute its strategy and deliver further accelerated profitable growth. After a strong first half we are on track to meet market expectations for the full year and look forward to further progress in the second half of the year.’
• Aston Martin will list on the London Stock Exchange this autumn seeking a valuation of £5bn. Interim results are to released on Wednesday with the company announcing the sale of £1bn shares. Aston Martin is owned by Italian and Kuwaiti shareholders.
FINANCE & ECONOMICS:
• Sterling weaker at $1.2871 and €1.1004.
• Oil down a shade at $75.88
• UK 10yr gilt yield up sharply at 1.45% (was 1.27% yesterday).
• World markets: UK up yesterday but Europe mixed. US higher and Far East up in Wednesday trade.
• Brexit etc.
o Theresa May unable to escape Brexit despite travelling over 6,000 miles to southern Africa.
o Mrs May says Philip Hammond is using out of date figures when he says that a no-deal Brexit would cost the UK over 10% of its wealth.
o Mrs May says a no-deal Brexit would ‘not be the end of the world’.
o Others saying this is a negotiating tactic.
o FT reports Japanese business concerned ‘by the double talk from the British government over Brexit.’ Investment may be under threat in the absence of certainty.
PRIOR DAYS LATER TWEETS:
• Meat & two veg to rise ‘at least’ 5% in the coming months after UK’s extreme weather. Milk & dairy products too
• Expectations for RTN H1 set low. Est. 4% LfL drop but likely reference to green shoots. Current trading tough. July awful, August less bad?
• BBPA highlights ‘many scientific studies that support view that moderate alcohol consumption can form part of healthy lifestyle.’
• Homebase in dire straits? Landlords may be picking the wrong corpse to have a fight over?
• TCG to continue investigating deaths in Egypt. Natural causes looking like a pretty odd conclusion from hotel to date
• Philip Hammond criticised for telling it like he sees it. Labour under pressure to back a second referendum
• Tesco cutting Tetley Tea in renewed move to own-label. Some other food manufacturers having a wobble…
• Toyota to bung Uber (recently said it’s more into bikes than cars) $500m. Nice gig if you can get it.
• Ex Tesco boss Terry Leahy opines ‘Amazon will pass Apple as the biggest world business’ as it has ‘reinvented shopping’
START THE DAY WITH A SONG:
Yesterday’s song was Dan le Sac vs. Scroobius Pip’s cheerily titled ‘Thou Shalt Always Kill’. Today, who sang:
Once I had a love and it was divine,
Soon found out I was losing my mind
It seemed like the real thing but I was so blind
RETAIL NEWS WITH NICK BUBB:
WH Smith: Ahead of tomorrow’s pre-close trading update we have been musing about how the recent heatwave affected the WH Smith Travel business over the key summer period, since the last update on June 6th. After all, the weather was so good that nobody needed to jump in a plane to go to the Med and it was too good to want to spend time on the High Street instead. But it was notable that the company carried on with its share buyback programme throughout the period and the recent Heathrow passenger traffic figures for July were fine (up 3.7%). So all the indications are that WH Smith has yet again delivered the goods and we confidently predict that tomorrow’s statement will be almost exactly the same as the one at this time last year: “WH Smith expects the outcome for the year to 31 August 2018 to be in line with expectations”.
Today’s Press and News: The main stories today are that Mike Ashley has had the nerve to blame “greedy” landlords for failing to agree new deals on House of Fraser stores and that the Primark flagship store in Belfast has been destroyed by fire, whilst the Times continues its week-long series of reports on the rise of Amazon, focusing on its warehouse operations, with articles on a fulfilment centre in Texas (“Boxing clever holds key to wish fulfilment”) and the push on Amazon Prime (“Amazon Prime brings big spenders streaming in”).
Mike Ashley Watch: Mike Ashley’s stewardship of Newcastle FC has not endeared him to many of the fans up there in the North-East and we were amused to read a couple of stories in the “Mr Deedes” gossip column in the Daily Mail last week about the way some of them are fighting back. The first story was that Newcastle football fans are doing their best to irritate Mike Ashley by ordering and reserving thousands of pounds of goods on the Sports Direct website and then abandoning their baskets…And the second story was that five mischievous Geordies have set up a website called SportsRedirect.com that enables customers to look at the same brands as on the Sports Direct website but to buy them from rivals like Decathlon and DW Sports instead…
News Flow This Week: Things are quiet this week, after the Bank Holiday weekend, but WH Smith will be issuing a year-end trading update tomorrow and the Homebase CVA creditors vote is on Friday, whilst the monthly GFK Consumer Confidence index will be published first thing on Friday.