Langton Capital – 2019-08-22 – PREMIUM – Rank, Playtech, GNK, Sportech, real life etc.:
Rank, Playtech, GNK, Sportech, real life etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Having suffered through an internet outage yesterday morning, it’s sobering to realise just how little you can get done in an office these days without being online.
I mean I managed to water the plants, empty the fridge and locate (though not actually turn on) the Hoover – but that was about it because everything else was online and tethering to my mobile phone ate up about a quarter of my month’s data in an hour.
Unfortunately, I couldn’t remember the password to log onto the cloud WIFI that’s offered by our provider and found out too late (because the password was stored on the cloud).
Still, all’s well that ends well and, now that we’re back online, I’ve got the emergency password stowed away and all should be good.
THINGS YOU DON’T WANT TO HEAR FROM CUSTOMERS (AND OTHER ISSUES): We’re just putting a few thoughts down on paper. Any contributions would be gratefully received. 22 Aug 2019:
• In a chess match, the opponent gets to move his pieces. It’s not all about you. In the business world, that means that it’s not all about supply, demand also has a role to play.
• Drilling into demand – to find the whys the whats and the hows of customer behaviour – can be a bit of a challenge.
• There are a few truisms that might be swept under the carpet. Please let us know if you can think of others.
Things you don’t want to hear:
• Your cost increases are not my problem. Labour and material costs may be on the rise. There may be mandatory pension and apprenticeship and sugar costs. Business rates may be on the up etc but does the customer care? Well, not really. If they can still get a decent pint (well 500ml) from a supermarket at £1.29, then they will not be too sympathetic if you edge your prices up to £6.20 a pint.
• The fact that you ‘need’ to charge more doesn’t imply that the customer is miraculously demanding a ‘premiumised’ product.
• Sourcing staff for the kitchen may be tough. But the customer arguably cares more about whether their meal tastes good, looks good, is served quickly and doesn’t cost an arm and a leg.
• The operators’ rent costs will not keep the customer awake at night. The fact that crazy, 25yr, upward only commitments have been made will similarly not be a concern other than to the company itself (and its landlords, its banks, its shareholders etc.)
• The fact that there is overcapacity doesn’t bother the customer. There will be more choice. Loyalty is an aspiration, not a fact.
• Customers will come to expect discounts once they have received a few. They may feel foolish if they’re the only one in the restaurant paying full price. They will not blame themselves, they may blame the operator. Discounts, therefore, are both infectious and they may be endemic.
• Second mover advantage is a very, very real thing. An operator may pave the way but, ultimately, it’s execution that counts.
• Loyalty, as mentioned above, may be a figment of the imagination. There may be a certain fondness for the initiator – but even that may be fleeting.
• There is only so much money to go around. Customers can’t spend their money twice. At least not over the longer term – as their credit cards will max out. Customers get wallet fatigue.
• This day too will pass. One day will be the best an operator ever has, and one day will be the worst. They will both only last 24hrs. Take both instances seriously – but you can’t build a 20yr business model off the back of either of them.
• Your best idea may well not be the best idea that the customer has ever heard. That’s life. Do your best. Bowl line and length.
• Execution is key. Flair is overpriced, execution is too often ignored.
GENERAL NEWS – PUBS & RESTAURANTS:
• Union Unite is seeking assurances from Greene King that jobs will be secure after the company is taken over by CK Asset Holdings. It is not likely that the company will be in a position to firm up on the future behaviour of a shareholder that has not yet become the majority owner of the company. Greene King pubs provide jobs, full time and part-time, for some 38,000 people. Unite says ‘this is a major takeover of a well-known British company with a long history in brewing and pub ownership built up over 220 years. It could have major ramifications for this sector, given the magnitude of the takeover. Our first priority is to seek reassurances for our members on future job security, and pay and employment conditions.’
• Drinkaware has said that buying drinks in rounds could lead to 35% of drinkers consuming more than they intended ‘because they were encouraged by others’. Drinkaware reports 35% of drinkers ‘say that pressure to drink is common.’ For those aged 18-24, this rises to 60%. Drinkaware Chief Executive, Elaine Hindal, says ‘our research lifts the lid on a culture of peer pressure in this country. It speaks volumes that over half the adult population say they would like there to be less pressure to drink.’
• The BBPA reports that 32% of pubs deem removing plastic is ‘very important’ with 46% saying it was ‘important’. All of the companies involved in its research had reduced their usage of plastic straws.
• The Met Office reports that the late August Bank Holiday should be hot and sunny. It says that, after a rather unsettled couple of weeks, south easterly winds will draw warm air from Europe towards the UK, bringing rising temperatures along with dry and settled weather. The Met Office says ‘we’ve had a fairly wet and windy August so far, however that’s going to change this weekend as we see high temperatures, sunshine and light winds return. On Saturday and Sunday there’ll be plenty of sunshine across the country with temperatures reaching into the mid-20s Celsius for many – it’ll be warmest in southeastern parts where 30 Celsius is possible.’
• The Met Office adds ‘by Bank Holiday Monday itself temperatures will rise further with around 33 Celsius possible in the southeast – which would set a new record for the coming Bank Holiday weekend.’ The Monday forecast for York is a more reasonable, indeed near perfect, 25 degrees.
• Pizza Union is to open a 5th site near Old Street roundabout.
• UK Hospitality has warned that the introduction of mandatory calorie labelling would place significant burdens on Scottish hospitality businesses. It says ‘we are certainly supportive of efforts to promote healthier attitudes to food and drink, and Scotland’s hospitality businesses have already been leading the way. Many businesses have already taken action to reformulate menus, reduce calories and increase the level of choice and transparency for customers.’
• UK Hospitality continues ‘businesses have done this already on a voluntary basis and customers are now better informed than they have ever been.’ However, it says ‘introducing mandatory labelling is potentially a retrograde step that would cause significant problems for some businesses, particularly SMEs. Smaller businesses would likely struggle to cope with an inflexible one-size-fits-all approach.’
• Pizza Union is to open a 5th site near Old Street roundabout.
• CNBC has reported, re the US, observers as saying that ‘consumers can’t save the economy much longer’. At some point, this will be an issue for the UK, too.
• Rabobank has suggested that the out-of-home coffee market is undergoing a ‘massive shift’. Its report, Out-of-Home Coffee Delivers Growth, suggests that the market is ‘expanding and evolving’ away from the traditional coffee shop to a more competitive environment.
• Chef Marco Pierre White has called Jamie Oliver ‘delusional’ for blaming the collapse of his restaurant empire on Brexit. He told the BBC ‘I think it is wrong to blame Brexit. We’re all in the same boat. If it’s Brexit’s fault, we’d all be bust. How can you blame everyone but yourself? Is he delusional?’
• Marco Pierre White says he has only eaten at a Jamie Oliver restaurant twice. He says ‘we all have bad days. But I’ve got to say it was consistently bad on both occasions. It wasn’t my decision to eat there both times – the people I was with chose to go there, but you wouldn’t want to go to another Jamie’s after that. Even if you enjoyed your food, bad service always leaves a sour taste in the mouth.’
• JDW founder Tim Martin has said that he will cut his beer prices if the UK leaves the EU by 31 October. It’s not clear if he’s OK’d that with the majority shareholders in his business. Mr Martin believes that he will source product more cheaply. He has ‘guaranteed’ lower prices. He says his prices will be ‘unbelievably low’.
• Beverage Business World reports that Coffee Blue, the mobile coffee operator, is looking to bring 25 new franchisees on board every year after signing up its first 10 this year.
• Coca-Cola may launch Indian lemonade brand Limeca in U.K. The company has registered Limca, which was first produced in India in 1971, with the U.K.’s Intellectual Property Office.
• Starship Technologies has announced plans to deploy thousands of its autonomous six-wheeled delivery robots on college campuses around the USA over the next two years, after raising $40 million in new funding. The robots have a top speed of 4mph. There could be 5.000 robots in operation by 2021.
• BigDish Plc has issued 13.8m shares to Pouncer shareholders in settlement of the purchase of Pouncer Media Limited.
HOLIDAYS & LEISURE TRAVEL:
• ICAMAP, which is bidding to take over EasyHotel at 95p per share, has now secured acceptances taking it up to more than 50% of the company.
• Founder Stelios Haji-Iannou has said ICAMAP is ‘simply trying to steal this company from under the noses of other investors’. Stelios is urging shareholders to reject the bid and to ‘hang on in there’.
• A record 8.6m people are planning an overnight trip over the Bank Holiday weekend reports Visit England. The number last year was 7.3m and in 2017 it was just 6.9m. Visit England suggests the visitors should spend in the region of £2.1bn. That sounds a bit toppy as it amounts to £244 for every adult, child and baby that are traveling.
• Visit England says staycations for short breaks on the rise. It says ‘the certainty of budgeting for a holiday at home, the ease and convenience and the quality on offer are all contributing to people choosing to take more domestic trips, spreading the benefits of tourism across the UK.’
• The Irish High Court has granted Ryanair an injunction to prevent its Dublin-based pilots striking next month. The company has, however, lost a High Court bid in London to prevent some of its British pilots from walking out today and tomorrow.
• PwC has reported that the near-term lodging outlook in the US remains choppy. It says the US market could be at an ‘inflection point’. PwC expects REVPAR growth of just 1% next year, the lowest in a decade.
• STR has said that, whilst the US lodging market continues to see positive results, the ‘slowing performance appears to be here to stay’. Construction has led to greater supply. It says ‘the industry remains profitable, but those margins are becoming smaller.’
• Rank Group reports FY numbers. LfL revenues unchanged, venue LfL revenues down 2%. Statutory revenue up 1% at £695m. PBT from continuing operations £27.6m, down 23% on last year.
• Rank has reported basic EPS down 20% at 7.4p with a full year dividend up 3% at 7.65p. The company says its transformation programme ‘is driving improved Group performance and new ways of working.’
• Rank says it has made an ‘encouraging start to 2019/20.’ CEO John O’Reilly comments ‘we are pleased with the Group’s second half performance and the full year results, especially given the challenges we faced in the first half of the year.’
• Mr O’Reilly continues ‘the transformation programme is pivotal to our growth strategy both in the UK and internationally.’
• Sportech has reported H1 numbers saying group revenue was down a little at £32.6m (2018: £33.2m). There was a loss from continuing operations of £2.4m (2018: loss £0.6m). CEO Richard McGuire says ‘2019 marks a year of transition for Sportech with a clear focus on challenging the predominantly “industrial” culture, whilst driving efficiencies and delivering a range of products that enhance user experience.’
• Sportech says ‘further digitisation across existing and new business lines, the elimination of certain expensive strategies, the implementation of a lower operational cost base, and an enhanced global suite of products form the roadmap for H2, positioning the Group for 2020 and beyond. Management remain committed to delivering a superior product range to our global clients and remain confident about the Group’s future potential.’
• Playtech has reported H1 numbers saying its ‘combination of scale and leadership in technology continues to deliver growth.’
FINANCE & ECONOMICS:
• The UK generated a smaller-than-expected budget surplus in July as government spending increased. Government finances are in a weaker position at the end of month four this year than they were last. Borrowing is up 60% on the same period last year. Revenues were down on last year and spending was up.
• Donald Trump has stepped up his attacks on Federal Reserve chairman Jerome Powell, saying that he is like a bad golfer who can’t putt. Mr Trump is pushing for faster interest rate cuts.
• The IMF has warned against governments attempting to weaken their currencies by monetary easing or market manipulation.
• FT reports UK labour market may be cooling.
• Sterling mixed at $1.2119 and €1.0934. Oil down a little at $60.10. UK 10yr gilt yield up 2bps at 0.47%. World markets higher yesterday but Far East down in Thursday trade.
• Brexit & politics:
o Boris Johnson has met with German Chancellor Angela Merkel in Berlin. Ms Merkel has given Mr Johnson 30dys to come up with an alternative to the Northern Irish backstop.
o BJ has said he will put a ‘lot of oomph’ into thinking about what to do. He says ‘we can’t get it through Parliament as it is.’
o French president Emmanuel Macron has ruled out any renegotiation of the UK’s withdrawal agreement.
o France is now said to believe that a no-deal Brexit is the most likely outcome post current discussions.
o The ONS has reported that the level of migration from the EU to the UK has been underestimated from the mid-2000s to 2016. This may raise the stakes in that it adds to concerns that large numbers have indeed been arriving in the UK and increases the disruption that would result should these working age taxpayers decide to quit the country.
o HS2 under review as the Johnson administration seems to be considering cutting capital projects in order to pay for populist current account measures such paying for more prisons, more police and paying for tax cuts.
START THE DAY WITH A SONG:
• No song today, internet problems!
RETAIL WITH NICK BUBB:
• Laura Ashley: The market cap of Laura Ashley is down to only £13m and it is not particularly clear why the Malaysian parent still wants to maintain its public listing, not least as today’s final results are terrible, with the group plunging into a loss before tax and exceptional items of £9.8m (versus a profit of £5.6m in y/e June 2018). This is blamed on a collapse in Home Furnishing sales and Online sales…However, Andrew Khoo, the Chairman, says that trading for the seven weeks to 17 August is performing in line with management expectations and that “Laura Ashley’s Brand is built on beautifully designed, high quality products. We remain resolutely confident in the underlying strength of this much loved Brand, in its relevance for today and in our strategies to both maintain and develop it”.
• Grocery Market Share Watch Part 2: We flagged on Tuesday that the latest Nielsen grocery sales figures (for the 4 weeks to Aug 10th) showed that overall supermarket industry sales recovered to +1.0%, given the softer comps. The rival Kantar survey reported a slightly better outcome of +1.2% for a similar 4 week period (to Aug 11th), on a “Till Roll” basis, just above the 0.9% food price inflation rate. However, on a pure “Grocery” basis (ex-Non Food) overall sales were only 0.9% up, according to Kantar, despite Aldi/Lidl growth of 7.7% combined. The embattled Sainsbury was the best of the “Big 4” on this basis, with gross sales 1.0% up, whilst Asda was up by 0.4%, but Morrisons was down by 2.5% gross and Tesco was down by 1.7% gross. M&S Food was up by a decent 3.4% gross, after its 3.8% fall in the previous 4 week period.
• M&S Food Watch: Talking of M&S Food…the new-look M&S Food store in Hempstead Valley has had good reviews, but we were interested to see what the Store Design expert John Ryan thought of it in his daily Newstores blog last week, after his return from holiday. And he notes that the out-of-town Hempstead Valley development (which is very close to where we were born!) is just minutes from the Medway Towns of Gillingham, Chatham and Rochester, in North Kent and “as such it is in a heavily urbanised, reasonably affluent area, a short hop from London”. M&S has used this location to trial a new look Simply Food which now spans 16,900 sq ft (up from the previous 9,500 sq ft) and the enlarged space has enabled M&S to experiment with the idea of a proper covered market: “this means lower equipment heights, fewer supermarket-style aisles and better sightlines”. And “the