Langton Capital – 2019-12-13 – PREMIUM – Confidence & demand, delivery, BOWL, London hotels etc.:
Confidence & demand, delivery, BOWL, London hotels etc.:
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A DAY IN THE LIFE:
The builders have put up scaffolding outside our office window now such that we have four of five layers of planks directly above us and there’s darkness at noon.
Which I think is the title of a book about depression and the human condition and, having had to put up with the feeble December twilight being filtered through several tons of woodwork for a few weeks, I think it’s pretty apt.
Nevertheless, life goes on and, as we’ve just got our Q1 rent demand, now might be the time to start discussing our ‘right to light’. There may not be any such thing but it sounds good.
Anyway, as the country begins to pick itself up after a tumultuous election night, it’s time to move on to the news:
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GETTING TO THE ROOT OF DEMAND — CONSUMER CONFIDENCE: Demand is easy to recognise but hard to predict. Here we very briefly look at some of the main influencers. 13 Dec 2019:
A few simple truths:
• Working backwards from spending decisions, why do consumers spend?
• It could be said that confident consumers spend more. They certainly don’t spend less.
• We would suggest that stable employment (or no fear of unemployment) buoys confidence
• Working backwards again, investment drives employment. It can replace employment, robots etc. but, in the main, employment goes hand in hand with investment
• Business confidence drives capital investment. Confident companies invest more. Companies that lack confidence don’t invest. They batten down the hatches, cut spending etc.
Confidence linked to certainty:
• Certainty is correlated to business confidence
• Certainty is also linked to visibility. The lack of visibility depresses investment but, with the General Election out of the way and the Tories returned with a large majority, there is more visibility – at least on the direction of travel – now, than there has been for some time.
• Whatever businesses view on Brexit, it is now certain that a Brexit of sorts will happen and, with a large majority, PM Johnson will be able to go back on self-imposed deadlines if it is sensible to do so
• Sterling has risen and trading relationships, though they will not be the same in the future as they have been in the past, may begin to become clear
• The linkages above are pretty robust – but there may be some argument about causality
Recent evidence (always backward looking) has been negative:
• Consumer and business confidence has recently been negative.
• With the election out of the way and with Brexit shortly to be ‘done’, however, the reasons that have been most-often cited for this lack of confidence should be falling away
• At that point it will become more obvious as to whether there were any more deeply-rooted causes for worry than had been publicly stated to the pollsters
• The ‘wall of money’ that is reportedly being hoarded by private equity firms and foreign investors should now become apparent
• Whilst this may have been exaggerated (or minimised) for political purposes, it would be nice to see an increased level of investment as this would buoy confidence both for business and for consumers
A few pointers:
• Real wage growth has been positive for some time – but corporate profitability has been on the slide
• Many companies are reluctant to report reduced earnings – but many have been doing so
• Often, even usually, this has been as a result of increased costs – frequently dominated by the cost of labour
• Hence the labour share of income across the economy as a whole looks to have been rising – and this is finite
• Unless or until the economy can pick up its rate of growth, there will be pressures building to slow wage growth or to bolster corporate profitability in some other way
What should we look out for short term?
• Whilst increased spending is only possible if there is economic growth, for the short term, spending is undoubtedly what many observers will focus on
• Christmas is always a busy time of year, but we would hope to see spending over Christmas 2019 exceed that for 2018
• Early in the New Year, it would be helpful to see spending on big ticket items (cars, holidays, furniture) pick up as that is often a reliable indicator of confidence
• Small-ticket spending would then be arguably underpinned as, though it has remained relatively buoyant whilst big ticket has come under pressure, the two will genuinely tend to move in tandem
PUBS & RESTAURANTS:
• Fuller’s shares closed unchanged yesterday. The group commented on the main events of the year. It sold its beer business to Asahi, and purchased Cotswold Inns & Hotels, an operator of seven, freehold country inns and hotels in the Cotswolds and two leasehold bars in Birmingham in October (which will fall into H2). The group also bought the remaining 24% of the shares in The Stable Pizza & Cider Limited that it did not already own before its H1 started though it does not comment on the trading at this company ,which has 16 sites in England and Wales.
• Trade journal NRN in the US has reported that LfL sales across US restaurants grew by 1.4% across the 47 restaurant companies reporting in November. It says that this growth compares with an annual rate of 2.2% in the year to November last year. NRN says that ‘Wingstop saw the greatest overall latest-quarter same-store sales growth, at 12.3%, while Steak ‘n Shake’s 6.5% decline marked the biggest fall.’ NRN says that ‘year-to-date, Chipotle was the top-growing restaurant brand at 10%.’
• KPMG has reported that the typical Londoner spends £709 a year ordering food to be delivered. The average for the UK is £451. Second to London in terms of spending is Sheffield, where consumers spend £548. People in Cardiff spend the least, forking out just over £200. The Sheffield result is noteworthy, as anyone who has tried to cycle in the city will know just how hilly it is.
• The owners of Tossed, Zest Food have announced a rescue plan that will allow the salad chain to continue to trade. The 24 strong salad bar chain acquired eight Vital INgredient branches in 2017.
• In the latest development of the WeWork’s failed IPO saga, the startup, Spacious, which the group acquired is to close its doors. The startup had helped high-end restaurants in the US to operate as co-working spaces during the day when they would have otherwise been slow or closed.
• The BBPA has called on parties to provide more clarity on their immigration policies, in order to assure that there will be no skills shortages in the F&B sector.
• Richard Caring and David Campbell have announced intentions to complete an entire estate refurb of the restaurant chain Bill’s.
• We Are Bar Group has acquired the former Balls Brothers site at 6 Adams Court in the City of London.
HOLIDAYS & LEISURE TRAVEL:
• The director of financial protection at Abta, John de Vial has predicted that the travel industry and its customers are set to pick up the cost of the Thomas Cook collapse. Mr. de Vial commented: ‘“The insurance market, over time, will recover its costs and there are concerns about the consequential effect on market capacity and premiums. In the short term, we have a difficult market that is naturally reviewing risks and risk appetite, although most participants see Thomas Cook as an individual corporate failure – not a travel sector market issue’.
• The UK travel industry anxiously awaits the impact of the new Conservative government, with Derek Jones chief executive of Kuoni parent DER Touristik UK tweeting: ‘This is the best short term result for the UK outbound travel industry’.
• STR has reported London hotel data, finding that supply has increased 2.1%, with demand up 1.8% while occupancy declined 0.4% to 85.8%, during November. The city saw the average daily rate of a room rise 1.6% to £158.94 and RevPAR climbed 1.3% to £136.43.
• The US hotel industry has seen occupancy decline 0.2% to 60.3% during the week of 1-7 Dec 2019. The country saw ADR rise 1.6% to $128.66 and RevPAR up 1.4% to $77.56.
• Club Med has announced its intentions to open a 294-room luxury resort next October, in the Seychelles.
• Analysis by C&M Travel Recruitment and C&M Executive Recruitment shows travel recruitment activity has slumped following sharp increases in the aftermath of the Thomas Cook collapse. The latest survey of new vacancies reveals a 29% drop in new candidate registrations.
• Boris Johnson has been giving mixed messages concerning the future of the High Speed 2 rail project, saying the government will have to consider the rising cost of the project.
• Hollywood Bowl Group has reported full year numbers for the year ended 30 September 2019 saying that its ‘consumer-led strategy continues to drive strong revenue and profit growth, enabling enhanced cash returns to shareholders.’
• Hollywood Bowl reports that revenues rose by 7.8% to £129.9m with adjusted EBITDA up 5.7% at £38.2m and PBT up by 15.3% at £27.6m.
• BOWL saps EPS was up 18.7% at 14.9p with the full year dividend, including a 4.5p special, is 11.93p versus 10.59p last year. The group says that its ‘ongoing centre refurbishment and rebrand programme [is] delivering strong returns.’ The group refurbished six centres in the year and rebranded s further two AMF sites.
• BOWL CEO Stephen Burns says ‘I am delighted to report another year of strong profitable and cash generative growth, demonstrating the consistent delivery of our proven, customer-led strategy. In addition to driving these further strong returns, we also achieved excellent customer feedback following the ongoing investment in our centres, further innovation of our industry-leading customer proposition and the continued development of our team members.’
• BOWL says ‘we also increased the size of our portfolio to 60 high-quality, all profitable centres. As a result of this strong financial and operational performance, we are delighted to announce a special dividend for the third consecutive year, which will result in a total of £47.7m being returned to shareholders since IPO.’ The group concludes ‘we have made a solid start to the new financial year and we expect to make further progress in our ongoing refurbishment programme, investment in technology and continued roll out of customer innovations. I am confident that we will continue to deliver value for all of our stakeholders.’
• The Championship has been described as ‘a bubble waiting to burst’ as clubs post record losses in a ‘gamble’ to reach the Premier League. Analysis conducted by Deloitte and football finance experts Vysyble found more than half of clubs are spending more on wages than they make in income.
• For the 2017-18 season, Wolves, Fulham and Cardiff posted the highest pre-tax losses but they all managed to gain promotion to the Premier League that year. Hull City and Norwich City posted the biggest profits at £23.7m and £18.5m respectively, although these were boosted by parachute payments.
• Richard Masters has been named as the new chief executive of the Premier League.
FINANCE & ECONOMICS:
• Shares globally touched all-time highs yesterday on Donald Trump’s comment that the US was ‘very close’ to reaching a trade deal with China.
• New ECB boss Christine Lagarde has said that she will oversea a review of the bank’s workings. The ECB left Eurozone interest rates unchanged.
• Sterling higher yesterday at $1.3471 and €1.2055. Oil up at $64.61. UK 10yr gilt yield up 4bps at 0.82%. World markets higher yesterday with Far East up in Friday Trade. UK to open higher.
• Brexit & politics:
o The Tory Party is set to win its largest majority since the 1980s as the Red Wall has crumbled. Labour’s vote to undershoot that achieved by Michael Foot but number of seats slightly ahead of Exit Poll predictions.
o Brexit Bill to come before parliament before Christmas. There is reported to be relief in Brussels that at least the direction of travel is clear.
o FT suggests Boris Johnson has put the future of the United Kingdom in doubt. Independent says he will be PM ‘for a long time’ but could be the last PM of the UK as such.
o Analysis conducted for BBC’s Newsnight has concluded that ‘post-Brexit trade deals will not make up for the economic damage inflicted on the UK from leaving the EU.’ The UK Trade Policy Observatory combined new deals with the US, Australia and New Zealand would boost the UK economy by just 0.4% whilst losing access to the single market will cost around 1.8% of GDP per annum.
o The RICS has said that, if the Brexit ‘saga’ can be deemed over, it should release pent-up demand in the UK housing market.
START THE DAY WITH A SONG:
Yesterday’s song was Trash by Suede, today who sang:
Using up your oxygen, you know I’m shallow
Calling out for extra help
You’ve got to let me in or let me out
RETAIL WITH NICK BUBB:
• BDO High Street Sales Tracker: We flagged on Wednesday that the strong John Lewis sales figures for last week were boosted by the fact that Cyber Monday fell a week later this year, and today’s BDO High Street Sales Tracker for medium-sized Non-Food chains (which has been reporting surprisingly/suspiciously good progress in recent months) is also, predictably, strong…In w/e Sunday Dec 8th, BDO Fashion sales were up by as much as 21.7% LFL, for what it’s worth. And Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were up by 22.4% last week (up 6.7% in Store sales and up no less than 67.9% in Online sales…).
• News Flow Next Week: Monday brings us the Sports Direct interims (and the EGM to approve the bizarre name change), as well as the Studio Retail interims. On Wednesday we get the WH Smith EGM and the Carpetright EGM. On Thursday we get the ONS Retail Sales figures for November and then Friday brings the GFK Consumer Confidence survey for “December”.