Langton Capital – 2018-04-30 – Sainsbury/ASDA, UK economy, beer consumption etc.:
Sainsbury/ASDA, UK economy, beer consumption etc.:A DAY IN THE LIFE: We got what must be an invitation to the ideal meeting a couple of days ago that went something like this: • 5.30pm – Reception & Drinks • 6.00pm – Speech by Directors • 6.15pm – Networking & Drinks I mean the meeting so perfectly cuts out the unnecessary and focuses on what you may have gone to the meeting for in the first place. That’s to see & be seen, to get not a few drinks down your neck and to snaffle a whole platter full of canapes. Of course, it may be structured like this because the news to be imparted is somewhat downbeat. But that’s nothing that a few of the above-mentioned drinks might not help to soften. On to the news. PUB, RESTAURANT & DRINK PRODUCERS: • Industry statistics suggest that beer consumption in the on-trade declined by more than 5% in March vs March last year. The cold weather towards the end of the month put a material damper on pub visits. The warm weather in mid-April (which is not in these numbers) had exactly the opposite effect. • Friday’s GfK confidence numbers showed that ‘consumer confidence is stuck in the doldrums.’ GfK says ‘hppe springs eternal for better numbers but the continued uncertain economic forecast means that the sun is not yet shining brightly for UK consumers.’ • GfK says ‘as consumers, we need to see clear evidence with our own eyes – in our bank balances and pay packets – that balmier economic climes have returned. Yet our view of the UK’s general economic situation remains low.’ • Sainsbury has brought forward its FY numbers to today (from Wednesday) and has confirmed that its merger talks with ASDA at an ‘advanced’ stage. It ‘must be investigated’ say some MPs. Competition from the discounters makes bulk market share less relevant say others. • Stores thought likely to close (or be sold) if Sainsbury / ASDA merger goes through. Suppliers may be leaned on more. Prices may not, however, rise as competition from Aldi & Lidl remains intense. • The MCA has found that home delivery is not cannibalising consumer spending on eating out, but is replacing cooking at home. • There is no evidence that fast food outlets should be banned from opening near schools in order to decrease childhood obesity, according to research conducted by think tank the Institute for Economic Affairs (IEA). • Responsible consumption has been found by MCA as one of the key growth trends in eating out. Customers have been shown to be demanding more health, craft and sustainability products. • Peter Backman, analyst and commentator on the eating out market, has stated that following the poor start to the year for most operators, there may now be hope on the horizon. Peter said: ‘The first quarter has been a hugely challenging start to the year, making the future look pretty bleak. The market is declining faster than it was 12 months ago, but, not as fast as it was three months ago. So, there is hope on the horizon. Whilst Q2 figures will largely mirror Q1, we hope to see the green shoots of recovery at some point this year’. • Richard Caring, owner of The Ivy, looks to expand his restaurant groups after topco Caprice Holding reports revenue up to £67.1m and pre-tax profit up to £8.7m for the 53 weeks to January 1, 2017. • Labour plans to cap overdraft fees or interest payments, potentially saving 2.7m people £86 each per year. • Sir Stelios Haji-Ioannou has invested a ‘high six-figure sum’ in Easyfood, a company that has already launched in Birmingham and has signed up 200 takeaways. The company charges the takeaways £100 to £195 per month. • EasyCoffee is to buck the trend of coffee shops and is to open a further 100 stores over the next three years. • Wetherspoon is making its ‘single biggest investment’ by putting £16m into a pub hotel in Dublin city centre that is set to start development on 8 May. The project, which consists of converting a row of derelict properties in Camden Street Upper and Camden Street Lower, will be called Keavan’s Port Hotel. • On-trade sales of cider and perry increased in value (+2.4%) and volume (+0.3%), according to the third annual Westons Cider Report 2018. Total sales are now worth £1.86bn, with the rising popularity of fruit cider, draught cider and crafted cider more than offsetting a decline in the popularity of pear cider. • Fenwick has announced a consultation with its staff as part of a restructuring process initiated by its new CEO Robbie Feather. • US-based restaurant operator BJ’s saw net income jump 58% to $14.7m on an 8% increase in revenue to $278.5m in its first quarter. CEO Greg Trojan said a 4.2% increase in same-store sales was driven in part by the chain’s slow-roasted menu and higher footfall. • Mothercare seeks outside financing as it tries to seal a rescue package by the middle of May. Investment bank Rothschild is working with the embattled high street retailer. HOLIDAYS & LEISURE TRAVEL: • The total debts of Chinese mega-conglomerate HNA rose in 2017 to Rmb598bn ($94bn) per its latest annual report. HNA has stakes in NH Hoteles, Deutsche Bank and many other companies. • PwC research shows Porto, Amsterdam, Lisbon and Prague as the European cities that are best placed for hotel growth in 2018, with Paris set to make a comeback in 2019. London is set to be the fullest in 2018 and Geneva will have the highest ADR ranking. • The UN World Tourism Organisation (UNWTO) Barometer shows the top-25 outbound markets all recorded higher spending on international trips last year, with China retaining its position as greatest global spender with a 5% increase to $258 billion. The fourth-biggest market – the UK – saw a 3% rise in spending to $63bn. • Expedia’s gross bookings increased 15% to $27.2bn for Q1 with yoy revenue up 15% to $2.5bn. The online travel group’s global accommodation portfolio increased to more than 665,000 properties by March 31, up 74%, with 50,000 new properties. • Carlson Wagonlit Travel (CWT) reports revenue up 1.9% to $1.4bn and transaction volume up 3.6% to $23.2bn for 2017, the first full year of its digital transformation strategy. 2017 saw CWT introduce its new technology platform, myCWT, as well as Roomit, the company’s hotel-focused platform. OTHER LEISURE: • GVC, William Hill, Betfred, Scotbet and Jenningsbet have sent a letter to Culture Secretary Matt Hancock saying a £2 betting limit on fixed-odds betting terminals would equate to a ‘de facto ban on the machines’ and that it would have a ‘catastrophic impact on jobs and the economy’. FINANCE & MARKETS: • The UK economy grew at its slowest rate in nearly 6yrs in Q1 this year managing growth of only 0.1%. The economy grew by 0.4% in Q4 last year. The ONS said that the cold weather at the end of February had only a ‘relatively small’ impact. • No10 says growth numbers are ‘clearly disappointing’. Sterling down on the news. Interest rate rises less likely. • ONS reports ‘our initial estimate shows the UK economy growing at its slowest pace in more than five years with weaker manufacturing growth, subdued consumer-facing industries and construction output falling significantly.’ It continues ‘while the snow had some impact on the economy, particularly in construction and some areas of retail, its overall effect was limited with the bad weather actually boosting energy supply and online sales.’ • Sterling down sharply at $1.3783 and €1.1362. • Oil down a shade at $74.19 • UK 10yr gilt yield down sharply at 1.44% (off 7bps) • World markets: UK, Europe & US up on Friday. Far East higher in Monday trade. • US initial jobless claims fell by 24k to 209k in the week to 21 April. • Russian Twitter bots apparently tried to discredit the Tories and help Labour during last year’s General Election • Brexit, politics: o Amber Rudd has resigned after ‘inadvertently’ misleading parliament over deportation targets. o Her exit leaves the inner cabinet skewed towards those favouring a harder Brexit o Amber Rudd had said last week that there was still disagreement in the cabinet as to what Brexit meant o Thursday’s debate in the Commons on membership or non-membership of the Customs’ Union did not end in a vote. o Michel Barnier has said that the UK must solve the Irish border problem by June. o The UK lost more workers than it attracted in Q1 this year per analysis undertaken by Linked In. Whilst this will please some, it leaves the UK with fewer workers paying tax at a time when the economy is slowing and demands on the public purse continue to grow. PRIOR DAY LATER TWEETS: • Later tweets: Q1 beats in the US from Domino’s, Chipotle, Pepsi & Royal Caribbean. Something must be going right… • Parking ticket numbers from parking management companies hit record 5.65m last year, many at struggling shopping centres • GFK Consumer Confidence index downbeat. Says ‘consumer confidence is stuck in the doldrums.’ Not new news to many operators • BDO High Street Sales Tracker. Distorted by Easter comps but better than recent data. Online still the star at +15.9% • More rumoured & planned CVAs nearer to actualisation. Carpetright, Poundworld etc. Jobs lost, keys handed back etc. START THE DAY WITH A SONG: Yesterday’s song was Shout by The Isley Brothers. Today, who sang: Why must the youth fight against themselves?, Government leaving the youth on the shelf RETAIL NEWS WITH NICK BUBB:
• Saturday Press and News: The main story in the Saturday papers was the news that the much weaker than expected 0.1% growth in Q1 GDP had killed any hopes of a May 10th interest rate rise, as flagged by the FT, the Times and the Telegraph, inter alia (although the Business editorial in the Times mocked the ability of the ONS to adjust for the impact of the snow disruption). The snow disruption also featured in the Travis Perkins trading update on Friday, given the impact on its Consumer Division (principally Wickes DIY), but the Times highlighted the big boost it gave its struggling Plumbing & Heating Division and the demand for replacement boilers. Lex column in the FT noted the big level of advertising revenue revealed by Amazon in its Q1 update on Thursday evening. Finally, the market report in the Daily Mail led with the boost given to the Carpetright share price on Friday by
• Sunday Press and News (1): The stunning news, first revealed by the notoriously well-informed Mark Kleinman of Sky News on Saturday lunchtime, that Asda and Sainsbury’s are in advanced merger talks obviously gets lots of coverage in the Sunday papers, although much of it is on the News pages rather than the Business pages (given the print deadlines), with different themes emphasised. The Sunday Telegraph flags that hundreds of stores are likely to have to be sold off if the deal goes ahead, the Observer notes that there are likely to be big job losses and the Sunday Times highlights that the combined business would be bigger than Tesco, whilst separately the Mail on Sunday says that City advisers will share in a £100m fee bonanza. In terms of Editorial comment, the Mail on Sunday says that “knitting together two large store chains is a task that will test even the most brilliant
• Sunday Press and News (2): In other news, the Sunday Telegraph noted that Mothercare is urgently seeking outside financing (as it tries to secure a rescue package ahead of its finals on May 17th) and flagged that the private equity backed Original Factory Shop discount chain is looking at a CVA deal to close stores. On a happier note, the Sunday Telegraph also highlighted that the privately owned discount clothing chain Yours has reported strong results for last year and it had a feature on innovation in the High Street, leading with the “futurology” department that has been created by John Lewis. The Sunday Times flagged that the former boss of the struggling discount chain Poundworld, Chris Edwards, has stepped down from the Board of struggling rival, Poundstretcher, after just six months. The Observer had a profile of the controversial American hedge fund billionaire Paul Singer,
Sainsbury/Asda: The shock £13bn merger deal has been confirmed today and interestingly Asda has been valued at more than Sainsbury’s market cap of £5.9bn, at £7.3bn debt-free, but Wal-Mart is cashing out £3bn and will be left with just under 30% of the combined business. “Walmart will be a long-term shareholder and partner and will leverage its global scale and investment to support the combined business. Upon completion, two Walmart representatives will join the Board of the combined business as non-executive directors”. The Asda brand will be retained, along with the Asda HQ in Leeds, but there is already talk of £500m of synergies, mostly in buying, but also through inserting Argos into Asda stores. The statement reads well, but it will be interesting to see how it stands up to scrutiny at the analysts meeting at 9.30am, as well as the press briefing, where the role of the
Sainsbury/Asda and the CMA: Today’s merger news would have been unthinkable a couple of years ago, but the bizarre decision last year by the CMA to give the Tesco/Booker deal the go-ahead without any divestments inevitably opened the path to more sector consolidation. We therefore think that there’s a pretty good chance the CMA will allow the merger to proceed in the end, but there will be a lot of arguing about local catchment overlaps and the main debate is how many stores JS/Asda will have to promise to sell to placate the CMA (to meet their goal of deal completion in the second half of 2019). Too many store disposals and the deal won’t be worth doing (JS/Asda actually say that no store closures are planned…), too few store disposals and the CMA will look toothless…hopefully there will be a “Goldilocks” scenario for JS/Asda! In the long-term, a successful Sainsbury’s/Asda merger would News Flow This Week: In the light of the Sainsbury/Asda news, it will be interesting to see tomorrow’s latest monthly Kantar/Nielsen grocery market share figures. Tomorrow night brings the Apple Q2 out in the US. On Wednesday we get the Howden Q1 update, the Pendragon AGM update and the DFS Capital Markets Day in sunny Croydon. Things then quieten down ahead of the Bank Holiday weekend (the Next Q1 update originally scheduled for Wednesday has been put back to May 10th), with the Local Council Elections on Thursday. The Sainsbury finals scheduled for Wednesday have been brought forward to today. After the successful CVA vote on Thursday, the embattled Carpetright was due to issue a Q4 trading update today, but it may have held off given all the focus on JS/Asda… |
|
