More weather, earthquakes, dollar on the rocks…

Guess we go with Gary Cohn for today’s pic then

So it seems these comments to the FT may cost Cohn his job in the White House

That’s what everyone’s saying

caused Trump to turn his back on the former Goldman president

But then if Trump can’t wear any criticism at all, this was gonna happen

(Bear with me — i just need to report a tech problem)

Have a dollar chart, along with Trump’s approval rating

Footsie off 18 points or so currently

But look at the former Krona!


Of course the real duel is the euro/£

But I guess it won’t be read that way across some of the UK press

My word, things get punished for missing expectations

I wonder how much of this is the broken market structure, rather than the size of the miss??

Yeah, we have a proper consumer-side selloff going on now, which is post the Greene King warning but also the Safestyle warning.

Actually, wasn’t Neil Collins writing about Greene King last week?

Rather clairvoyant of Collins!

And there was a very good HSBC note on August 31st, I think, that pinned Greene King as the sector’s most vulnerable.

So, it’s like the …. fifth? … soft warning in a row from Greene King.

Yep, Canaccord reckon at five.

Following today’s disappointing AGM trading statement from Greene King, we are cutting our EPS (Dil. Adj.) forecasts by 5.7% to 66.7p for FY18E, by 8.3.% to 67.8p for FY19E and by -10.8% to 68.6p for FY20E. This is our fifth consecutive trading downgrade. We also now assume no growth in the dividend. The worsening consumer outlook and poor summer weather is ostensibly to blame but the Spirit integration is yet to deliver revenue synergies with the high exposure to the value food segment acting as an extra drag on performance. We are cutting our recommendation to HOLD from Buy and our target price to 550p (was 850p). The £3.6bn of SE orientated freehold assets on the balance sheet underpins valuation supported with plenty of transaction evidence, dividend is +2.0x covered but the downgrades need to stop to breathe new life into the share price.

The question about whether management has a grasp of the business is an interesting one

And it’s been asked a number of times post the Fayre & Square acquisition, which in retrospect looks very poor timing and rather misguided strategically.

Managed pubs (c.70% of EBIT) L4L sales were -1.2% for the first 18 weeks and -0.9% excluding Fayre & Square (which is being rebranded to other brands). Trading for the first 10 weeks was in line with expectations but then weakened to c-2.3% to -2.4% for the next eight weeks in line with the poorer weather. The value food segment remains under pressure with no seasonal offset from beer drinkers in beer gardens enjoying the sunshine this year.
We have cut our Managed forecast by £26m to £284m for FY18E as we now assume -1.0% average unit growth and we have cut our EBIT margin assumptions by 80 bps pa despite the £45m of cost savings giving some insulation. We have also reduced our forecast net interest charge by £10.5m to £133.1m for FY18E to reflect better terms from the autumn 2016 bank refinancing and lower anticipated pension interest Tenanted pubs (+1.4% L4L net profit) and Brewing (volume -0.5%) continue to perform well, in line with the industry elsewhere. We have not changed these divisional forecasts.
The balance sheet is in good shape with net debt/EBITDA of 4.0x and fixed charge cover of 2.9x with debt inching up in line with our small forecast EBITDA increases. Greene King needs to work harder to drive cashflow. Any more marginal capex opportunities need to be benchmarked versus a share buy-back alternative.

At 565p, the stock is valued on a PE of 8.5x, EV/EBITDA of 7.8x and FCF yield of 12.5% for FY18E, falling to 8.3x, 7.7x and 12.7% for FY19E. Our (rounded) 550p target price is based on the ten-year low-point for the stock. It is equivalent to 8.2x PE, 7.7x EV/EBITDA and 12.8% FCF. The 5.9% dividend yield delivers some support.

I haven’t been in a Greene King pub since my daughter worked in the King’s Ar s in Greenwich…

So ….. to recap a little on the HSBC note quoted above …… the pubcos had a very good credit crunch.

But that was because they had a buffer.

As in, they were moving from wet-led sales to dry (as in food, and I know the jargon here’s a bit yucky)

…. and also, the good operators were able to take share from the bad ones, both in terms of small operators and the Frankenstein’s debt-monster types like Punch.

This time around, there’s no buffer.

So what we seem to be seeing is a geared effect on what has been a quite small move in consumer spending (as I keep saying with reference to the warnings from Fulham Shore etc, Peach Coffer’s LFL is still in positive territory! It can get a lot worse from here!)

But is it in the price already? Dunno. Here’s Stifel.

While this is a disappointing update today, with a further downgrade to profit estimates, the share price reaction values the shares on a multiple of 8.5x earnings and a dividend yield of 6%. The short-term earnings profile is poor, but the rating is very undemanding and offers scope for a re-rating once sales growth moves into positive territory.

What makes us believe that sales growth will turn positive again?

I mean, it will some time I guess. But what we have right now is an accelerating deterioration.

Goodness, this is all very bleak

Outlook and forecasts: We previously assumed 1.5% lfl sales growth in FY18 which now looks unrealistic. We move to flat lfls this year and note that there is downside risk still if the fall from August continues. New guidance on interest charge (£133m) and central
costs (£15m) provides some offset to the underling downgrade but in net terms we make a 4% EPS downgrade from 69.6p to 66.7p.
Valuation & Recommendation: Overall the sharp deterioration in lfls suggests no end to negative EPS momentum, particularly as to meet our forecasts GNK needs to generate £40m in cost efficiencies, over which we have little visibility. Following the acquisition of Spirit, GNK has become a de facto managed pub company with the resulting operational gearing and exposure to cost pressures (over 70% of EBIT). As a result, each 1ppt on lfl sales has a c5% earnings impact. The company trades on a 2018E P/E of 10.0x and we remain cautious.

The wider damage to all these second tier consumer facing names is quite eye catching….

Even things like Howden Joinery

Howden Joinery Group PLC (HWDN:LSE): Last: 405.60, down 21.3 (-4.99%), High: 419.30, Low: 405.10, Volume: 1.75m

That’s at least in part on Safestyle’s warning, which seems to have pointed to a quite big slowdown in big ticket.

Greene King’s off 10.8% mow!

And it’s on the back of a previous warning in July. Installations down 18% yoy.

Blaming ” increasing consumer caution”

My assumption was that you either need windows or don’t, but it’s not a market I know well.

Safestyle has released an unscheduled update indicating market conditions have sharply deteriorated. FENSA indicates installations down 18% in Jul/Aug. While SFE continues to take share, margin has been significantly impacted. We forecast 320bps deterioration in H2 vs prior assumptions. This and lower sales means PBT has been downgraded 17.5% this year and 18.6% next year. Net cash forecasts are reduced by a similar amount but are sufficient to hold the dividend at last year’s level. With a new target price of 180p (vs 225p) we reiterate our Sell recommendation.

And Liberum, which I’m fairly sure is shop.

Management believes that the market is slowing as consumers have become more cautious. Safestyle’s experience suggests that replacement window demand is not as resilient as some other RMI categories, which we believe might be explained by the high ticket price of the product or mild weather throughout 2017 which has perhaps lessened the urgency of replacing old windows.

Following today’s update, we have cut our estimate for 2017E revenue growth from +2% (-2% volume and +4% price) to 0% (-5% volumes and +5% price, including a 1% benefit from improving mix).

As well as the impact on revenues, management has also made the comment that competing for scarce leads has impacted profitability. We also understand that the take up of promotional finance (offered by a third party, with a subsidy paid by Safestyle) has increased, which is also likely to impact gross margins. The combined impact of these issues leads us to reduce the expected gross margin for 2017 from 34.1% to 32%, compared to 34% in 2016.

The combination of lowering estimate parameters has caused our 2017E EPS estimate to decline by 19%. The lower starting point and a conservative approach have led us to cut 2018E by a similar order of magnitude. Our 2018 estimate assumes no recovery in the overall market.

(@Pseudonym: really? They’re windows. Is the view better through expensive ones?)

Safestyle UK PLC (SFE:LSE): Last: 166.50, down 69 (-29.30%), High: 175.00, Low: 145.25, Volume: 2.18m

Actually, on the market structure point — or rather the lack of it

What’s this — a Stifel downgrade?

Yeah, just valuation really, but a good day to do it.

N Brown Group PLC (BWNG:LSE): Last: 316.70, down 30.3 (-8.73%), High: 341.80, Low: 315.90, Volume: 462.56k

There’s no support for anything — and I suspect this has something to do with the fact that there aren’t any market makers these days

I think we rather missed this point with Provident Financial

It was madness to see a Footsie stock fall 75%

What happens when the broader market takes a sudden hit — a black swan — a bit event?

Is everything going to fall 30/40% cos there are no market makers

All the prop desks having been closed

I think we are being offered a serious of warnings as to what could happen here

There’s an obvious narrative here that says half the market is tracker funds and a lot of daily churn is HFT so stuff gets lazily mispriced.

Which I guess must mean the folk on the right, the active traders, are absolutely coining it in at the moment.

Cos the moves to the upside are just as violent

I just don’t get it — volatility at the index level is supposedly non-existent. But we can see it with our own eyes at a stock level

Hm. I’m thinking that volatility is low because the pre-response to news might be tempered by the effects mentioned above — though in the case of Provident it was down 25% or so in the days before it fell 70% or so.

And more generally, from what I’ve seen, starting with the hypothesis that markets have become less efficient is a fabulous way to lose a lot of money.

As I say, it’s valuation.

While we still believe in the attractiveness of the product proposition, targeting an overlooked spot in the fashion industry, and with incredible marketing both online and offline, our 345p target price has been reached. As we do not see any element of surprise around the corner, we downgrade our rating to Hold from Buy.

But there’s a lot of … what am I going to call this? … Let’s call it holistic research ….. in there too.

Social media influencers. One particular mention goes to Iskra Lawrence, social media influencer and Simply Be face of “We are curves” campaign, representing the essence of the Simply Be brand: body confidence and self acceptance. We believe this collaboration will generate a lot of buzz in the States once the company increases its customer reach and brand awareness. Corporette.com, an American fashion and lifestyle blog, already recognized Simply Be as the plus size go-to brand for office attire.

Contact Stifel directly for more on social media influencers and the investment case therein.

@ROTR: asking about Rathbone, don’t know anything yet.

Weird move a day after it went ex dividend.

If I find out more before midday I’ll let you know.

Otherwise, should note Experian.

Experian PLC (EXPN:LSE): Last: 1,494, down 26 (-1.71%), High: 1,505, Low: 1,477, Volume: 1.03m

Was always going to be a tough one to call at the open. Does the market read a colossal, catastrophic hack of its main rival as a positive or negative?

Neither does the market, by the looks of it.

To catch up on the news, Equifax has data on up to 143m US and Canadian folks, including their SSID, driving licence and DoB

You know Equifax … they’re the ones that sell identity protection and hack recovery services.

So … in terms of sector readthrough, probably good to have your main rival publicly tarred and feathered.

(The new European level legislation coming in — whereby companies will face huge fines for data breaches — wonder how that will change things)

………. But probably bad for regulation and stuff.

This is one of the most significant data breaches ever and by far the most significant in the credit bureaux industry. We believe it is likely to result in attention from regulators (CFPB),
businesses, and consumers on both Equifax’s, and the wider industry’s (including Experian’s) storage and protection of consumer data. This could cause regulatory uncertainty for Experian in the near-term or lead to higher security costs, but equally disruption at a competitor could have benefits as well.

Hard to assess impact as limited precedents, e.g. EXPN T-mobile breach 15m It is hard to assess the impact on the industry as there is no real precedent. Experian’s own most significant breach came in Oct-15 when similar data (i.e. Still no impact on the core credit data bureaux) was stolen on 15m T-mobile customers, but this was isolated to the one analytics client only – Equifax’s breach came as the result of a ‘US website application vulnerability’,
which clearly was wider ranging. In Experian’s case, it took a $20m exceptional charge in the year, offered free credit monitoring and ID protection services for 2yrs, and lost T-mobile as a customer.

Important to track impact on Equifax’s brand, as well as regulator moves Equifax has not yet disclosed any financial impact or the customer sources, but is offering free credit monitoring and ID protection services to anyone affected for 1yr. While in the near term 143m consumers with free access to these services may make it more challenging for Experian to grow its own paid offering, any impact on Equifax’s brand could see market share benefits. The longer-term unknown and potential negative would be if this results in more stringent regulation of the credit bureaux, higher security requirements (and so costs).

My word, Credit Suisse do like this thing

Just Eat PLC (JE.:LSE): Last: 693.50, down 2.5 (-0.36%), High: 698.00, Low: 693.00, Volume: 546.70k

Three key discussion areas:In this Ideas Engine report, we look at three key discussion areas around Just Eat (JE):Restaurant Services, Top-placementand Branded Chain restaurantinvestment. We conclude JE is only scratching the surface of its potential beyond generic visibility (see Figure 1). We reiterate our Outperform rating and increase our TP to 825p (from 780p)

Joseph Barnet-Lamb is the analyst

Restaurant Services –leveraging scale into a new revenue stream:Currently all of JE’s revenues come from providing visibility (i.e. leads) to restaurants. We believe JEhas significant untapped potential to leverage its scale to save restaurants money via its Restaurant Services partnerships. We conducted a survey allowing us to build a proprietary view of the cost base of independent UK restaurants. We used this to dissect each of the group’s partnerships so as to quantify JE’s potential for value creation. As a result,we believeJE could develop a new subscription revenue stream, initially charging£30per month, which would be worth +2% to its FY20e underlying EBITDA (uEBITDA), rising to +14% in our Blue Sky scenario.

Top-placement –differentiated visibility in the early stages:Currently JEearns just 5% of its revenues from its differentiated visibility product (Top-placement), which is low vs.other online marketplaces. We forecast Top-placement revenues to grow to c.£60m by FY20 from c.£20m inFY16 but flag that our Blue Sky scenario (extrapolating Danish monetisation levels across the group) would offer +32% upside to FY20e uEBITDA

Maybe. We’ve been wrong on this all the way up


And getting into the territory where the company will need to put out a “sees no reason for ….” statement, assuming it sees no reason for ……

There seems to be a rumour around about an issue related to its Edinburgh office, which we’re completely unable to test while typing live.

(alewis2005 — charged to restaurants. Email me if you want a copy)

………… And ….. okay, so because I don’t want to spend all afternoon with the lawyer I can’t really say more than “the company will know its obligations to the market”.

That’s not what they intended yesterday!

The Governing Council (GC) did not make any policy changes at its September meeting but announced that changes to its QE programme will likely be announced at the next meeting, in October. In the initial statement, President Draghi acknowledged that the recent exchange rate volatility is a source of uncertainty and requires monitoring. He also stated that there was no discussion today within the GC about potential changes to the current policy sequencing embedded in the forward guidance or to the issue/issuer limits. We do not change our call on QE and rates, but we acknowledge the risk that the ECB delays the increase in the negative depo rate should the euro appreciate further in the coming months.

(@ROTR; the idea about Wetherspoon is that it’s already so cheap, it can raise prices to offset cost inflation and still remain the pub of choice for the stingy session drinker. None of the other operators have this flexibility, goes the theory.)

………….. and on stock specific stuff, a couple of things to cover before we knock off.

Such as Go-Ahead, which was absolutely pummelled yesterday and no one could work out why.

Go-Ahead Group PLC (GOG:LSE): Last: 1,499, down 51 (-3.29%), High: 1,530, Low: 1,442, Volume: 272.80k

We downgrade Go-Ahead to Underweight (from Neutral) following FY17 results. We believe Go-Ahead’s investment case has many similarities with Stagecoach (UW), with a short rail portfolio, perpetually higher CAPEX than depreciation, UK focus and a deteriorating outlook in all divisions. In addition, we do not believe the current dividend can be covered by ex-rail cash flow, even once Capex reduces to more normalised levels. We are also skeptical that Go-Ahead will be able to keep Bus profits flat y/y in FY18e, and have set our Bus forecasts c.15% below consensus. Our June-18 price target reduces by 28% to 1,355p (from 1,882p).

Working is that while the results were fine, Govia Thameslink is likely to remain a very expensive problem and London busses are getting more competitive.

We downgrade forecasts by c.15-20%. We believe our forecasts are in line with consensus in Rail and 10-15% below consensus in Bus. Our target price falls to 1,355p, which we believe is consistent with an 8% FCF yield on Bus and modest rail value.

(@Marketman: cripes, no.)

And elsewhere in sellside, we have Morgan Stanley selling Glaxo.

GlaxoSmithKline PLC (GSK:LSE): Last: 1,499, down 11.81 (-0.78%), High: 1,504, Low: 1,495, Volume: 1.65m

We run a side-by-side comparison of Sanofi and GSK on execution and growth. GSK and SAN are leaders in long duration businesses (Consumer Healthcare, Vaccines) facing pricing pressure on primary care pharma portfolios (respiratory for GSK, diabetes for Sanofi). The equity story for both centres on managing decline in large legacy brands, diversifying away from patent cliffs and charting a path to growth. Our comparison of the two on execution of business transformation and growth outlook (pipeline and M&A) leads us to conclude that GSK will struggle to replicate Sanofi’s 15% P/E re-rating from its 2014 lows. Sanofi is further along in its transformation (26% of 2023e sales from recently approved products; 23% GSK), and should deliver higher growth in EPS (8.5% 2017-20e CAGR; 2.5% GSK), and EBIT margins (320bp 2016-20e; 160bp GSK, 240bp sector), with lower leverage. It trades on 11.2x 2020e P/E, vs GSK on 12.5x.

We move GSK lower in our order of preference. Recent pipeline approvals lift our PT and risk-reward skew for Sanofi. For GSK the risk-reward looks less attractive – our new forecasts are at the low end of guidance for 2017 (close to consensus) and 2020 (3% below), and our PT implies only 6% upside (vs 12% for Sanofi). We therefore move to Underweight on GSK. Where could we be wrong? Our £17.50 bull case assumes successful execution on GSK’s 2020 roadmap, a swift reshaping of its R&D engine and better margins (cost discipline and Consumer Health synergies).

Thanks for all that Bryce

Acadia’s at least $5bn including takeover premium. Big ask for AZN. Though the appearance of the name in the popular press will please a certain type of punter …………

And with that, I think we’re done.



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