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THE M3: FERRY TAX REMOVED; CHINA TAX

The Macau Metro Monitor, August 3, 2011

 

 

CHEAPER OUTBOUND FERRY SERVICES Macau Daily Times

According to Macau's Executive Council, the MOP 19 ferry departure tax charged to passengers will be removed to help attract visitors to the city.  The council’s spokesperson Leong Heng Teng said the change will come into effect 30 days after the administrative regulation is promulgated.

 

MACAU RESIDENTS, FIRMS TO TAKE CHINA TAX HIT Macau Daily Times

Local residents and companies working in mainland China will have to pay the new social security contribution that is expected to come into effect in early 2012.  Moreover, there is no sign the MSAR Government is seeking a deal with mainland China to give exemption to local residents and companies.  The draft Social Insurance law is currently waiting for State Council approval.

 




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PEET – DELIVERING RESULTS TIME AND AGAIN

Peet’s reported strong results of Q2 EPS $0.38 vs consensus of $0.32; revenues also beat expectations of $90.6M and consensus of $88.7M.  PEET has been a favorite name of mine since late 2010.

 

The following are my top ten takeaways from the quarter.

  1. The company raised full year EPS guidance "toward the higher end" of prior $1.43-1.50 range versus consensus of $1.46 and full-year revenues growth of +10-12% versus prior guidance +8-10%.
  2.  Peet ‘s is rolling out a new product entry into the largest segment of the specialty coffee category in grocery stores with the debut of two new medium-roast coffees (1/3 of sales in the category) in ground and whole bean form: Peet’s Café Solano and Peet’s Café Domingo.  It is expected that the new line will be available in about 80% of the company’s existing store base before the end of this calendar year.
  3. Management does not expect cannibalization from the new products; new products will be sold at the same margin.
  4. Grocery grew 30% in Q2, lapping 29% growth in Q2 last year and up from 22% growth in 1Q11 and is now 70% bigger than it was two years ago.
  5. Grocery to accelerate growth in 2H11 on the back of the new products.
  6. The company will be selling product in 1,000 new stores in 2H. 
  7. Significant expansion in the TGT stores; management is expecting to double the number of target stores distributing Peet's Coffee to about 900 by the end of 4Q.
  8. Gross margins declined -290bps in the quarter on 37% higher coffee costs in 2Q.  Coffee inflation for the year is projected to be +40% so gross margins will be down 200-300 basis points versus the second quarter in 3Q and 4Q.
  9. There was no significant change in pricing quarter to quarter.  In 2Q, there was a full quarter impact of the grocery price increase taken in February 2011.
  10. PEET is one of the best small cap growth stories in the restaurant space.  Valuation is rich but there is a premium for well run companies that are seeing 8-10% secular growth. 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


Risk Ranger: SP500 Levels, Refreshed

POSITION: no position SPY; short XLF

 

I am getting a lot of questions about levels here. To be clear, the 200-day Moving Monkey is not a risk management line. It’s a one-factor (point and click simple moving average) where we can all observe proactively predictable behavior.

 

Across our risk management durations (TRADE/TREND/TAIL), here are the lines that matter: 

  1. Long-term TAIL of resistance = 1377
  2. Intermediate-term TREND resistance = 1319
  3. Immediate-term TRADE range = 1 

Big Government Intervention isn’t the economic or market catalyst it’s all cracked up to be. All it does is shorten economic cycles and amplify market volatility. We remain the bears on US GDP Growth Slowing and the Financials (XLF).

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Risk Ranger: SP500 Levels, Refreshed - SPX


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