I would like to say how much I enjoy the e-mails from Langton Capital on a daily basis. I use the newsletter as an ideal way of keeping me up to date with what is going on financially in the drinks industry.
Tenanted pub company
EI Group, Compass, discounting, Yo Sushi & other:
A DAY IN THE LIFE:
Bit busy this morning so had better move on to the news:
ENTERPRISE INNS – FULL YEAR NUMBERS:
EI Group has this morning released full year numbers for the 12mths to end-Sept and our comments are set out below:
• Enterprise reports underlying EBITDA of £287m (2016: £292m)
• Group says this is ‘in line with expectations and reflecting the impact of planned disposals’
• Underlying PBT is £121m (2016: £122m) ‘as interest savings from reduced debt broadly offsets reduction in EBITDA’
• Net asset value is up 5% to £3.13 per share (2016: £2.96 per share) ‘underpinned by like-for-like net income growth, asset appreciation, cash generation and net debt reduction.’
• The group is reporting underlying EPS of 20.5p (2016: 19.6p)
• There is no dividend but the group is announcing a further £20m of share-buybacks to begin with immediate effect
Performance by Division:
• Pub Partnerships’ LfL net income is +2.3% after +2.1% in 2016. The group is seeing ‘growth across all geographic regions’
• Average net income per pub is +5%, showing the impact of disposals at the bottom end of the estate
• Commercial Properties now comprise 331units generating net annualised rental income of £23 million on assets valued at £271 million, representing a yield of 8.4%. Average income per property is +9.2% and LfL income per property is +1.4%
• In the group’s Managed Operations, the group says performance is on track with 226 (2016: 99) pubs trading within our 100% owned Managed Operations with 48 (2016: 28) trading within our Bermondsey operation and 178 (2016: 71) within our drinks-led Craft Union operation.
• The group has 30 units trading with specialist partners (managed expert)
Balance Sheet, Debt etc.:
• EI Group comments that it has ‘stable and robust balance sheet and cash flows’ saying that the annual estate valuation increased for second consecutive year, up 0.2% (2016: up 0.1%)
• The group has ‘sufficient available bank facilities to repay the £100.5 million corporate bond due in December 2018’
• Overall, net debt has reduced to £2.1bn (2016: £2.2bn), equivalent to loan-to-value of 58%
Company comments on performance:
• CEO Simon Townsend reports ‘we are making good progress against the strategy we set out in May 2015, which represents the most effective means to unlock embedded value within our estate.’
• Mr Townsend adds ‘we are delighted with the continued growth momentum in our leased and tenanted business’ and says ‘at the same time we are developing a quality commercial property portfolio and our managed operations and investments businesses are going from strength to strength.’
• The CEO says ‘we are delivering on our plans for the transformation of the Group and are now beginning to accelerate the execution of these plans as our financial metrics and balance sheet continue to strengthen.’
• EIG concludes ‘the current financial year has started well and we are on track with our plans. We aim to deliver positive like-for-like net income growth in our leased and tenanted and commercial estates for the year ahead, and we are encouraged by the trading performance of our expanding portfolio of managed houses.’
Langton Comment: EIG’s shares have given back some of their recent gains but today’s announcement should reassure that the group’s performance remains on track.
There is some evidence that wet-led units are holding up better than food-led outlets and Enterprise is reporting LfL income from its leased and tenanted units +2.3%.
Late last year and into 2017, the bid for rival operator Punch Taverns helped sentiment but much of EIG’s recovery has been down to self-help and the reorganisation.
EIG’s plan appears solid. Execution remains a challenge and there are some external concerns, Brexit, the pubs code etc. but trading is in line with expectations.
This would appear, though these are early days, to be working. The group’s shares are cheap but normalisation is critical & a dividend would be helpful.
READING THE RUNES – DISCOUNTING, ADVERTISING & MARGIN:
• When will we be getting back to full margin? Black Friday. The Pragmatist reports ‘Christmas came early this year, with some retailers starting sales as early as September.’ This does seem a little extreme. The online journal says ‘for many, the Christmas sales period will stretch for several weeks or even a full quarter, including Black Friday, pre-Christmas and New Year sales.’
• Pragmatist reports ‘demand planning becomes more difficult, as retailers balance the opportunity cost of lost sales against achieving optimal net margins.’ This is arguably becoming a feature in the F&M market too as some retailers seem to be targeting LfL sales above margin and profit.
• Marketing Week suggesting blockbuster ads are being used to ‘fight product promotions for [a] shrinking Christmas spend’. This may be the case. Anecdotally, and different people here are quite likely to tell you different things, media and ad companies do well in the initial phases of a slowdown as discounts, vouchers and advertising become the weapons of choice for operators wishing to maintain sales.
• Marketing Week points to rising inflation and the like & says ‘at the start of the fourth quarter, the retail environment couldn’t be more uninspiring.’ For the F&B sector, if you add in a lacklustre release schedule across the cinema industry as well as overcapacity, and the negatives begin to threaten to outweigh the underlying social and demographic positives.
• Discounting. Toby Carvery 50% off mains, GNK brands offering £10 of meals for £2.50 of Tesco Clubcard vouchers. GNK’s Hungry Horse, Chef & Brewer & Flaming Grill offering BOGOFs for Black Friday (runs this Wednesday to next Monday).
PUB, RESTAURANT & DRINK PRODUCERS:
• Compass Group has reported FY revenue growth of 4% to £22.9bn, with underlying operating profit climbing 5.6% on a constant currency basis to £1,082m. Chief Executive of the group, Richard Cousins said: ‘Compass had another strong year. North America continues to deliver excellent growth, we are continuing to make progress in Europe and in Rest of World, with trends in our commodity related business improving’. He continued with ‘Our expectations for FY2018 are positive, with growth and margin improvement weighted to the second half. The pipeline of new contracts is encouraging and our focus on organic growth, efficiencies and cash gives us confidence in achieving another year of progress’.
• Del Aziz Holdings, whose subsidiary Del Aziz Ltd operates restaurants in Fulham, Swiss Cottage and Clapham, has reported to Companies’ House that it has appointed liquidators, Valentine & Co, to the firm. Del Aziz Ltd, which has not announced any moves in this direction, had accumulated losses of just over £1m in its Dec 2015 accounts. These are the latest accounts filed. Accounts for the year to end-Dec 2016 are now overdue.
• Diageo has filed a lawsuit against Vijay Mallya over a $75m agreement it struck with the tycoon for him to step down as chair of United Spirits in 2016. ‘Diageo is pursuing substantial repayment and compensation from Dr Vijay Mallya and certain of his affiliate companies,’ the company said in a statement. ‘The matters giving rise to these claims were clearly set out in our 2017 annual report as well as prior disclosures.’
• Alcohol sales in supermarkets have jumped 5.3% year-on-year thanks to the ongoing trend in off-trade ‘premiumisation’, according to Kantar Worldpanel. British consumers spent an extra £142m on alcohol in the last financial quarter. Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, told the drinks business that, while there has been a rise in prices at supermarkets across the board, it is the ‘ongoing premiumisation’ of the alcohol they sell which is really driving up business.
• Yo! Sushi has acquired 600-strong North American chain Bento Sushi for £59.2m, creating one of the largest sushi companies in the world outside of Japan. Robin Rowland, chief executive of YO! said: ‘We’ve successfully reinvigorated the business over the last two years to ensure the foundations are in place for long term growth. This acquisition takes YO! into the next stage of its development, and creates the first global multi-channel Japanese food purveyor. Bento’s proposition and its management team’s strong track record make it the ideal partner for YO! as we look to further grow our brand.’
• Castle Rock Brewery’s first micropub and wine cellar it set to open in Nottingham before Christmas. The unit will inherit the name of sweet shop that it is replacing, the ‘Barley Twist’.
• City Pub Group has raised its IPO funding expectations to £35m, £5m more than originally expected.
• Caterer reports BBQ chain Grillstock has appointed administrators.
• Brewdog’s Equity for Punks V has reached the £5m mark, bringing the company halfway to its target of £10m. The money will go towards opening a Brewhouse in Ellon as well as getting OverWorks, a sour beer facility, up and running.
• Pepsi has launched a Facebook Messenger chat bot called Bot-tler that allows people to order drinks at events.
• Internet giant Alibaba group announced that it will invest HK$22.4bn (£2.17bn) in China’s top supermarket operator, Sun Art Retail Group. Chief Executive Officer of Alibaba, Daniel zhang said: ‘Physical stores serve an indispensable role during the consumer journey, and should be enhanced through data-driven technology and personalised services in the digital economy’.
HOLIDAYS & LEISURE TRAVEL:
• Reuters has reported that NH Hotel Group has received a merge proposal from competitor Barcelo Hotel, which would create the largest hotel company in Spain. NH is currently valued at €1.75bn.
• The Department of State has warned US citizens planning to travel to Europe of a heightened risk of terrorist attacks during the festive period.
• The electronics ban for travellers coming from the Middle East and North Africa enacted by the US Department of Homeland Security has been lifted. However, enhanced security procedures on all US-bound travellers will remain in place, affecting on average around 325,000 passengers a day.
• Eurotunnel renamed itself to Getlink yesterday to ‘reflect the dynamism of connection and exchange’. Getlink transports more than 20 million passengers, 1.6 million trucks and 2.6 million cars across the Channel.
• Wizz Air will base 4 of the 430 A320s ordered by Indigo Partners at Luton Airport.
• October has seen US hotel occupancy increase 1.6% y-o-y to 69.9%, ADR rose 2.5% to $130.20 and RevPAR climbed 4.1% to $90.56.
FINANCE & MARKETS:
• Oil price down 35c or so at $62.61
• Sterling up a fraction vs both dollar and Euro at $1.3247 and €1.1285 respectively.
• UK 10yr gilt yield unchanged at 1.3%.
• World markets: UK higher yesterday with Europe & US also in the black. Asia up in Tuesday trade
• Brexit etc.:
o Senior cabinet ministers are understood to have agreed to pay more to leave the EU. The initial offer of €20bn may have been doubled. The EU has said that the offer needs to be increased & put in writing in the next 10dys if the talks are to move on to trade. The BBC quotes one ex-minister as warning that voters would "go bananas" if £40bn was offered.
o IEA suggests the EU’s ‘goodwill’ may not be worth €40bn. This may be about legal responsibilities rather than goodwill. The IEA says ‘the UK would be on strong legal ground if it simply decided to stop contributing to the EU budget after March 2019.’
PRIOR DAY LATER TWEETS:
• Later tweets: Coffer Peach Tracker shows pub & restaurant LfL sales +0.3% in October against inflation of 3.0%.
• Tracker. Regions > London. Pubs > restaurants. Worst quadrant, London restaurants (down 2.1%) facing worst cost environment
• Tracker: If London isn’t doing well but Fuller’s & Young’s are, then who’s getting the wooden spoon? Most companies report in next 4wks
• CGA Peach says falling real sales ‘won’t help business confidence in the sector.’ Much damage (capacity increases) is self-inflicted
• Corporate actions. City Pub Co floats but less good at Jamie’s Italian & Byron. Some parties selling assets, YNGA says it may be a buyer
• Discounts. 50% off mains at Bella Italia, £1 pizza (Black Friday offer) at Strada. Virgin Trains bacon rolls £1 (while stocks last)
• Marketing Week. Retailers may advertise their way to greatness in face of ‘shrinking Christmas spend…’
• ASOS market cap > M&S. Dignity shares down on VFM competitors. Market forces in the funeral industry.
• Tax raid on self-employed (via VAT threshold reduction) would hit street food hard. Would find it hard to compete in a VAT inclusive world
• Black Friday is a curse say retailers, reluctant shoppers etc. Advertisers probably love it.
START THE DAY WITH A SONG:
Yesterday’s song was Florence + The Machine with ‘Dog Days are Over’. Today who sang the follow:
I never wanted to be your weekend lover,
I only wanted to be some kind of friend,
Baby, I could never steal you from another,
It's such a shame our friendship had to end
RETAIL NEWS WITH NICK BUBB:
Kingfisher: Today’s Q3 update (for the period to Oct 31st) from Kingfisher is again very mixed, with strong sales growth in Screwfix (+10% LFL) and in Poland (+6% LFL) pulled back by disappointing sales at B&Q (-2% LFL) and continuing weak sales in the key market of France (-4% LFL). Nevertheless, the group says that is comfortable with adjusted full year PBT expectations of £785m, so the main interest will in why B&Q isn’t doing better, given the problems of its biggest competitor, Homebase. The poor performance of “seasonal” categories in B&Q, of -7.1% LFL, is, oddly, blamed on strong comps, with the slight dip in core B&Q sales attributed to the continuing issues of product availability caused by the much-vaunted One Kingfisher ranging programme.
AO.com: Today’s interims from AO World (aka AO.com) are also said to be “on track”, even though the group has moved into an adjusted EBITDA loss of £6.3m (versus a modest £1.5m profit). In the UK, the profit dip is blamed on “increased marketing expenditure”, whilst the heavy losses in Europe have stepped up a bit, “as we continue to invest in European expansion and build scale”. But the bulls will point to the much improved UK Q2 sales growth of 13%, as evidence of success, given “the challenging UK market conditions”.
News Flow This Week: This afternoon, the Q3 results from the most shorted US retailer, Signet, will be worth a look. Tomorrow brings the Quiz interims (and the Budget) and then on Thursday we get the Majestic Wine interims, the Mothercare interims and the Hotel Chocolat AGM. And Friday, in case you hadn’t noticed, is “Black Friday”…
Online Shopping Watch: Shopping Online through smartphones is all the rage, but a very interesting column by Michael Jary of the consultants OC&C in Retail Week magazine on Friday, headlined “The future of retail? You ain’t seen nothing yet”, implied that things will soon change again: “The smartphone is going to die, the way pagers and fax machines have done. We’re at least five and maybe 10 years away, but when it does the idea of holding in your hand the window to an online world will seem quaint”.