Langton Capital – 2015-08-28 – Daily Wrap: Restaurant Group, more on evolution, confidence, spending & other:
Leisure Wrap & Other:
So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following. As always, contact us if you’d like further details:
Restaurant Group H1 numbers:
• The Restaurant is performing relatively well.
• LfL sales are + 2.5% in H1 (26wks) having been up 2.0% at w19 (the group’s AGM)
• This suggests an acceleration in Q2 but 1) this could be a rounding difference and 2) the group was up against soft, World Cup comps last year
• The group is set to open around 45 units this year and Alan Jackson, Chairman, says that the group could double its estate in 8-10yrs
• This implies that the current rate of openings (the group has around 470 units at present) will continue for the next decade
• That’s a big ask. Elephants can’t jump and there may not be millions of would-be customers out there who cannot find a restaurant at the moment
• RTN is well positioned & well-known to developers but this expansion is not a given; it may or may not happen
• Competition may pick up etc. etc. and, who knows, the group may have to turn to the High Street once again in order to expand – and here the competition really is brutal
• Hence it comes down to ratings.
• RTN is slated to earn around 30p this year. It is growing earnings by 12% but c2% of this is a tax boost & therefore a one-off. PBT is growing by 9.6%.
• The group is therefore priced at around 23x prospective earnings & that seems like quite a high price to pay for 9.6% growth – however certain or perhaps uncertain that may be
• Additionally, the group has an EV of around £1.4bn (nearly all equity, very little debt) suggesting that its restaurants are being valued by shareholders at around £3m
• A small proportion of the group’s outlets (i.e. most of its c50 pubs) are freehold & £3m is quite a lot to pay for a leasehold unit that should cost less than £1m to build. As a point of interest, the group spent £14.4m in H1 in opening 12 sites.
• Whilst acknowledging the group’s undoubted strengths, we believe that RTN’s valuation is stretched & would be inclined to take profits at these levels.
Evolution in the UK on-trade:
• Repetitive info but nonetheless important for being a tad boring
• Today we have burgers evolving (mentioned here before) & beer sales under pressure (mentioned here before).
• We also have mention of contactless payments. These have trebled in a 12 month.
• Pubs, Costa, even London Underground for heaven’s sake have the facility meaning that those who don’t (the food retailers, for example) may look a little ‘so yesterday’ before too long.
• Admittedly the £20 limit (£30 from next month) is not much of a problem for Costa or The Tube but it may be for Sainsbury, Tesco, etc. – and there’s nothing antagonises a queue like a busted transaction…
Oil prices, input costs etc.
• Oil yesterday staged its biggest price bounce in 6yrs
• It’s only going back to levels of a couple of weeks ago – and the economics (Iran, slowing China, fracking etc.) suggest that prices should remain weak – but it’s worth keeping an eye on this as 1) it’s an important input in terms of costs, 2) it’s price has an influence on what cash punters have left after they’ve filled their car’s tank and 3) it will be watched by the Fed & the Bank of England & those bodies have the power to change all of our lives.
• September for the Fed is still an option.
• But it’s looking odds against.
• However, and simply in order to get the ball rolling, a rise, maybe even only of an eighth of one percent, is more likely this calendar year than not
Confidence, consumer spending etc.
• We have gone with the Big Ticket > Small Ticket story for some time now.
• This should be finite, we’re betting on it to tail off towards the end of the calendar year.
• But in the meantime it would go some way to explaining why consumer confidence (see Mr Bubb on GFK in earlier email) is not feeding through to High Street spending – at least not yet
Random information, hopefully not all of it useless (re most leisure operators etc.):
• UK share prices flirting with zero change.
• US markets messed around yesterday & then surged in the last hour.
• Sentiment is pinging around. When the markets fell, there was talk of QE4 in the US, now they’re rising, there’s talk of rate rises again
• Weaker Euro should help Pernod, Heineken etc. when reporting results. Stronger US$ will have the opposite effect on AB InBev etc.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. RTN H1 numbers show ‘strong trading performance across all brands with good growth in turnover, profit and margins’
a. RTN reports sales +8% at £334m with LfL sales +2.5% and operating margins some 10bps higher.
b. RTN H1. PBT +10% at £36.9m, EPS+12% at 14.3p and H1 dividend +11.5% at 6.8p per share. 12 sites opened H1, 43-48 expected for FY
c. RTN CEO Danny Briethaupt reports co ‘ has delivered another strong set of results, with good growth across all key performance measures’
d. RTN chairman Alan Jackson reports the group could double in size over the next 8 to 10 years.
2. Mintel reports that burger sales are growing in UK, powered by the growth of ‘better burgers’. Suggests growth of 4.5% in sales this year
a. Mintel reports 12% of those surveyed aged 16-34 had switched from ‘normal’ to a ‘better burger’ restaurant in last 3mths
b. Drinks Business ranks UK burgers, no1 is Patty + Bun, no2 is Bleeker St Burger + no3 is Meat Liquor’s Dead Hippy Burger
3. Pernod Ricard yesterday reported FY sales +8% (+2% organic) in year to June. Net profits down 15% at €880m.
4. BBPA reports dip in beer sales Q2 on back of ‘an early Easter + the impact of the World Cup 2014.’ Says sales ‘disappointing’
5. Barclaycard reports contactless spending has trebled in the last year. It’s new on the block but the innovation is certainly one to watch
6. Greene King has said that it will convert the Spirit HQ in Burton into a research + innovation centre
7. Turkey specialist Exclusive Escapes and flight only specialist Fone N Fly are reported to have ceased trading per trade press
8. ABTA has suggested that 1.9m Brits will travel overseas this weekend. Visit England suggests that 4.5m will holiday in the UK
9. Bwin H1 numbers. CEO Norbert Teufelberger reports ‘clean EBITDA increased by 2% year-on-year’ but was +24% ex tax changes.
a. 888 H1 numbers, says has been ‘another very encouraging performance driven by our core expertise’
b. Bwin yesterday confirmed that ‘key aspects of GVC’s proposal have now been addressed to bwin.party’s satisfaction.’
10. World markets: UK + Europe higher. US up in later trading + Far East mostly higher in Fri trade. Oil price spikes up.
a. US economic growth has been revised up for Q2 to annualised 3.7% v a first estimate of 2.3%, Eurozone commercial lending higher
b. Nationwide reports house prices up by an annualised 3.2% in August, the slowest pace since mid-2013