Langton Capital – 2015-09-22 – Daily Wrap: Mitchells & Butlers, Rugby, Deliveroo & 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:
Mitchells & Butlers profit warning, CEO departure:
• Following M&B’s announcement this morning, there are a number of points that are arguably worth making. For want of a better idea, we’ll cluster these under the headings of CEO and trading.
• M&B jettisons CEO:
o One person is not to ‘blame’ for M&B’s sluggish performance.
o It follows that changing one man, whilst under ideal circumstances the newcomer may prove inspirational, will not ‘solve’ these ‘problems’
o M&B has now had five (I think) chairmen, five (I think) CEOs and three (I think) CFOs in the last six or seven years. By way of contrast, Rooney Anand has been CEO at Greene King since 2005, Ralph Findlay has occupied the top spot at Marston’s since 2001 and John Hutson has been CEO at JD Wetherspoon since about 1066.
o To structure the RNS statement such that it welcomes a new CEO before it concedes that it has jettisoned its existing CEO is, just maybe, a little rude.
o Phil Urban has an extremely good pedigree & we wish him well but attempting to turn around a super-tanker is unlikely to be easy and, in a licensed sector offering would-be shareholders a wide choice of investments, we see value elsewhere.
• M&B trading remains below par:
o The group says ‘the UK eating and drinking out market has been subdued in the summer leading to a slight slowdown in the rate of sales growth, exacerbated by the wet weather.’
o In actual fact, trading at the LfL level has moved from plus 1.4% in the 43wks to 25 July to minus 0.7% in the 7wks to 12 September.
o Hence we would suggest that the slowdown has been more than ‘slight’ and growth has actually been replaced by decline.
o Doing the maths on the Coffer Peach Tracker has suggested for some time that M&B has been a relative loser.
• Other comments:
o M&B has brands & sites to die for – and we hope that won’t be taken literally.
o But there might be – just might be – a 1980s or 1990s feel about some of the group’s prime assets.
o Suggesting as much may be a capital offence but, with WTB pushing Costa, Greene King going the acquisition route, Marston’s building new sites like fury and JD Wetherspoon moving into breakfasts, SA Brain into coffee shops, Fuller’s into The Stable, Young & Co into Geronimo and the rest, may there not have been something missing at M&B over recent years?
o And Red’s, Nando’s, Franco Manca and a dozen better-burger companies alongside other innovative, entrepreneurial companies have been on a tear over recent years leaving the devil, so it would appear, to take the hind-most.
o M&B’s shares, now 340p or so, peaked at nearly £5 leading some to suggest that perhaps Joe Lewis (who snaffled Mr Tchenguiz stock at around 130p), is a better buyer than he is a seller (let alone operator).
o Here’s a thought, why not break M&B up? Turkeys (executive directors) don’t often vote for Christmas but, with Mr Lewis & Elpida owning around half of the company, this is a real option.
Rugby World Cup – Friend or Foe?
• The rugby is boosting wet sales.
• Unfortunately, it is also depressing food sales.
• The switch over the medium term from the former to the latter is a ‘good thing’ but, in the short term, it is unlikely to pay dividends.
Langton Looks At……….Deliveroo:
Replete as it is with Generation Y talent, Langton Capital looks to have its finger on the pulse of the evolving UK restaurant industry. It was this commitment to the cause in mind, coupled with an unwavering passion for burgers, which led the team to sample the food on offer at online delivery service Deliveroo this weekend. The London-based tech company hit the headlines this summer after raising $70m in its series C funding round, having seen daily orders increase by some 500% since its last £16m fundraising in January.
Deliveroo teams up with restaurateurs in search of additional revenue streams — all that’s required to establish the service from the branded food chain’s perspective is a tablet and a Bluetooth printer, both of which are provided by Deliveroo. The online delivery firm takes care of all the packaging, deliveries, bookings and even the setting up of an online menu, deriving its revenue through the flat £2.50 delivery fee (which drops to £2 for orders under £15) and commission from its restaurant partners. The platform works with over 2,000 different locations including Gourmet Burger Kitchen, MEATLiquor and The Real Greek.
With the likes of Greenoaks Capital, Accel Partners and Hoxton Ventures providing it with the capital for future growth, Deliveroo is now expanding into France, Germany and Ireland as well as the Middle East and Asia (according to the very busy CEO William Shu). The firm seeks to differentiate itself from Just Eat and Hungry House by delivering branded restaurant food (as opposed to the ‘mystery meat’ vendors sometimes found on Just Eat) to the consumer. Its website says that the average Deliveroo order takes just 32 minutes to reach your front door, for a fixed delivery fee of £2.50.
The group’s online profile is growing fast but still lags its more established rivals. Worth mentioning is its lack of an app on Google’s Play Store and the fact that its iOS app was only launched in August – mobile and tablet app stores are a key battleground here and its performance along these metrics will be a useful gauge for the company’s growth going forward (for interest only, formatting not wonderful):
Deliveroo, Just Eat, Hungry House, Domino’s Pizza UK
Google Apps n/a (iOS app intro’d in August) 1m+ downloads; 32,563 reviews rating it 4.4/5 1m+ downloads; 11,292 reviews rating it 3.8/5 1m+ downloads; 36,544 reviews rating it 4.4/5
Twitter 20.5k followers 99.1k followers 59.7k followers 241k followers
Facebook 70.5k likes 1.14m likes 302k likes 962k likes
So, in the name of research Langton dutifully ordered burgers all round from trendy Hoxton-based MEATmission for the reasonable sum of £47.50. The Deliveroo driver reached our equally trendy Aldgate office 10 minutes earlier than expected with said burgers (and chicken wings, and chips, and cans of coke). Langton can confirm that the food was good (with the exception of McDonald’s-style lukewarm chips) and, all things considered, provided MEATmission with business which we would otherwise have taken to the nearby Sainsbury’s.
Langton would argue that, for the branded restaurant chain looking for additional income streams, Deliveroo provides access to customers who would otherwise have spent their money elsewhere. Operating costs are presumably low as the delivery service does most of the leg work, and the promotional potential of the partnership stands to increase one’s customer base, rather than cannibalise existing sales. Jack Brumby firstname.lastname@example.org
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Thomas Cook update Thursday should be good. Shares down today, however, as co finds it impossible to swim against the stream.
• Market sharply lower on China, Greece & you-name-it fears. Sometimes it’s just appropriate to go down. I prefer to turn a deaf ear to those who say there should be 7-8yrs between cycles and we last peaked in 2007-8 so……
• Markets: If we rely too much on bids to hold the market up does that suggest that it lacks firm foundations? Not really but, on a day when things go down, there may be some that take this line of reasoning.
• Small ticket spending: We’re placing bets that demand will pick up towards the end of the calendar year. Rising real incomes are likely to be a positive factor. NLW will put a few quid in wallets at the end of every week & there’s a good chance that this sort of money gets spent down the pub. Big dollops of cash, a.k.a. PPI compensation payments, will have bolstered big-ticket spending.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. M+B replaces CEO, warns on profits CEO Alistair Darby is to leave the company, Phil Urban, COO for last 18mths, to replace him
a. M+B replaces CEO: ‘Alistair Darby will step down as CEO on 26 Sep, and will retire from the Board + leave Company on that date.’
b. M+B replaces CEO, warns on profits: LfL sales +1.3% for 43wks of current FY but sales in 7wks to 12 Sept down 0.7%.
c. M+B: ‘UK eating + drinking out market has been subdued in the summer leading to a slight slowdown in the rate of sales growth’
d. M+B replaces CEO, warns on profits: slowdown ‘exacerbated by the wet weather.’ Profits will ‘show growth on last year’ but be bottom of range
e. M+B replaces CEO, warns on profits: Aims to convert 40 units next year. Departure of Mr Darby not entirely unexpected. M&B sales lage
2. AG Barr H1 numbers, turnover £130.3m v £135.7m, down 2.8% adj. for impact of discontinued business
a. AG Barr h1: Adj. PBT up 3.3% at £17.8m, says ‘Funkin business is performing well against our pre-acquisition expectations’.
3. Small ticket spending been under pressure from big-ticket rebound, cars, carpets, furniture, holidays etc. This should abate shortly
4. NLW + small ticket spending: This should be a boost. PPI came in dollops was spent on large ticket, NLW will be a drip-feed.
5. Pub operator and brewer Brakspear has appointed Ed Turner, formerly managing director of Geronimo Inns, as director.
6. Thomas Cook to update on Q4 Thurs. Various on-trade + general retailers have suggested more Brits were overseas in August
a. TCG: Strong pound, better UK economy, pretty drab August weather + general desire to get away from it all should have boosted Q4
7. BoE deputy governor Jon Cunliffe appears to have contradicted Andy Haldane’s recent comments that rates could go down
8. Fed Bank of Atlanta President Dennis Lockhart says he still sees Fed’s interest rates rising later this year