Langton Capital – 2015-09-23 – Shepherd Neame, Diageo, GNK Tracker, Carnival & other:
A Day in the Life:
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On the odd occasion I’ve had to use my good lady wife’s phone and, despite it being the same model as mine, boy doesn’t that feel weird.
In fact it’s a vaguely disturbing experience.
Everything’s familiar but different. You’re temporarily in some parallel universe added to which you feel as though you’re intruding on someone else’s life which, in fact, you are.
It’s like a cross between going through someone’s desk and tipping their handbag or briefcase on the floor and, I would suggest, it should be done only in the direst of emergencies – for example when you need to order a meal from the local Chinese restaurant and you’ve left your phone at home. On to the news:
Pub, Restaurant & Drinks Producer News:
• GNK Tracker points to spending growth. Says growth in earnings a major driver + confidence on the up. The Tracker comments that the ‘strongest growth in real earnings for a number of years is no doubt playing a lead role in sustaining the upward trend in consumer confidence that we’ve seen throughout the year.’
• GNK: Spending in Aug ‘crept upward year-on-year’. Says spend on Eating Out ‘led the charge’. Says Xmas looking good. The Tracker comments that ‘British positivity was also evident in this month’s special focus looking forward to Christmas, which shows a much greater appetite among Brits for spending more over the festive period rather than less year-on-year.’ Forward visibility is notoriously poor but this year looks better. GNK says ‘with many Brits planning ahead for the holidays, it was also reassuring to see it’s not just those in our industry who are planning for Christmas all year round!’
• GNK: Ave. Brit household spent £222 on out of home leisure in Aug, up £1 or 1% on last year, up £17 (8%) m-o-m. Though sluggish, GNK says this is driven by ‘little change in the headline rate of inflation and the fastest rate of earnings growth in six years’.
• GNK: ‘Year-on-year, Eating Out saw greatest growth in spend’. Was +£8 (9%). Drinking out down £1 (2%).
• GNK re Xmas: Says feels good but ‘over half of British adults who intend to celebrate Christmas reported they have not set aside any money to cover the cost of the festive period and had no plans to do so.’ Sys ‘the majority of British adults reported they expect to spend the same amount covering the costs of the Christmas period year-on-year.’
• GNK: Cautious re some elements of economy. Says ‘uncertainty around the stability of the Eurozone and China’s economy continues to prompt those at the Bank of England to keep interest rates low, helping sustain buoyancy in consumer confidence’ but adds ‘however, Britain is not immune to the economic woes of its trading partners and will no doubt feel the impact should difficulties persist longer term.’
• GNK: Regionally, London + S/E leisure spend +£2, rest of Britain £0. Says has seen ‘growth in holidaying abroad this year’.
• Shepherd Neame FY numbers: Operating profit rose 5.1% to £14.1m as LfL managed pub and hotel sales increased 6.1%. Statutory profit before tax leapt 22.1% to £9.4m despite turnover falling 0.3% to £138.3m, pushing basic EPS up 17.2% to 49.1p. Like for like tenanted EBITDAR grew 2.4%. compared to 7.1% in its managed estate, while the group’s core own and licensed beer volumes were up marginally 0.1% thanks to strong growth from its Whitstable Bay and Samuel Adams Boston ranges.
• Shepherd Neame FY: The group has proposed a 3.1% increase in its final dividend to 21.4p on the back of its encouraging performance and notes that current trading for the 10 weeks to 5 September has seen LfL sales in Managed pubs and hotels increase by +6.5%, while core own and licensed beer volumes (ex contract brewing) to 5 September has gone up +8.6%. Meanwhile LfL EBITDAR from tenanted pubs to 29 August has risen +1.8%.
• Shepherd Neame FY: CEO Jonathan Neame commented: ‘This has been a successful year for the Company with positive evolution of our strategy and a strong financial performance. We have built a high-quality asset base over a long period of time and this year have made a number of exciting new additions to our beer and pub portfolios. Whilst the industry remains very competitive we are confident that we have a robust strategic, geographic and financial base from which to continue to grow.’
• Diageo updates at AGM, says ‘year has started well and performance is in line with our expectations.’ It says ‘volume has grown mid-single digit reflecting both improved volume growth trends and comparison against weakness at the start of last year, especially in US spirits. We have continued to deliver positive mix but, as we expected, price increases have been muted.’
• DGE AGM. ‘For the balance of the first half we face a tougher comparison against the phasing of shipments last year’. It adds ‘our outlook for this financial year included the possibility that further currency weakness could impact demand for premium spirits in the emerging markets.’
• DGE cautious on currency + says ‘from F17 we expect to deliver mid-single digit organic top line growth on a sustained basis’. This should enable ‘operating margin expansion of 100 basis points over 3 years.’ The group concludes ‘our brands, our global footprint and our people give me confidence that Diageo can deliver strong and sustained performance.’
• Richoux H1: Reports sales +0.3% at £6.7m, adj. EBITDA +1.1% at £0.8m, has 19 restaurants trading, £4.4m cash. Chairman Philip Shotter reports ‘we are pleased to announce another solid set of results.’ He adds ‘towards the end of the period we opened our seventh Dean’s Diner site at Hempstead Valley in Kent which is trading well.’ He adds that the group recently opened its first Richoux for a number of years and says ‘we are delighted with the way that we have been able to capture the look and feel of the other Richoux restaurants in what is effectively a newly constructed unit. The early signs of trading from the restaurant are promising.’
• Rugby, friend or foe (Tues Wrap below). Good for wet led, poor for food-led pubs. Shouldn’t change strategy but will show thru in numbers
• Tenanted houses should perform relatively well over Rugby World Cup. Tend to be wet-led, often suburban. Next pub numbers, Shepherd Neame today, MARS Q4 update 14 Oct, PUB & ETI FY numbers on 12 and 17 Nov respectively
• M+C says Alistair Darby brought ‘semblance of stability’ to M+B. Hopes ‘this good pub man is not lost to the sector for too long.’
• Soho House Group has sold a 50% stake in its restaurant business to a private partner as it aims to grow the brands further, writes M+C. The company, which issued £200m of senior secured notes last week, has set up holding company Quentin Ltd to oversee its Pizza East, Dirty Burger and Chicken Shop concepts and will remain in charge of the expansion of these formats.
• Managed pub and bar operator TCG has made a strong start to both the Rugby World Cup and to its Proud of Our Ale Festival. COO Nigel Wright commented: ‘The makeup of the TCG estate with many strong, drinks-led sites, really comes into its own for big sports occasions and sales across our sites showing the rugby were well ahead of last year, not just on Friday but over the whole weekend. Our flagship sports pub, the F3K in Fulham, more than doubled last year’s sales, thanks to fantastic planning by the team and an international customer base which meant there were good crowds for matches other than just the England v Fiji game.‘
• Groupon is to cut 1,100 jobs worldwide this month
Holidays & Leisure Travel:
• Carnival Q3 (to end-Aug) numbers: Is ‘the company’s strongest quarterly non-GAAP performance on record’.
• Carnival Q3: Constant dollar net revenue yields +4.3% beating June guidance of ‘up 2% to 3%’. EPS 175c v 158c in 2014.
• CCL – outlook: ‘At this time, cumulative advance bookings for H1 2016 are well ahead of last year at lower constant dollar prices’.
• CCL re full year. Says FY net revenue yields on a constant currency basis should be +4% v last year. FY EPS s/be c38c v 27c last year. President and Chief Executive Officer Arnold Donald reports ‘our third quarter non-GAAP performance was the strongest of any quarter on record’. He adds that this was ‘despite a slight drag from the net impact of fuel prices and currency.’ He says ‘clearly our ongoing investments in the guest experience, combined with our global marketing and public relations efforts along with our initiatives to leverage our scale are having a positive impact’ and says ‘in 2015, we are on track to achieve a nearly 35 percent earnings improvement and we are accelerating progress toward achieving double digit return on invested capital in the next three to four years.’ Re the future, Mr Donald reports ‘looking
• Global hotel prices could rise by 2.5% in 2016 although there will be significant regional variations, according to Carlson Wagonlit Travel. While hotel rates in N. America are set to rise 4.3%, growth in Europe is forecast to be a more subdued 0.7%.
• Uber has introduced car-pooling service Uber Pool in India. The online company is said to be growing 40% a month in the country despite competition from rival Ola Share, which is gearing up to launch in five Indian cities.
Finance & Markets:
• IMF’s Christine Lagarde has said that ‘achieving world development goals [is] more difficult than in the past’.
• China factory activity down for 7th consecutive month in Sept. PMI hit 47 v 47.3 in Aug. Any number <50 implies contraction
• World markets: UK sharply down yesterday on miners’ falls. Europe down on Volkswagen etc., US down and Asia lower Weds
• Oil down below $49, trading around $48.80
• Consumer confidence down in Eurozone in Sept per flash data
• Falling commodities prices and concerns over China’s economic growth prospects continue to unsettle global markets. Wall Street losses neared 2% while the FTSE 100 endured a similarly torrid day, falling below the 6,000 mark once again.
• The US Federal Reserve could increase interest rates in December, according to economists polled by Reuters. A 60% probability was assigned to rates going up at the end of the year.
• Government borrowing was higher than expected in August, rising £1.4bn from a year earlier to £12.1bn according to the ONS. Total debt was £1,506bn at the end of August – up £68.9bn on a year earlier. A Treasury spokesperson said: ‘Britain’s hard work is paying off with cumulative borrowing £4.4bn lower than at this point last year. We have more than halved the deficit but there’s more to do with debt remaining higher than 80% of GDP.’
• The Asian Development Bank has lowered its forecasts for Asia’s developing economies from 6.3% to 5.8% this year and from 6.3% to 6% in 2016. The bank said slowing growth in China and India would affect demand in the rest of the region.
• The Council of Mortgage Lenders has warned that although the number of outstanding interest-only mortgages is falling, more must be done.
• More homes were sold in the UK in August than any time since February last year, according to seasonally-adjusted data from HMRC. A total of 106,480 homes were sold during the month – the third month in a row of more than 100,000 – although the figure remains below the close to 150,000 seen during the housing boom in 2006.
Langton Looks At……….Deliveroo:
This article was first distributed in Tuesday’s Daily Wrap: 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.
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
Retail Roundup from Nick Bubb:
Grocery Market Share Watch: The latest monthly Kantar Grocery data came out yesterday (for the 4 weeks and the 12 weeks to September 13th) and, as we had expected, on a line through the dull weekly sales trend at Waitrose (Waitrose total sales growth slowed to 0.9% in the 4 weeks to Sept 12th, with LFL sales probably c1% down), the news was pretty dreary for the “Big 4” overall. Performance was very mixed, however, over the last 4 weeks, with Sainsbury doing well (up 2.2%, helped by good Non-Food sales) and Tesco and Morrisons only slightly down (by 0.3% and 0.2% respectively), but Asda was as much as 4.2% down…which implies that the “green shoots” that the embattled CEO Andy Clarke claimed to have seen back on August 18th (when he said the poor Q2 sales performance was Asda’s “nadir”) have shrivelled to nothing!
House of Fraser: the Q2 update published yesterday morning noted that, after a “challenging” August, LFL sales growth has slowed sharply in the last 7 weeks, despite a better September. On the Bondholder’s call, the new CEO Nigel Oddy claimed that in August HOF outperformed John Lewis as JL was -3% and HOF was +1, but (ex Electricals and Home) the uncomfortable truth is that John Lewis Fashion has significantly outperformed HOF over the last 7 weeks…
Nick Bubb – email@example.com
This was produced for distribution yesterday afternoon: 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:
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.
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.