Langton Capital – 2015-09-30 – Eclectic Bars, Revolution, Saga, Sainsbury & other:
A Day in the Life:
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So it’s Q4 tomorrow, I mean where has the year gone?
The country’s pubs, restaurants and the like have been taking New Year bookings for an age now and Ocado is asking its loyal customers to have their Christmas orders in by the end of this week – so is there some sort of concerted move out there to encourage us to wish our lives away?
And, if you book your Christmas turkey in June, your next year’s holiday in August and your back-to-skool clothing whilst still in the maternity ward, what are you going to do for the intervening months or years if everything’s been prepared already?
Maybe you’ll have to fall back on the minor (or now not-so-minor) occasions such as Mothers’ Day, Valentine’s Day, Fathers’ Day and now, irritatingly, Halloween, which seem to have been promoted by the greetings card industry and the latter by the makers of dirty rags and pointy false teeth. On to the news:
Pub, Restaurant & Drinks Producer News:
• Eclectic FY numbers: Reports revenues down to £22.3m (2014: £22.7m) + underlying EBITDA down to £1.8m from £2.6m.
• Eclectic: Reports pre-exceptional losses of £0.5m, post exceptional loss £5.8m. Loss per share 44.7p or 0.3p loss underlying
• Eclectic: Says remains cash positive. Trading over summer ‘as anticipated’. Says has ‘attractive portfolio of sites’. Group says ‘despite a challenging backdrop, Eclectic…remains cash generative and has invested in a number of its units which are subsequently delivering improved performance.’ It says ‘management have swiftly responded to the challenging trading conditions by reducing head office costs, closing non-profitable nights, focussing on its food offer, rationalising its estate and renegotiating its principal supply contracts.’
• More from Eclectic: Group says it will benefit from cost savings over the coming months and says ‘future growth of the Group is likely to be through acquisition and development of small groups of trading sites with a focus on delivering greater food revenue.’ It says ‘trading over the summer was as anticipated and the Group expects to remain cash generative, with trading expected to be similar to FY 2015’ and Luke Johnson, Executive Chairman comments ‘much progress has been made in re-aligning the Group for today’s marketplace. The management team are taking the requisite steps to create a firm foundation for the future. Fundamentally Eclectic is a good company with a robust business model and an attractive portfolio of sites.’
• AB InBev bid for SAB Miller is still meant to be this week. It’s Wednesday now.
• Sapient Corporate Finance has advised Stonegate on the acquisition of 53 TCG pubs. The sites ‘the core of the TCG estate, which has been reduced in size by management from 143 pubs in 2009 to 62 today.’ Sapient says ‘the acquisition forms part of Stonegate’s strategy over the last four years to consolidate the town centre pub market and it now owns one of the highest quality town centre businesses with 665 pubs. TCG has a strong presence in the South East and London, where over half of the sites are located. Well-known sites within the portfolio include the Tattershall Castle flagship floating bar on the Thames, the St James Tavern just off Piccadilly Circus and the Duke of Wellington in Soho. ‘ It adds ‘Sapient has worked together with Stonegate on three transactions, including advising Stonegate on the acquisition of 78 pubs and bars from
• Drake & Morgan is looking at sites outside of London for its Refinery concept, writes M&C. Operations director Dylan Murray said the bar operator will also look at standalone sites as it looks to expand the business.
• M&C reports 68-strong Bill’s will open is set to open sites in Wycombe, Bishop’s Stortford and the Trafford Centre in Manchester. The group’s pipeline of upcoming openings also includes Greenwich, Sevenoaks and Birmingham’s Bullring.
• Fleurets’ chairman, Barry Gillham will stand down on 30 September and be replaced by Martin Willis. Gilham said: ‘The company’s new chairman Martin Willis and I have worked together for over thirty years and, as managing director for the past 10 years, Martin is the ideal person to guide the Board going forward. I shall keep my hand in by doing some rent reviews and arbitrations until I fully retire.’
• Elton Mouna has been appointed managing director of London pub company and brewer Remarkable Restaurants. The 15-strong group includes The Reliance and Barley Mow in Shoreditch and The Royal Inn on The Park, Hackney.
• Stonegate Pub Company has this week introduced a ‘Speed Interview’ event to accelerate promotions within the business.
• The Rathfinny Wine Estate has forecast a doubling in capacity and production of English vineyards over the next seven years. There are currently 470 vineyards and 135 wineries in the UK. The latest figures show that English Vineyards have been growing on average 11 % a year over the last 10 years.
• Research from the University of Gothenburg suggests drinking two pints of beer a week could reduce the risk of heart attacks in women. Dominique Hange, researcher at Sahlgrenska Academy, commented: ‘Previous research also suggests that alcohol in moderate quantities can have a certain protective effect, but there is still uncertainty as to whether or not this really is the case.’
• J Sainsbury Q2: Saw total retail sales inch up 0.3% ex. fuel although LfL sales ex. fuel were down 1.1% for the 16 weeks to 26 September. The grocer now expects full year underlying profit before tax to be ‘moderately ahead of published consensus’ as volume and transactions continue to grow, albeit at lower prices.
• SBRY opened 27 c-stores during the period and increased its number of click and collect sites to 52. The first six weeks of its Tu clothing brand has exceeded expectations as clothing grew 13% thanks to the Back to School campaign. Sainsbury’s Bank continues to trade well, seeing a 35% rise year on year in travel money transactions in July.
• More from SBRY: Mike Coupe, Chief Executive, said: ‘During the quarter we saw an improvement in our key trading metrics. Both volume and transactions grew as the decline in average basket spend in supermarkets continued to stabilise. Whilst the market is clearly still challenging, with food deflation impacting many categories, we are making good progress on delivering our strategy.’ Group adds ‘Year-to-date we have traded well, with both sales and cost savings ahead of expectations. Should current market trends continue, we expect our full year underlying profit before tax to be moderately ahead of our published consensus.’
• Morrisons has become the latest supermarket to increase its hourly payment, from £6.83 to £8.20, for its store employees. The rate exceeds national living wage requirements and could go as high as £8.95 for workers in London stores. Earlier this month, Lidl announced it is to pay a minimum of £8.20 an hour.
• Amazon’s Amazon Fresh online grocery service is available in Birmingham and will extend to London next month before a full launch early next year.
Holidays & Leisure Travel:
• Saga H1 numbers. Says is ‘on track to meet market expectations for the full year’ with EBITDA [travel + fin. Services] +5.2% in H1
• Saga H1: Has seen ‘sustained cash generation leading to further deleveraging’ and announces maiden H1 dividend of 2.2p
• Saga H1: Total group EBITDA £130.6m (+0.8%), PBT £101.3m (+140%), EPS 7.3p v 3.3p last year. It has seen continued growth in travel, says the total number of contactable people on the Saga database increased to 11.0m at 31 July 2015 (31 July 2014: 10.6m) and says ‘the number of active customers was broadly stable in the 12 months to 31 July 2015 at 2.6m (12 months to 31 July 2014: 2.7m).’ CEO Lance Batchelor comments ‘I am pleased to report continued momentum in both our financial performance and in the implementation of the strategic initiatives that we announced earlier this year.’ He adds ‘continued strong cash generation has allowed us to further reduce our debt ratio and the solid performance in our core businesses of financial services and travel has meant positive growth in underlying profitability. This growth was partially offset by the impact
• Peel Hotels H1. Sales +4.6% to £8.95m, REVPAR +7.1%, PBT +25.5% to £497k. Chairman Robert Peel said ‘Improvement continues however cost pressures, both payroll and operating expenses, have to an extent nullified the excellent growth achieved in Revpar in the period. Cash flow is strong and we continue to decrease our debt thereby reducing the cost of finance on an ongoing basis. We expect another year of satisfactory progress.’
• WSJ reports Airbnb is putting some downward pressure on hotel prices in the US. It says ‘in New York City, Airbnb listings last week reached nearly 20,000 during the pope’s visit’. This compares with NY’s c116k hotel rooms and the WSJ adds ‘the pope’s visit isn’t an isolated case. Hotels in Louisville, Ken., saw a surge in competition from Airbnb listings during the Kentucky Derby, while hotels in Palm Springs, Calif., experienced the same around the Coachella Valley Music and Arts Festival’.
• Vail Resorts has increased revenues by 11.6% to $1.4bn for fiscal 2015. EBITDA rose by 36% to $365.8m
• The pace of growth for London hoteliers in the first half of 2015 has been mixed, according to analysis from PWC. Performance metrics are still high by global city standards but the weak euro is proving a problem. Meanwhile the regions have had a strong year to date, with Belfast, Bristol, Birmingham, Coventry, Liverpool, Nottingham, Plymouth and Southampton all registering double digit RevPAR growth.
• More than half of British business travellers stay at their preferred hotel brand even if the nearest property isn’t conveniently located. The study from travel management group Egencia found that 54% of business travellers always stay at the same hotel.
• Low-cost carrier Wizz Air has lifted its full year net profit forecast from €175-185m to €190-200m following a strong summer. The firm also said that ‘robust bookings’ are in place for the third quarter.
• Post conference vote, nationalising the railways is now official Labour Party policy
• Labour shadow chancellor John McDonnell has said he would opposed Heathrow expansion even if Labour Party supported it
Finance & Markets:
• Global equity markets yesterday hit 2yr lows with commodity prices also markedly lower. Some recovery globally later.
• World markets latest: UK + Europe down yesterday but US up later in the day + Far East up in Weds trade
• Oil up a little but only to around $47.80 per barrel
• Bank of England says real rates, those paid or received by real people, are still falling. Says time deposit rates fell by 30bps to 1.50% whilst ‘the effective rate on the stock of outstanding secured loans (mortgages) decreased by 1bp to 3.06% in August and the new secured loan rate was unchanged at 2.57%.’ It adds ‘the rate on outstanding unsecured personal loans decreased by 4bps to 6.84% in August and the new unsecured personal loan rate decreased by 3bps to 6.97%.’ Rates paid on credit cards, meanwhile, rose by 8bps to 10.41%.
• IEA has said Jeremy Corbyn has ‘a wrongheaded and regressive economic agenda.’
• IEA says new-old-Labour’s economic policies are deluded, outdated, severely harmful and profoundly damaging. No, go on; say what you think. The IEA says Corbynomics would hit the poor hard and adds ‘renationalisation of the railways would increase political meddling, bureaucracy and mismanagement. It would likely come with more state subsidies to attempt to lower fares. 60% of spending on rail fares is undertaken by the richest 20% of households. The Corbyn plan amounts to an inefficient subsidy to the richest from the poorest.’ It also says ‘proposals for a huge state house building programme are completely at odds with the indisputable evidence that the UK’s rigid planning laws are the cause of structurally high prices. Building new council homes where he thinks people should live is an attempt to sidestep, not tackle, that problem.’
Revolution – FY Numbers:
FY Prelims: year to 30 June 2015:
Revolution Bar Group has been busy in the wake of its March 2014 IPO investing in its existing units and strengthening its new site pipeline.
Group revenue has increased 2.9% to £111.8m (2014: £108.7m), with like for like sales up 3%.
Adjusted EBITDA is up 9.2% to £14.6m (2014: £13.4m) and adjusted profit before tax has risen 12% to £8.3m (2014: £7.4m). The group generated 12.8p of adjusted EPS in the year
Five new units are slated to open during year to 30 June 2016, with a similar amount of openings planned for 2017.
Trading & Operations:
Revolution Bars Group has invested some £5.7m back into its existing estate as it seeks to reposition its brand by introducing new premium products and a more ‘food-friendly’ environment.
The group has introduced higher priced draught beers and cocktails, as well as streamlining its food offer via a simple, quality menu and quicker service.
The group has renegotiated its principal drinks supply contract with Matthew Clark for a further three years.
RBG remains debt free and cash generative with a £9m inflow (2014: £5.5m)
The group’s exceptional items impacting statutory profit are its £5.4m IPO-related charge and a £1.2m onerous lease of a site in Lancaster.
Company Comment & Outlook:
Revolution Bar Group anticipates an effective tax rate of 23% going forward and notes that its previous year’s profit was boosted by a non-recurring tax credit.
Chairman Keith Edelman commented: ‘Our performance in 2015 has given us a solid platform and our current pipeline of new bars gives us the confidence that we can grow the footprint of the Group. With a clear strategy and our depth of management experience, we remain confident that the business is well positioned for future growth.’
Revolution has already earmarked five new sites to add to its existing 57 bars next year, three of which are scheduled to open in H1. The majority of the sites are expected to open under its five-strong ‘Revolucion de Cuba’ brand.
The bar operator added like for like trading over the past ten weeks has been in line with FY15 and that, although the market is ‘competitive and changing’, it is ‘confident that the business is well positioned for future growth’.
Management said they can see Revolution Bars Group growing to 100 Revolutions and 40 Revolucion de Cuba bars.
Langton View: Revolutions Bar Group has invested in its estate and has made solid progress on strengthening its pipeline of potential new sites. Its renewed focus on more premium drinks and a stronger food proposition should appeal to its target market of 20-40 year old women.
The group claims its brands ‘uniquely in the sector, focus on a core of female customers in the 20 to 40 age bracket.’ With more recent bar operators such as Drake & Morgan continuing to take their successful formats outside of London, Revolution Bar Group must continue to evolve its offer in order to remain relevant.
Consumer trends have changed a lot since RBG’s inception and the most recent ten week update reads cautiously despite the substantial investment in its bars. The company is cash-generative and debt-free, although it remains to be seen whether the operator can protect and grow its sales in a competitive and innovative eating and drinking out market. Jack Brumby – firstname.lastname@example.org
Retail Roundup from Nick Bubb:
Sainsbury: Ahead of today’s Q2 update from Sainsbury (for the 16 weeks to Sept 26th), the market had been softened up for a LFL ex-petrol sales decline of 1.2%/1.3%, so the reported -1.1% will raise few eyebrows, but the sting in the tail is the statement that “year-to-date we have traded well, with both sales and cost savings ahead of expectations. Should current market trends continue, we expect our full year underlying profit before tax to be moderately ahead of our published consensus (£548m PBT)”. That will certainly get the bears thinking, ahead of the 8.30am conference call, with few clues in the announcement on how Sainsbury has managed that P&L outcome, apart from a reference to “better availability in fresh food and lower than expected levels of waste”.
Topps Tiles: The pre-close update reports that, after 5% LFL sales in the final quarter, management remain comfortable with current market estimates for adjusted pre-tax profits for the year to end Sept.
Darty: In Paris and other major cities in France, Darty and FNAC have always been key competitors, so a merger has never seemed on the cards, but times change and today’s news of an all-share offer for Darty from Groupe FNAC will set tongues wagging in French retailing, and, as the offer values the shares well above the current price, at 101p, it is not surprising to hear that the Darty Board “has considered the proposal and concluded that it should further explore the benefits of a potential combination with Fnac”.
Super Tuesday Watch:
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:
Big ticket v small ticket spending:
• The former has been eclipsing the latter for some time.
• Car sales, carpets, furniture, holidays etc. have been buoyant whilst small-ticket leisure has been a little weaker than may have been expected. See earlier emails for details.
• J Sainsbury, which reports Q2 numbers tomorrow, was bold enough earlier this year to say that this was a phenomenon that it expected would have worked its way through the economy’s system by the end of the calendar year.
• Well it’s Q4 on Thursday and, though SBRY is only commenting on its Q2, it would be nice to see them say something mildly positive about spending patterns.
• Having said that, there’s plenty of time before anyone comments knowledgeably about Q4.
• In the meantime, our colleague Nick Bubb quoted furniture retailer ScS as saying that the setback in sales it suffered in April was temporary (probably pre-General Election worries) and comments ‘improving consumer confidence in the UK and a robust housing market supports our belief that demand for high ticket items, and in particular for furniture and floor coverings, will continue to grow.’
• Perhaps ScS would say that, wouldn’t it but numbers from various operators, from the Coffer Peach Tracker & from other sources tend to suggest that big ticket continues to take more than its share of consumers’ free cash flow.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Revolution. Aims to double the number of Revolucion de Cuba outlets from 5 to 10 in the next year. Something must be going right.
• Rugby. So did the pub companies’ shares fall yesterday on the back of England’s possible exit from the Rugby World Cup? Well, given that everything seemed to be in free-fall, it was hard to tell.
• World markets. There’s an attempted recovery going on. Just in time to coincide with the Chartists’ most dire warnings about breaking out on the downside, etc. On a less humorous note, the US indices in Q3 this year are set to turn in their worst quarter (not just their worst Q3) in 4yrs.
• With regard to world markets, the word ‘ominous’ is getting an airing. It won’t be long before someone reminds us that the crashes of 1907, 1929 and 1987 all occurred in October. Check the calendar and cue Twilight Zone music.
• It was a big risk-off kind of day yesterday. National Grid up, miners, oils and the like, down.
• Interest rates. Fed leaking that rate rise ‘this year’ still looks likely. Reuters poll suggesting Q1 next year for a similar move in the UK. Both dates pretty much in line with consensus.
• India cuts rates by 50bps to 6.75%. Shows rates can go down as well as up. On the subject of rates, everyone’s favourite uncle Carl Icahn is tweeting that low interest rates may have created (unspecified) asset price bubbles.