Langton Capital – 2015-11-17 – Daily Wrap: Enterprise, inflation, Restaurant Group & 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:
• See flash note below.
• Enterprise managed to reassure that it is moving from the strategic thinking stage (post MRO) into execution.
• Fortunately for the group and for its shareholders, it has a portfolio of, for the most part, very good pubs and has a number of options available.
• The group has a future as well as a past and, that being the case, a PER of c5x looks a little too low.
(Lack of) inflation:
• UK CPI remained at minus 0.1% in October per the Office for National Statistics
• The news may dampen interest rate rise chatter
• B of England had previously said that the economy was weakening and such (lack of) inflation news is consistent with this view
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Interesting to see shares in Restaurant Group have gone precisely nowhere over the last 2yrs.
• Sterling up sharply against Euro. Will benefit holiday companies & holidaymakers, hurt exporters etc. Sterling stable v US$.
• No change re commodities, almost all pants.
• Defensive day on the markets yesterday but reversed today. Leisure travel badly hit Monday + only partially recovered today.
Enterprise Inns FY Results: Analysts’ Meeting:
• Following the release of its full year numbers earlier today, Enterprise Inns hosted a meeting for analysts and our comments are set out below:
• Trading: Strategy (below) is perhaps more important than short term trading but the group was nonetheless able to say that tied pubs have performed well.
• The macro situation is ‘a little better’ but the MRO is an unknown & there is a lot of restaurant capacity going on
• The group has recorded a second consecutive year of positive LfLs and business failures are down. These ran at 7.9% in FY15 and may stabilise between 6% and 7%
• Profits from both beer retailing and rent were up (by £1m and by £2m respectively)
• Investment will be ongoing – but this will be concentrated on short leases, tenancies and to-be managed units
• The first 6wks of the new financial year have been ‘good’, the group’s tied offer will be re-launched in the spring and conversions and disposals, in line with the group’s may 2015 strategy, will continue
• Balance Sheet: >90% of assets are now valued externally. The write-down may have been ‘a little higher than anticipated’ but it was focused in the North & the Midlands
• Value is now ‘underpinned’. Shareholders’ funds are some 270p per share. The group has 21% of its assets valued at >£1m and only 23% valued at <£0.5m
• Debt is falling. It was 8.1x EBITDA in FY13, 8.0x in FY14 and 7.8x in the year just reported
• Strategic Highlights: The group’s evolution is ‘on track’. It now looks at each pub & allocates it into one of eight categories. It then executes on any change in status (including disposal)
• By May 2016 ETI will have dealt with some 200+ MRO trigger events & will be able to report more knowledgably on how tenants and lessees are reacting
• The group still believes that a large number of lessees will remain tied. Commercial leases carry with them a whole new level of risk
• Investment is likely to fall, the group is offering no new long leases & the number of managed and franchised units is bound to rise
• The group is using surplus space & will take back some leases to manage units itself when these come to the end of their leases
• The group’s Craft Union managed pubs are averaging £7k per week (this should rise), Bermondsey pubs average £11k and the Hippo pubs(only one open) should achieve c£22k
• Langton Comment: Enterprise has reassured that it has moved into the execution phase of its transition and has shown that this need not be associated with a sharp drop in profits.
• The group insists that it has a ‘clear line of site’ in terms of its transformation. It will release KPIs alongside its half year and full year numbers and it is to host a capital markets day in May next year.
• Trading is a shade better. The Rugby World Cup will have boosted revenues in October, real incomes are rising and the group’s less-good pubs have gone.
• Enterprise promises us more of the same alongside a continued evolution towards a multi-strategy pub company in which it concedes that one size will not fit all.
• Making money from tenanted and leased pubs should still be possible but the ‘spreadsheet approach’ of yesteryear may be gone for good.
• Fortunately, Enterprise has a portfolio of good pubs and, though it may have to work harder for its money, it’s future appears secure – in which case its share price is perhaps a shade too low.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Enterprise Inns FY Numbers in line, strategic review implementation underway. Current trading in line with expectations.
a. ETI FY: LfL income growth of 0.8% in the year as a whole and +1.0% in the fourth quarter. Pre-exceptional PBT £122m vs £121m last year
b. ETI FY: Adjusted EPS is up 2.1% at 19.4p (2014: 19.0p). No dividend. Says ‘the execution of our strategic plan for the business is on track.’
2. Metropolitan Police urges pubs to review security in aftermath of Paris terror attacks, citing a ‘severe’ risk of further incidents
3. Homeware retailer Robert Dyas is selling ‘morning-after’ breathalysers for those who like to enjoy themselves over the festive period
4. EasyJet has reported a record PBT of £686m for the FY to 30 September 2015, up 18.1% year-on-year, on total revenue up 3.5% to £4.69bn
a. EZJ: Carolyn McCall, easyJet Chief Executive said: ‘Our outlook for the longer term is positive. We expect demand in our markets to be sustained’
5. Marriott to buy Starwood, create largest hotel co in world. Combined co would have 1.1m rooms in 5,500 hotels over 100 countries.
a. Marriott/Starwood: Starwood shareholders to receive 0.92 Marriott shares per share. Total consideration c$12.2bn.
6. Eurotunnel has reminded investors that any Brexit could see the reintroduction of the ‘booze cruise’.
7. Paddy Power has reported in line trading for the period from 1 July to 15 November, with ‘unfavourable’ sports results offset by underlying growth
8. Eurostat has revised Eurozone inflation up to 0.1% for October, with rising prices in vegetables, restaurants and fruit offsetting falling fuel.