Langton Capital – 2015-11-24 – Daily Wrap: M&B meeting, leisure travel & 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:
M&B comments in brief:
• See further comment below.
• Bad stuff. Poor recent trading, skewed share register, aggressive competitors, more capacity going on.
• Good stuff. Modestly rated, dividend reinstated, assets to die for, good brands, potential to move sharply (in the event of a recovery) as shares are under-held by fund managers
M&B Full Year Numbers – Analysts’ Meeting:
• Following the release of its FY numbers this morning, Mitchells & Butlers hosted a meeting for analysts and our comments are set out below:
• Chairman Bob Ivell described the year as one of ‘soft sales but strong profits’
• He added that the reinstatement of the dividend represents a major step towards normalising the business
• October was good (mild weather, Rugby) but November was poor. To hit minus 1.6% for the 8wks, it must have been bad
• For the year, food sales (LfL) were +1.9% whilst wet sales were down by 0.4%. For the first 8wks of FY16, food was down 2.1% with wet sales some 1.2% lower
• The group made clear on a number of occasions that trading in Q4 FY15 and Q1 FY16 had been ‘weak’
• Group would not be drawn on regional or brand performances specifically. Having said that, London has been strong
• Major issues:
• The group highlighted the fact that new entrants are putting downward pressure on LfL numbers for incumbent operators
• Making a virtue of a necessity perhaps but the group says that new entrants can create restaurant hubs/destinations etc.
• A net c1,300 pubs and restaurants may have opened over the last 18mths – equivalent to one new M&B
• In addition Enterprise Inns would like to operate c800 managed sites and Punch Taverns also has managed pub aspirations
• The cost environment (at least before the NLW) is benign but this is just as well as material price increases will not stick
• The consumer is more demanding. Negative feedback is immediate. The group says this is not, if it ever was, a market in which mediocrity will succeed’
• The NLW ‘could be the biggest game-changer of them all’ (c.f. smoking ban etc.). It will impact margins but the group will target beneficiaries, create new customers
• Dividend, balance sheet, business review:
• The group points out that the 5p (final) dividend should be around 2/3 of a pro-forma full year total. Hence a historic 7.5p dividend should be used in forecasting
• The dividend will be ‘progressive’ though the group has agreed with its pension trustees that it will not move ahead at a rate > EPS growth
• Group accepts triennial review in March 16 will have an eye on the dividend but says that it is here to stay
• Debt is down from 4.5x EBITDA to 4.3x EBITDA
• The capital spending re Orchid is c50% complete. Sales uplifts are of the order of 30%.
• The group’s brands are perhaps ‘unbalanced’. MAB could do with a few fewer Harvesters and more Miller & Carters.
• Middle brands are suffering. The top and (more surprisingly) the bottom are OK. Group would like more Premium Country Pubs
• There are unlikely to be major disposals. The group did not comment on potential acquisitions.
• The group points out, rightly, that strategy cannot be nailed down, evolution is an endless task. MAB will ‘test and learn’ and make changes where they are required.
• Langton Comment: So there’s some good stuff and some bad stuff.
• Trading is weak, new entrants are an issue, the group historically has been a bit sluggish in its reactions and the share register remains skewed.
• On the positive side, the dividend is back, the group’s new CEO outlined the options available to the group, MAB has sites to die for and its shares are chronically under-held by fund managers given the stakes owned by Joe Lewis and ELPIDA.
• And the group has bought itself some time. Changes will be made but it will be a little while before their impact can be ascertained.
• In the meantime, investors have at least a dividend to hang on to and the warm feeling that a 30% uplift in AWT at refurbished Orchid pubs brings with it.
Further travel issues:
• Turkey shoots down a Russian warplane, which crashes in Syria
• Turkey says the plane violated its airspace, a claim that Russia denies
• Turkey is a member of Nato, with all that implies
• Both Nato & Russia seem to wish to play down the incident but such upset is unlikely to do much to encourage leisure travel
• TCG reports full year numbers tomorrow and TUI reports in two weeks
Random information, hopefully not all of it useless:
• Oil price up a little & El Nino soft commodity prices down a shade in a minor reversal of previous moves.
• Transport & mining stocks dropping yesterday.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. M+B FY numbers: Reinstates dividend, current trading soft (8wks down 1.6%) says will refocus business. Shares PER 9x, yield perhaps 3%
a. M+B FY – group presents at 8.15am, have we heard it before? Will refocus, incentivise staff, drive revenues etc. Good stuff but is it new?
b. M+B FY: Perhaps hard to see exactly what the group can do. Elephants can’t jump + new entrants may take share for some time yet.
2. Food Standards Agency has said that JD Wetherspoon + Pret a Manger have consistently the best food hygiene scores.
3. BBPA has welcomed the 10th anniversary of the Licensing Act but warns of ‘add ons’ such as Mandatory License Conditions driving up costs
4. DP Poland has opened its first store in Wroclaw, the largest city in West Poland with 600,000 inhabitants and a student population
5. Compass Group has bumped up its FY dividend by 10.9% to 29.4p on the back of a 5.8% increase in full year revenue to £17.8bn
6. Chinese visitors could spend as much as £1bn in the UK by 2020 reports VisitBritain. Says the currently spend c£2,700 each.
7. Cineworld updates on 46wk trading, total revenues +11.9%, Box Office +10.8% and Retail +12.8%
8. Cineworld says ‘solid H1 performance has continued’ + adds ‘admissions growth took place in all territories with exception of Slovakia.’