Langton Capital – 2015-11-25 – Thomas Cook, M&B, Hogg Rob., Britvic & other:
A Day in the Life:
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Bit busy, hopefully write tomorrow.
Mitchells + Butlers – Full Year Numbers:
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
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.
Thomas Cook – Full Year Numbers:
Group Reports Full Year Numbers:
Thomas Cook has this morning reported full year numbers to end-September and our comments are set out below:
TCG has turned in numbers slightly ahead of (albeit recently downwardly revised) expectations
Reports the group’s first profit after tax in five years
Group revenue of £7,834 million, up 1.1% and underlying EBIT of £310 million, up 11%
PBT is £170m (expectations of around £166m) and profit after tax is £19 million, an increase of £177 million over last year’s losses after tax
The group says it has a ‘significantly stronger balance sheet with extended maturities and new enlarged banking facilities’
There is no dividend (some had hoped that there would be) but the group says a ‘dividend [is] expected to be paid in early 2017 in respect of FY16 earnings’
The group says ‘customers [are] responding to our differentiated holiday offering’ and says that the company ‘traded well overall despite external headwinds’
TCG has seen a ‘strong performance in our UK business which increased underlying EBIT by 42% to £119 million’
It says it has made an ‘encouraging start to next year with strong Winter 15/16 trading in the UK and Northern Europe’
The group features a ‘renewed focus on customer excellence to drive long-term growth through New Operating Model’
CEO Peter Fankhauser reports ‘2015 has been a year of real progress as good trading combined with rigorous cost control to deliver our first positive profit after tax in five years.’
He adds ‘despite turbulence in some of our destinations, the underlying business performed in line with our plans at the start of the year, demonstrating its greater resilience.’
The group’s CEO reports ‘customers have responded well to our increased focus on higher-quality hotels with our own-brand properties proving particularly popular, growing bookings by more than 40% over the year. We have continued to build on this success with the launch of a new boutique concept, Casa Cook, with the first hotel set to open next spring in Rhodes.’
The UK is better and Mr Fankhauser says ‘Northern Europe and our German airlines business also performed well with underlying operating profits up 23% and 19% respectively.’
He says ‘as previously highlighted, Continental Europe, particularly Germany and France, were weaker due to more competitive trading conditions.’
Current trading & outlook:
Re current trading, the CEO comments ‘the new financial year has got off to a good start with encouraging trading overall for Winter 2015/16 and Summer 2016. With our business on a firmer financial footing, we have a clear strategy in place to deliver greater value for customers and sustainable growth for our shareholders.’
The group says ‘our underlying business grew in FY15 in line with our plans at the start of the year, with the UK and Northern Europe performing especially well, despite facing both significant disruption in certain destinations and foreign exchange headwinds.’
It says ‘although market conditions in Continental Europe continue to be competitive, FY16 has got off to a good start overall, with the strong trading seen in the UK and Northern Europe last summer continuing into the Winter.’
Naturally, TCG highlights that ‘our business is inevitably impacted from time to time by geopolitical events. In early November we suspended our UK flying programme to Sharm-El-Sheikh airport in Egypt following UK Foreign Office advice, and subsequently repatriated approximately 1,700 guests. Our programme to Tunisia remains suspended for most markets.’
Nonetheless, TCG is able to conclude ‘despite the fragile geopolitical environment, our business has continued to grow. Demand for our differentiated holidays is increasing, we are making continuous improvements to our holiday portfolio, and we are becoming more efficient. Our New Operating Model, together with a renewed focus on our customers, marks a new phase of transformation for Thomas Cook, which we anticipate will deliver long-term, sustainable, profitable growth. Accordingly, we remain confident on delivering on our expectations for the current financial year.’
Langton Comment: To say that this has been an eventful year for TCG is perhaps something of an understatement.
And, as recent events in Egypt and in Paris fall into FY16, the current year looks to be turbulent as well.
Nonetheless, TCG is able to say that it should deliver on current year estimates. These would suggest that the group is trading on less than 9x current year earnings of around 11.4p.
In a further move back towards normality, the group will declare a dividend in the current financial year.
Overall, we believe that leisure travel remains a growth industry and that Thomas Cook’s future is secure. The group and its share price have clearly been buffeted by geopolitical events and this is likely to remain a feature of the industry going forward.
For that reason, PE ratings may be suppressed and, given the number of external events that can impact trading, this is perhaps reasonable.
Nonetheless, the group is continuing to recover and a PER of <9x does look a little low. Fosun could buy more shares at any time and a bid at some point is not out of the question. We believe that the group’s shares, now trading at below 100p, offer good value.
Pub, Restaurant & Drinks Producer News:
• Britvic revenue for the 52 weeks to 25 November declined 0.6% to £1.3bn but disciplined cost management helped push group EBITA up 7.1% to £171.7m. Underlying adjusted EPS rose 11% to 46.3p once the group’s share placement has been factored in. Net debt has been further reduced to £351.7m, or 1.7 times EBITDA, and its FY dividend has been increased 10% to 23p ‘reflecting earnings growth and robust cash generation’ of £89.3m.
• Britvic: The drinks manufacturer notes it has now completed its 3013 strategic initiatives but that further targets have been announced to further drive cost savings, commercial benefits and margin expansion. Britvic’s acquisition of Ebba (Empresaria Brasileira de Bebidas e Alimentos SA) has been completed, ‘providing access to [the] world’s second largest liquid dilutes market’ in Brazil.
• Britvic: The group has guided to 53-wk 2016 EBITA guidance in the range of £180m to £190m including its new Brazil business.
• Caffe Nero reported to have taken three coffee shops in London from Harris & Hoole reports M+C
• Cracker Barrel Q1. EPS +20% and co reaffirms FY guidance. Q1 LfL sales +2.5% with other sales +2.4%.
• Cracker Barrel. Says margin 9.3% vs 8.1% last year. CEO Sandra B. Cochran reports ‘thanks to the continued success of our cost reduction initiatives, we were able to deliver strong EPS growth for our shareholders in the first quarter. Nevertheless, we believe consumer spending was challenged during the quarter, particularly in October, and that this was reflected in our comparable store traffic and sales. Even in this challenging environment, we believe we have the right menu, marketing, and margin-driving initiatives in place to achieve continued success in fiscal 2016.’
• M+C Allegra suggests increase in lunchtime drinking with beer, cider + wine taking share of spend whilst soft drinks spend falls. The EatingOut Panel reports that chain restaurants were the driver of lunchtime alcohol sales, up six percentage points y-o-y. M+C Allegra comments ‘what’s interesting is that the growth isn’t just in wine but beer and cider. It seems that the recent resurgence in cider and the growing interest in craft beer have given that segment a lift. You are seeing operators making a much conscious effort recently to match food with beers and ciders, as well as wine, and clearly that is paying off.’
• Deliveroo raises further $100m to fund expansion. Represents 4th round of investment in 2yrs having raised $200m already
Travel & Hotels:
• A 4% fall in revenue at Hogg Robinson for the six months to 30 September due to ‘strong competitor pricing’ was still enough for underlying PBT to rise 15% to £13m. Underlying EPS at the group jumped 26% to 2.9p, while net debt has been brought down by 5% to £56.5m and its interim dividend has been raised 8% to 0.68p a share. SaaS product Fraedom grew its revenue by 10% with underlying profit up 17% on a constant currency basis.
• Hogg Rob. The business travel firm has continued to trade in line with expectations so far this H2 amid ‘an ongoing recovery in the UK market with signs of improvement across continental Europe’. Meanwhile the group has seen a modest slowdown in growth in its North America business and ‘decisive actions [have been] taken to restructure our Australian operations,’ but expects full-year performance to be in line with market expectations.
• Hogg Rob. David Radcliffe, Chief Executive of Hogg Robinson Group plc, said: ‘This is a positive first-half performance, which reflects the ongoing work we are undertaking to reshape and realign the business to current and future market conditions. In particular, we are encouraged by our profit growth and the continued reduction of net debt.
• Hogg Rob. ‘Fraedom continues to grow and it is pleasing to see the benefits of our proprietary technology continuing to win us business. We look to further accelerate its growth and invest in new technology across the Group. We will continue to develop the business and expect to deliver a full-year performance broadly in line with expectations.’
• Snoozebox has launched a new room design that can transform its bedrooms into a dining, theatre or work space. Snoozebox says ‘demand for our unique, high quality offering remains high, both in the UK and overseas. We have broadened our product offering and strengthened our operating model, in line with our strategy to position the business for sustainable long-term growth.’
• US government warns its citizens worldwide to be cautious in the light of an increased risk of terrorist attack. The State Department said ‘authorities believe the likelihood of terror attacks will continue as members of ISIL/Da’esh return from Syria and Iraq. Additionally, there is a continuing threat from unaffiliated persons planning attacks inspired by major terrorist organisations but conducted on an individual basis.’
• BA + EasyJet will not fly to Sharm until Jan 16 at the earliest.
• Human error led to Alton Towers rollercoaster crash in June reports Merlin. Two passengers lost legs.
• Alton Towers. Staff misunderstood a shutdown message + should not have restarted the ride reports investigation.
• Alton Towers. No technical or mechanical problems. Ride will reopen next year. Merlin reports ‘a ride shutdown message was misunderstood by staff…this led to a decision to manually restart the ride, overriding the control system without appropriate safety protocols being followed correctly.’
• Ladbrokes’ shareholders have voted in favour of its proposed £2.2bn merger with Gala Coral.
• Betfair H1 number. Revenues £274.4m (+15%), EBITDA +9% at £80.5m. EPS 60.3p (last year 55.0p) and 15p divi. (last year 9p)
• Betfair: CEO Breon Corcoran reports ‘Betfair traded strongly in its key markets throughout the first half of FY16. These results, which came against a tough comparative period featuring last year’s football World Cup, are ahead of our original expectations and demonstrate the Group’s continued strong momentum.’ He says that ‘notwithstanding this investment [on product development] and the significant burden of higher gaming taxes, strong revenue growth and continued cost discipline resulted in 9% higher EBITDA.’
Finance & Markets:
• B of England governor Mark Carney told MPs on the Treasury Committee that UK interest rates should remain low “for some time”. He said ‘even with limited and gradual rate increases it still will be a relatively low interest rate environment’.
• US economic growth in Q3 revised up, boosted by stronger investment and house building per Commerce Department
• World markets: UK + Europe down yesterday, US up but Far East down in Weds trading
• Oil price continues to firm, moves back to a 2wk high of around $46.30 per barrel
• German GDP up 0.3% in Q3 quarter on quarter
Retail Roundup from Nick Bubb:
AO.com: As one wag put it on FT Alphaville yesterday, the news of a Netherlands launch by AO was quite useful in terms of press coverage, as it meant the headlines were all about “AO going to Holland” rather than “AO cuts guidance again”. Nevertheless, AO Germany lost nearly £10m in the first half and, with more heavy investment in marketing in H2 to drive revenue growth, the City has had to increase its forecasts for full-year losses in Germany, as well as trim UK EBITDA forecasts to £16m/17m because of higher marketing costs. The net result was that house broker JP Morgan Cazenove reduced its FY16 group EBITDA forecast from a profit of £5.6m to a loss of -£3.6m, which is perhaps why the shares slumped so much yesterday…Needless to say, the feisty CEO of AO, John Roberts, insists that he’s delivered on all the promises made at the time of the IPO.
Signet: Yesterday’s Q3 results from Signet, “the world’s largest retailer of diamond jewellery”, for the 13 weeks ended October 31st, were dominated by the core US operation, with the once important UK Division now down to only c12% of total group sales. Nevertheless, Signet give full disclosure of its UK performance and the news was pretty good, with LFL sales up by 4.1%, driven primarily by strong results in diamond jewellery and watches (with the mass-market H. Samuel up by 2.0% LFL and the more upmarket Ernest Jones up by 6.3% LFL).
CBI Watch: Regular readers will be well aware that we think that the CBI Distributive Trades survey is a pretty useless guide to High Street spending trends, particularly given the price deflation in the sector, but it’s worth flagging that yesterday’s survey for “November” reported “an unexpected slowing in sales growth, which may be related to the mild start to the autumn”. The infamous “percentage balance” of volume growth fell from +19 in October to only +7 in November, the weakest reading in nine months.
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:
M&B comments in brief:
• See further comment above.
• 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
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.