Langton Capital – 2016-01-28 – M&B, Diageo, SSP, Fuller’s, Air Partner & other:
A Day in the Life:
Follow us on Twitter at either @langtoncapital or @brumbymark.
Find previous emails at http://www.langtoncapital.co.uk/daily-notes/
So we’ve noticed round at Langton that there’s been a subtle shift in the world of corporate bullsh1t such that the word ‘impactful’ (and its variants) has now made it into the top ten.
And, when it’s read in context, it’s hard to see which other word ‘impactful’ has replaced because to say ‘we have invested impactfully in our widget mine in Bolivia’ not only earns you a squiggle red line from MS Word but it doesn’t mean anything more or different than would the sentence without the encroaching word in it at all.
The verb ‘to dial up (or down)’ has also gained ground, presumably replacing increased or decreased as it adds more colour.
Anyway, it’s a busy morning so, without further ado, let’s move on to the news. Impactfully.
Mitchell’s & Butler’s Q1 Trading Update:
Q1 Trading Update:
Mitchells & Butlers has this morning updated on trading for the 17wks to 23 January and further comments are set out below:
For the 17wks to 23 Jan, LfL sales are down by 1%
This is broken down as to a 0.6% fall in drink sales and a 1.5% fall in food sales
Trading for the second part of the 17wks under review was somewhat stronger than the first period, but numbers were still down
M&B says that, for the two week Christmas & New Year period, LfL sales were up by 2%
Whilst helpful, that does suggest that trading in January to date has been down by a significant amount
Being more precise is difficult as the last two weeks of December are much more important than the first three weeks of January
If the weeks are given a double-weighting, then early December and January look to have been down by perhaps 2% or so & recent LfL sales trends are shown below:
More on recent trading:
The group says ‘trading over the festive period was encouraging, with like-for-like sales growth of 2.0% in the two weeks of Christmas and New Year.’
It says ‘over the financial year to date total sales have fallen by 0.8% but operating margins are ahead of the prior year.’
Balance Sheet, Capex & Other:
The group says ‘we have acquired 2 new sites and converted 12 in the financial year to date, including a further 10 Orchid conversions.’
It adds ‘we have also accelerated our remodel programme to revitalise and reposition the estate, with 76 completed so far this year.’
New CEO Phil Urban says ‘we had a good Christmas, recording growth across the period and also delivering our best ever trading day.’
He adds ‘whilst trading conditions remain tough, particularly as we go into the post-holiday season, we are acting with pace to drive our business priorities – building a more balanced business, developing our commercial culture and increasing the speed of execution and innovation.’
Langton Comment: Re current trading, M&B has confirmed that, though it had a good holiday season, the trading either side of it has continued to be difficult.
Though positive (or at least hopeful) overall in tone, this does contrast with comments made earlier in the week by Marston’s.
However, January is always a pig and M&B looks to be playing to its strengths in that it is spending money where it should have a most immediate impact, that is on selective site purchases and on its newly purchased Orchid sites.
This should pay off and, though the capex-benefiting units may (or may not) be cut out of numbers when considering LfL sales later in the year, it would appear to be the right thing to do.
Overall, we believe that the group has assets to die for but its recent performance and its share register continue to put off some investors.
We are now at a point where the group is trading at only around 7.6x current year earnings and it has a 2.6% (and hopefully growing) yield.
The management revolving door and lack of clarity as to the longer term objectives of shareholders Joe Lewis and Elpida remain a negative.
Though the question ‘where’s the catalyst to unlock value?’ remains a pertinent one, overall, we believe that the group’s shares offer good value for patient investors.
Pub, Restaurant & Drinks Producer News:
• Horizons has reported that there were more people eating out over Christmas but it says that spend is down
• Horizons: Poll accords with GNK Tracker which said that, though spend on leisure was up, that on eating & drinking out was flat.
• Horizons says it saw ‘a modest climb in the number of people eating out over Christmas 2015’. It says that this ‘suggests that the sector is now back into a period of gradual growth following a stall in its recovery last summer.’ Horizons adds ‘in June 2015 respondents to the same YouGov/Horizons survey showed a year-on-year decline of two percentage points in eating out, with 69% of respondents saying they had done so in the previous two weeks of the survey, compared with 71% in June 2014.’ Some 72% said that they had eaten out in the previous two weeks when asked over Christmas.
• Horizons says average spend down. Falls to £14.07 in December 2015 from £14.48 in December 2014. It adds ‘this decrease was evident across all age groups, except over 55s, who spend the most at £15.61, up from £13.84 last year.’ Horizons’ Liz Land says ‘the number of respondents eating out has risen marginally, but the frequency figure shows that people who do dine out are doing so more often, spending less when they do – even over the festive period.’
• Diageo reports H1 numbers, says ‘momentum continues with stronger top line growth and higher free cash flow’
• DGE H1: Group sees 1.8% organic net sales growth, on 1.0% organic volume growth. Generates 2.4% organic operating profit growth
• DGE H1: Adverse exchange rates and disposals cut sales by £400m & operating profits by £156m to £5.6bn and £1.7bn respectively
• DGE H1: EPS up 7% at 56.1p, dividend up 5% at 22.6p. CEO Menezes says ‘Diageo has become a stronger, more competitive business’. He adds ‘we have delivered volume growth, a stronger top line, improved the performance of our key brands, driven cost productivity and continued to generate strong cash flow. While trading conditions remain challenging in some markets, Diageo’s brands, capabilities in marketing and innovation and our route to consumer have proved resilient. I am confident that Diageo can deliver improved, sustained performance.’ He concludes ‘we remain confident of achieving our objective of mid-single digit top line growth and 100bps of organic operating margin improvement in the three years ending fiscal 2019’.
• Fuller’s updates on trading for Q3 saying ‘the Company saw a strong performance in its Managed Pubs and Hotels’.
• Fuller’s cumulative (to Q3) LfL sales +5.3% in managed pubs while LfL profits in Tenanted Inns were +3%
• Fuller’s CEO Simon Emeny reports ‘I am pleased to be reporting further strong trading. A good performance throughout the year has been boosted by another successful Christmas.’ He adds ‘our long term strategy of providing freshly-cooked food, engaging service and an excellent portfolio of premium brands, supported by investment in our pubs to create stylish environments for our customers, continues to deliver consistently good results.’ Mr Emeny concludes ‘I believe we are in a good position as we progress through the last quarter and I look forward to updating the market on 10 June 2016, when we announce the Company’s preliminary results for the 52 weeks to 26 March 2016’
• SSP updates on Q1, says ‘has had a good start to the new financial year and expectations for the full year remain positive and unchanged.’
• SSP Q1: Says total revenue +6.2% on a constant currency basis. LfL growth 4.3%. Revenues at actual exchange rates +1.9%.
• SSP says ‘like-for-like sales grew strongly in the UK and Continental Europe in the early part of the new financial year. This has moderated slightly in recent weeks reflecting the impact of geopolitical activity.’ It says ‘in North America the positive trends in like-for-like sales growth in 2015 have continued throughout the first quarter of 2016. In the Rest of the World, like-for-like sales growth is in line with expectations, although trading in Egypt remains challenging due to the fall in passenger numbers. The pipeline of new contracts remains encouraging.’
• SSP overall. The group says ‘the new financial year has started in line with our expectations and the pipeline of new contracts is encouraging, although it is difficult to predict the precise timing of the openings of new units. Whilst a degree of uncertainty always exists around geopolitical events and passenger numbers in the short term, the geographical and sectoral diversity of our business, together with the significant structural growth opportunities and our programme to deliver operational improvements, leave us well placed to continue to deliver for both our customers and our shareholders.’
• Scotch whisky producers are calling for an additional 2% tax cut and argue that the current 76% levy on the average bottle of scotch is unsustainable. Last year George Osborne confirmed a surprise 2% reduction from 78%.
• The Deltic group plans to invest £1.4m in launching a new PRYZM club at the former Gatecrasher site on Broad Street in Birmingham city centre. The club will be Deltic’s first in Birmingham and is slated for a summer opening.
• iNTERTAIN has completed a £450,000 refurbishment of its Walkabout bar on Broad Street, Birmingham. CEO John Leslie commented: ‘Walkabout has been on a journey in the last year, with new venues launching as well as a number of refurbishments taking place; the refurbishment of Walkabout on Broad Street indicates that this investment in the brand is set to continue in 2016 and beyond.’
• Wines of Spain’s vintage report says that the country’s 2015 vintage is set to be a ‘record year’ in terms of both quality and quantity. The 2015 harvest is expected to reach 40-42 million hectolitres.
• Livingbridge-backed Le Bistrot Pierre is planning to roll out its restaurants throughout the UK and intends to open five new venues in 2017.
• A poll commissioned by C-Store has found that 33.1% of English convenience stores now charge for single-use carrier bags despite being exempt from the law.
• some 30% of c-store retailers will have to make significant changes to their businesses in response to April’s increase in statutory wage rates. Of the 30% who will make changes, 20% say they will be reducing staff numbers, compared to 80% who will cut staff hours worked.
• Lidl is looking to open its first stores in the US by before 2018 and is currently exploring sites on the East Coast.
• Kingston Smith reports a record £1.4bn of growth capital was raised in 2015 by companies serving the digital economy. It says ‘regarding the supply of funds, the UK is home to some of the most active growth capital funds in the world, with global leaders Accel Partners and Index Ventures establishing significant Londonbased teams and home grown funds and managers such as Business Growth Fund, Balderton, Octopus, Foresight, Calculus, Yorkshire Fund Managers, Northern Venture Managers, Albion and Mobeus establishing themselves over the last twenty years.’
• Air Partner says trading momentum in the second half of FY 31 January 2016 remained good and the group enjoyed a stronger than expected end to the period. The global aviation services group is guiding toward an underlying pre-tax profit of ‘not less than £4.2m’ compared to £2.6m in the prior year. A detailed update on our strategic initiatives will be provided with the Preliminary Results which are expected to be released on 28 April 2016.
• Official figures indicate the amount of Air Passenger Duty charged last year amounted to more than £3.1bn.
• The number of Chinese visitors to the UK in the first nine months of 2015 was up 37% year on year to a record 214,000. The figure is more than the amount of Chinese visitors in all of 2014 and spend in the period was up 4% in the period to £435m. Chinese visitors are already some of the UK’s highest spenders, spending on average £2,688 a head and VisitBritain has ambitions to double spend to £1bn by 2020.
• In a survey of 2,391 of the richest travellers, 51% called Wi-Fi extremely important and 66% of said Wi-Fi was at least very important to have at a hotel.
• London is now the second most visited city in the world having overtaken Bangkok and Singapore. Hong Kong remains numer one
• Hotels in the Asia Pacific region had a mostly flat 2015, with occupancy up 0.1% to 68.2%, ADR down 0.5% to $108.79 and RevPAR falling 0.4% to $74.25.
• Middle East hotels’ key performance metrics were down YoY, while both Northern and Southern Africa recorded largely positive results. In the ME, occupancy declined 2% to 67.4% (Africa: +0.2% to 57.3%), with average daily rate declining 2.6% to $192.82 (Africa: +7.1% to $111.34) and revenue per available room dropping 4.6% to $129.98 (Africa: +7.3% to $63.74).
• Shares in eBay gave up more than 12% in after-market trading following a disappointing holiday period, in part due to the strong dollar. The online auction site posted Q4 revenues of $2.3bn, up 5% on a currency adjusted basis, bringing its full year total to $8.6bn. Net income from continuing operations dropped by 12% to $600m, however, as the group’s market share continues to slide in the face of tough competition from the likes of Amazon and newer entrants.
• Samsung has been hit by falling sales for its smartphones and semiconductors and Q4 net profit has plummeted by 40% to 3.2tn won (£1.9bn). The South Korea-based electronics giant has warned that it will struggle to maintain 2015 levels of profit going into the new year due to the ‘difficult business environment and slowing IT demand’. Revenue in 2015 fell 5.6tn won to 200.6tn won (£116bn) as Samsung continues to be troubled by fast-growing Chinese budget rivals Xiaomi and Huawei and Apple at the premium end.
Finance & Markets:
• The US Fed yesterday kept interest rates unchanged. It said it was “closely monitoring” global economic + financial developments. This has been taken as a signal that the Fed, all else being equal, still intends to tighten monetary policy this year.
• Germany has cut its growth forecast for 2016 as exports slide.
• Nationwide has suggested that sluggish construction activity will push up house prices in the coming year.
• Nationwide suggests prices up 0.3% in Jan vs Dec. Annual rate of house price inflation 4.4% vs 4.5% in Dec. it says ‘the concern remains that construction activity will lag behind strengthening demand putting upward pressure on house prices and eventually reducing affordability.’
Leisure Sector Overview in 60 Seconds…
Market turmoil (oil, china, interest rates, terrorism, slowing GDP etc.) has thrown a number of share prices up into the air. Some of them have fallen where they should be and others arguably either too high or too low.
Leisure ex-pubs & restaurants – TOP PICKS – MERL, TCG, SSP. Runner up – IHG.
o Merlin: High PER but has high barriers to entry & global growth opportunities with projects in China & a valuable relationship with Lego. With hindsight, the Alton Towers crash was a buying opportunity.
o Thomas Cook: Fosun is on board, TCG may be bid for, it is approaching a single-digit PER and is in a growth industry. Terrorism is the big negative.
o SSP: A great stock. Not cheap but interesting at these levels as it operates in a highly fragmented, growth industry
o Intercontinental Hotels: Runner up.
Pubs & restaurants – TOP PICKS – MARS, WTB. Runner up – JDW, PUB
o Marstons: Steady & reasonably-valued performer – PER 11x, yield 4.8%. Today’s Christmas trading figures are immensely reassuring.
o Whitbread: Quality brands – Premier Inn, Costa – with international legs. A Feb y/end and, optically, will be ‘cheaper’ shortly when investors focus on FY17. Risks are UK hotels topping out & China.
o JDW has never really rewarded bulls. But we remain enamoured…Punch Taverns, meanwhile, provides an intriguing value play.
Retail Roundup from Nick Bubb:
Sainsbury: Ahead of the Takeover Panel’s “Put up or Shut Up” deadline next Tuesday, there should be developments soon on the Home Retail bid front…In the meantime, the phoney war continues, with both companies having to be careful what they say. Yesterday, after the Times report that Sainsbury’s is close to securing the support of the Qatar Investment Authority (QIA) for a renewed bid for Home Retail, Sainsbury had to issue a statement to clarify that QIA would make up its mind like any other shareholder. And the other day Home Retail had to issue a statement to clarify why it had made a profit forecast in its trading update last week.
Next: We have been asked what the highly-respected “Mr Share Buyback Man” has been doing in his office at Next HQ in Leicester over the last week, as we haven’t mentioned him recently. And the answer is that we’ve had other stuff to write about, whilst he has just been quietly getting on with things every day, in his usual unobtrusive manner (with “close season” starting soon). Last Friday he picked nearly £16m worth of shares, on Monday he bought c£10m, on Tuesday he bought c£12m worth and yesterday he was able to pick up just under £3m worth (at an average price of £68.40). The Next share price limit for share buybacks is £69.62 and the shares closed last night at £69.50.
Carpetright: It is odd that the thinly-traded Cartpetright share price tumbled as much as 11% to 400p on Tuesday, despite the reassuring trading update, and it was good to see the admirable CEO Wilf Walsh step into the breach and buy 25,000 shares at that level. But even that show of support wasn’t enough to stop the rot and the shares closed down at 385p yesterday…
Today’s Press and News: We have to rush this morning to get to the Deloitte “Retail Trends 2016” Breakfast Briefing at 8.30am in the City (at which Anders Kristiansen of New Look is one of the speakers), so we haven’t had time to do more than flick through the papers, but the FT has an interesting article about the increasing problem of product returns (including comments from Nick Beighton of ASOS) and there is a Comment column in the Telegraph suggesting that there could be increased interest in the UK’s Retail sector from Overseas.
News Flow This Week: With the end of the month looming large, the CBI Distributive Trades survey for “January” is out later this morning (a day later than we expected), the monthly GFK Consumer Confidence Index is out first thing tomorrow. Nick Bubb – email@example.com
This was produced for distribution yesterday: 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:
Greene King Tracker, leisure spend etc.:
• The Tracker’s headline is perhaps a little misleading.
• The idea that leisure had a good December is somewhat belied by the fact that spending on both eating and drinking out of home was unchanged on Dec 2014.
• Other Leisure had a blinder with spending up by 13% y-o-y.
• In fact, if we drill down within Other Leisure (which we are not able to do given the information reported) it’s likely that Cinemas performed extremely strongly and that other Other Leisure was so-so.
• And drilling a little further is likely to identify a particular film release as driving spend meaning that the headline could have been somewhat different
• How about ‘Star Wars Drives Spend; All Else Unchanged’?
Leisure spend in context:
• That’s not to say that spend was poor.
• However, an unchanged spend on food & drink – even with virtually zero CPI – is a shade disappointing given that real wages are moving up, unemployment is at an 11yr low and the supermarkets have been gifting cash to their regular customers
• Add in the fact that petrol is below £1 per litre and that the pound is (or rather has been) strong and the consumer should perhaps have been able to spend a little more than he/she in fact did
• Still, there are winners and losers. Marston’s yesterday reported that it had had a good Christmas whereas the mood music coming out of Restaurant Group and JDW (though the latter is still buying its own shares back) was somewhat different
• We hear from M&B tomorrow.
• As always, stock selection is pretty important.
London, is the shine coming off?
• We perceive that there is a capacity issue developing in London, particularly in casual dining.
• New entrants may perform well but they are thinning the cake-slices available for the incumbents.
• GNK’s Tracker has it that London performed broadly in line with the provinces in December.
• This is OK but not brilliant. M&B has a sizable London estate and it may feel able to comment on trading in the Capital tomorrow.
• Shares down yesterday in a perceived ‘risk-on’ move that favoured the miners etc.
• Attempting a bounce today but, for investors with other than a very short view, we would suggest that the shares offer good value.
• Quality at a reasonable price.
• It’s the kind of stock that should, perhaps, be salted away when price movements present something of an opportunity.
Holidays – Spain & Greece making out like bandits:
• Terrorism has shut North Africa & Egypt’s Red Sea resorts are also semi-closed.
• This has massively benefitted resorts in Spain (the Canaries are all-year), Portugal and Greece.
• Travelzoo is now warning that Spain & Greece could sell out ‘within weeks’ in the case of Spain and by March for Greece
• Turkey bookings are reported to be down by as much as 50%
• Travelzoo’s Stephen Dunk reports ‘with airlines unable to fly to Sharm or Tunisia, they are re-routing to destinations such as the Canaries’.
• This has led to a glut of planes (‘we are seeing return flights priced from £69 return’) but there are not enough hotel rooms
• Travelzoo says ‘the issue is there simply aren’t enough hotel rooms in the Canaries, so we are hearing reports of half-empty planes flying in and out of the destination – a remarkable and unprecedented situation has emerged for the travel industry.’
Random information, hopefully not all of it useless:
• JDW is buying back more shares.
• Currency & oil markets volatile. Perhaps that’s nothing new but some seasoned observers may suggest that it’s indicative of a turning point. That is, until it isn’t.
• For the record, Sterling down after a bounce after a sharp downward move.
• Oil now weaker after a bounce after a retracement below $30 after an attempted bounce etc.
• Dow yesterday had its best day since 4 Dec
More from Nick Bubb:
• Seb Watch: We eagerly sat through the Dixons Carphone meeting yesterday waiting for some “bon mots” to drop from the lips of the extremely erudite and estimable CEO Seb James, but a watched pot never boils…and it was only towards the end that, after flagging that Carphone is helping Sprint revive its mobile phone business in the US, he said: “Sprint is the dolphin we’ve now chosen to ride and we want it to go fast”. Of course, Seb James has also famously compared the new Black Friday and Christmas trading peaks to the humps of a bactrian camel, so it will be interesting to see what new animal metaphors he comes up with in the future! Perhaps if the “English lion” does well in the European Football Championships this summer he will sell enough shiny new TV’s to reduce the groups’ dependence on the continued success of Carphone
• News Flow This Week: As the end of the month is approaching very rapidly now, we get the CBI Distributive Trades survey for “January” later this morning, whilst the monthly GFK Consumer Confidence Index is out first thing on Friday.