Langton Capital – 2016-02-11 – Daily Wrap: Thomas Cook, DP Poland, Enterprise Inns & 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:
Thomas Cook – Q1 Conference Call:
Group Reports Q1 Numbers:
• Thomas Cook has this morning reported Q1 numbers for the quarter to end-March. The group then hosted a conference call for analysts and our comments are set out below:
• Overall, pleased with trading. The flexible business model has worked. Has held up well. UK & N Europe good. Around 50% of UK product is differentiated. Less so in Continental Business where consumer confidence has declined.
• Summer 2016 started well but Paris & Istanbul caused problems. There were some cancellations and shifts of venue. At this stage, TCG focussed on margin. There has recently been some sign of recovery.
• In an uncertain environment, packaged holidays offer a level of support that is being welcomed by holidaymakers. Previous guidance remains in place, provided the recovery in confidence and bookings that has been noted recently continues.
• Can you close the margin gap with TUI? Yes. In Thomas Cook, the group has one of the best brands in the UK, even in Europe. The UK product is now very good.
• Group could see Spain filling up first with a spill-over into other markets such as Greece, Portugal & Bulgaria. Turkey too.
General re revenues:
• The bulk of lower oil prices is being passed through to customers. This is weighing on revenues to the tune of 1.5% to 2%.
• Pricing in 2017, will this increase in Spain? Group says no, because Turkey may get back to normal & it wouldn’t serve the hoteliers well to be greedy. Prices are up 3% at the moment. This is ‘reasonable’.
• Strong Sterling has helped? Yes & group sees this as ongoing. Packages are hedged. Spending in resort may cost a little more in Sterling terms. Cheaper petrol is feeding through to consumers’ pockets.
• Prices are going up in ‘safer’ destinations. These pricing trends are ‘reasonable’ in the western Med. Turkey, on the other hand, is becoming very competitive. He says Turkey is currently the best product in terms of pricing.
• Canaries. Group is in a ‘far, far better position’ now than it was 3yrs or 4yrs ago. It has better stock in the Canaries & had already shifted some capacity from Egypt.
• Group took the decision on Tunisia & Sharm relatively early. Took out 1.2m seats from Turkey (down 29%, c800k), Tunisia (down 100%, c200k seats) & Egypt (down 50%, 200k seats). Total capacity is down 3% or so. About half of this is re-routed to Spain. The rest to Greece, Bulgaria, Portugal. This was achieved at little cost but required the group to move early & work hard.
• The structural shift has effectively been net-neutral. There were plenty of beds that were not contracted but were taken on option. These were given back. All the hotels that it has in Turkey are franchised. Group will recover its deposits. TCG is still a big customer, it is still sending 2.2m people to Turkey.
• Turkey is around 4% behind in terms of bookings – though this is after having reduced capacity. Group remains flexible.
• This is tougher. Is that structural or cyclical? Customers have cut back on spending. TCG is focussing on margin. Also direct distribution, web site, etc.
• The weakness is not just re Turkey, it’s wider than that.
Nature of the ‘recovery’ you are seeing:
• Group is seeing better bookings. It sadly has experience of terrorism & natural disasters & the recovery it has seen in the past is being repeated.
Langton Comment: Thomas Cook’s shares have had a torrid time of it.
• The group flirted with death in 2012. It then righted its balance sheet and its shares moved up from sub-20p to a high of a shade under 190p.
• They have since halved on the back of the general market sell-off, terrorist disruption and the fear that travel patterns may take some time to return to normal.
• Thomas Cook has today reassured that, though it needs the recovery that it is currently seeing to persist in order to hit forecast numbers, it has seen such crises before and believes that bookings will normalise.
• In addition, the group has shifted capacity.
• This has not been achieved without great effort but, as the group moved quickly, it has been at minimal marginal cost.
• Margins are therefore being protected and, as bookings normalise, the group should deliver on estimates.
• Consensus numbers have the group trading on a current year PER of around 8x earnings. This is rather lower than one would expect for a company whose recovery is not complete. The group today said that it believes it can hit TUI-style margins over the medium term and, as leisure travel is a premium-to-GDP industry, we believe that Thomas Cook’s shares offer good value.
Domino’s Pizza Poland:
Group Updates on strong trading.
Still a minnow but this one could be going places.
If you’d like a chat through, just let us know.
Enterprise Inns Q1 (19wk) update:
• Shares up a little on a relatively reassuring update.
• However, they had fallen on debt fears and, one would surmise, the lack of a worrying reference to refinancing discussions is maybe the source of this morning’s relief.
• Shares, for the record, trade at less than 4x this year’s EPS.
Interest rate rises:
• 5wks ago, the market was convinced there would be four rate rises in the US during calendar 2016
• Now it is convinced there will be none.
• Indeed there was some talk that Ms Janet Yellen, who is still speaking on Capitol Hill, may float the idea of a rate cut.
• But that hasn’t happened to date. A retreat from December’s rise at this stage would threaten the Fed’s (and Ms Yellen’s) credibility etc.
• Rate rises in the UK? Not until Q1, perhaps Q2 next year say observers.
Random information, hopefully not all of it useless:
• US$ weakness continues. See comments on the role of the US$ as a reserve currency (and what might happen if this ceases to be the case)
• Commodities. Gold still strong. Soft commodities weak. Soy and other inputs perhaps particularly so.
• Rio cuts its dividend; shares drop. Thomas Cook reassures on trading; shares drop. Whitbread & MAB say nothing today on trading; shares drop. Bit of a trend developing here, you think?
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Enterprise Inns Q1, says has achieved ‘strong trading with improved like-for-like net income growth.’
a. ETI Q1. Group says that the ‘implementation of [its] strategic plan [is] on track’. Adds has ‘made a strong start to the financial year’
b. ETI like-for-like net income in the leased and tenanted estate +1.6% for the 19 weeks to 6 February 2016.’
c. ETI seen ‘stabilising rental income, growing income from beer sales and driven by the provision of operational support’
d. ETI says ‘trading performance & expansion of our managed house operations is progressing in line with our plans’
e. ETI will have ‘in excess of 100 managed houses operational by 30 September 2016.’
f. ETI reassures on trading but the group’s shares have been extremely weak lately, largely on debt concerns. No comment there.
2. DP Poland has updated on trading for FY to end-Dec saying that it had 13 consecutive Qs of >10% LfL system sales growth
a. DPP says ‘total stores EBITDA positive every month in 2015. Store roll-out extends to 5 cities.’
b. DPP says it is maintaining strong like-for-like sales at +16% with LfL gross profit +27%. Opened 6 stores last year
3. Pernod reports H1 numbers, says it has produced a ‘solid’ performance. Organic sales +3% & FY guidance confirmed.
4. French wine & spirit sales were buoyed last year by strong demand and a decline in the Euro. Exports hit €11.75bn, up 8.7% on 2014
5. Burger King is to sell hot dogs via its US stores. It said that adding the product was “the most obvious product launch ever.”
6. Tesco has bought the outstanding shares (51%) in coffee chain Harris & Hoole that it did not already own
7. AB InBev has reported that it has received a binding offer from Asahi Group Holdings to purchase Peroni & Grolsch
8. Greene King is reported set to de-list Sharp’s Doom Bar, Fuller’s London Pride and a number of other beers post its Spirit purchase
9. Thomas Cook updates on Q1, says it has made a ‘good start to the year despite challenging trading conditions’
a. TCG Q1: Says revenues £1.4bn vs £1.5bn last year. Loss from operations £78m vs £73m last year, net debt £1.2bn
b. TCG Q1: Says it has seen an ‘improved Q1 performance in line with expectations’. Says it is focussing on higher margin product
c. TCG Q1: Group is seeing ‘further growth in demand for higher margin differentiated holidays’ with ‘robust customer demand in UK and Northern Europe [which] offset tough trading conditions in Continental Europe and Airlines Germany’
d. TCG Q1: Current trading is ‘resilient despite market disruption’. Group is 82% sold for winter ‘with significantly higher pricing’
e. TCG Q1: Summer 2016 programme is 29% sold, 2% less than last year, ‘with firm pricing in most source markets’
f. TCG Q1: Group is seeing ‘clear signs of recovery after customer confidence impacted by the tragic events of Paris and Istanbul’
10. NIESR has estimated that UK GDP rose (on a non-annualised basis) by 0.4% in the 3mths to end-Jan. It rose 0.5% in the 3mths to Dec
11. Fed’s Yellen tells Capitol Hill that tightening financial conditions + China fears pose a risk to the US economic recovery.