Langton Capital – 2016-02-23 – Ladbrokes, Intercon Hotels, pub trading, sugar & 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 why is it when you’re on the phone and in the middle of an important conversation, the person with whom you’re talking always waits until you have a huge mouthful of tea before asking you the killer question?
I mean perhaps they’re psychic.
Or perhaps you shouldn’t be drinking tea at all. Maybe you should be standing to attention by the side of your desk but it’s tea that powers the UK economy and, if the person on the other end doesn’t think that you should be partaking of that particular alcohol-free beverage whilst at work, then they’d be better off sending you an email or ringing when you weren’t there and leaving a voicemail.
Anyway, as answering immediately isn’t much of an option, you have to pause and, in the right light, that can make you appear thoughtful and engaged. At other times it simply makes you sound like a man with a mouthful of tea but that’s by the by. On to the news:
Pub, Restaurant & Drinks Producer News:
• Ruth & Robinson has acquired the Black Cap pub in Camden from Faucet Inns as part of its strategy to open up in areas benefitting from regeneration per M&C
• Jack Daniel’s is planning a $140m expansion of its Lynchburg, Tennessee distillery in order to cope with future bottling and shipping demand. The investment will be used to construct two new barrelhouses and modify and expand the distillery’s existing bottling facility, as well as the site’s visitor centre. ‘With its dedication to delivering beautifully crafted pizza using quality ingredients, Firezza has established itself as a leading player in the gourmet food delivery sector.’ Commented PizzaExpress CEO, Richard Hodgson. ‘I see great potential for us to build on the strong momentum behind the brand and further grow its reach.’
• iNTERTAIN is launching a new partnership with comedy producer Just The Tonic, who will run shows every weekend at the bar operator’s ‘Comedy Loft’ sites.
• The Local Government Association says that fizzy drinks should give their sugar levels in teaspoons, rather than grams. The maximum amount of added sugar that should be consumed through processed food and drink in a day ranges from 19g for a young child to 30g for an adult, or roughly five to seven teaspoons. By comparison, a standard can of Coca-Cola has around nine teaspoons of sugar and some energy and sports drinks have 20.
• Texas Roadhouse reports FY numbers, says revenues +12% in Q4 & +14% for the year as a whole. EPS 32c in Q4 (+23%), 137c for year (+11%).
• Texas Roadhouse Q4. Says LfL sales +4.5% at company-owned restaurants in Q4, margin +112bps to 17.6%.
• Texas Roadhouse FY. LfL sales +7.2% at company-owned sites ‘primarily driven by lower other operating costs & lower food costs’. Kent Taylor, CEO, comments ‘we ended the year on a strong note, with double digit revenue and diluted earnings per share growth for both the fourth quarter and the full year. This represents our 24th consecutive quarter of positive comparable restaurant sales growth, which is a testament to our Managing Partners. In addition, our solid balance sheet and healthy cash flow allowed us to open 29 restaurants.’ He goes on to say ‘we have assembled a substantial pipeline of new locations and are on track to open approximately 30 company restaurants this year. Our top-line momentum has continued into 2016 and we are pleased to have seen continued traffic growth during the first seven weeks of the year. Looking ahead, we will stay
• Texas Roadhouse on 2016. Group says LfL sales in first 7wks of current year are +4.4% on last year.
• EAT has introduced a number of new products to enhance its menus. It is offering Quinoa & Buckwheat Porridge at £2.29 and the Ultimate Bacon, Egg & Avocado Roll at £4.50.
• Home Retail shares have gone up 12% to 173p on the back of Steinhoff’s rival bid for the group.
• Sainsbury has been given until 18 March to make a firm bid for Home Retail following Steinhoff’s £1.4bn, 175p a share offer. Steinhoff’s bid is at an 8.5% premium to Sainsbury’s cash and shares offer, worth £1.3bn or 161.3p a share.
• Sysco, the world’s largest catering supplier, has reached a $3.1bn deal to acquire Brakes Group.
• Intercon. FY: Group reports ‘strong results driven by disciplined execution of our winning strategy’. Underlying revenues +8% at $1.5bn
• Intercon. FY: Reports underlying operating profit $650m vs $583m, EPS 167c vs 141c & and dividend 85c vs 77c and dividend
• Intercon. FY: CEO Richard Solomons reports ‘our strong momentum in 2015 was driven by a clear strategy and disciplined execution. We delivered our highest room openings since 2009, our best signings since 2008, 11% underlying profit growth and 19% underlying EPS growth.’ He continues ‘we have strengthened our brand portfolio, adding Kimpton Hotels & Restaurants into the IHG family and accelerating signings across our mainstream and extended stay brands.’ Mr Solomons concludes ‘looking into the medium term, despite economic and political uncertainty in some markets, the prospects for the hotel industry remain good and the strength of our business model gives us the confidence to propose a 10% increase in total dividend for the year’.
• Hostel operator Beds and Bars will move its headquarters from the UK to Europe if the UK votes to leave Europe, with Holland and Germany likely candidates reports Propel. ‘We are drawing up plans to relocate (if the UK votes to leave) – the majority of our revenue derives from Europe. It’s a dysfunctional organisation but is the biggest club in the world and although it’s not perfect we are better off involved rather than being on the outside looking in. The UK would survive leaving the EU but the move would create a year of trauma and uncertainty,’ said CEO Keith Knowles.
• The Zika virus is having an effect on travel, with flight bookings to affected areas down by as much as 10% since early February. Zika is strongly suspected of being linked to microcephaly in babies – those born with brain damage and abnormally small heads, and has spread across Central and Latin America, with Brazil being the hardest hit.
• The state of emergency in Tunisia has been extended by another month, and will now run until 22 March. Thomson and Thomas Cook scrapped their holiday programmes to the North African country last month.
• UK residents took more than 40 million holidays last year for the first time since 2008, up by 9% to 42 million from 38.5 million.
• The pound hit its lowest level against the dollar since March 2009 as Brexit fears pushed the currency down 1.4% to $1.4135.
• The US hotel industry saw average daily rate for January rise 2.8% to $116.61, and revenue per available room increased 2.4% to $63.01. However, occupancy remained nearly flat, down -0.3% to 54%. ‘This is the lowest January RevPAR performance since 2010 (-7.7%) and just a poor showing all round,’ said Jan Freitag, STR’s senior VP for lodging insights. ‘The long run January average is +3.2%, and the average for January between 2011 and 2015 was +7.8%. Growth rates of more than 5% are probably not sustainable in the long run, but a bit more growth to open the year would have been nice.’
• Ladbrokes FY numbers, says is making ‘good progress on strategy and FY17 financial objectives’. It saw ‘encouraging H2 customer metrics’
• LAD FY: Revenues +3.2% at £1.2bn, PBT £52.5m (down 46.4%), EPS 9.1p (down 9.9%). Total dividend 3.0p (down 66.3%).
• LAD FY: Says revenues higher on favourable Q4 results. UK Retail net revenue up 2.0% with Q4 +6.5%.
• LAD FY: Says ‘digital net revenue growth at 12.9% with Q4 up 31.4% ‘as marketing & product investment delivered strong growth’.
• LAD FY: Says ‘our 2016 expectations [are] unchanged’. Will undertake ‘sustained product & marketing investment to drive customer metrics’
• LAD FY: Says the ‘Ladbrokes Coral merger [is] on track with Shareholder approval secured and the CMA phase 2 process underway.’
• LAD FY: CEO Jim Mullen comments ‘I am pleased to be able to report a good start to the delivery of the strategy outlined in July. Although it remains early days there is positive progress to report.’ He continues ‘in UK Retail, self-service betting terminals are delivering growth, football is up and our Retail team are delivering strong Multi-channel growth. In Digital in Q4, increased marketing delivered more customers and more staking with Ladbrokes.com net revenue up over 25% and Australia, where the business goes from strength to strength, up over 75%.’
• LAD FY: CEO Mullen continues ‘the full year figures reflect the costs needed to undertake significant investment to deliver the strategy as well as facing circa £50 million of increased taxation.’ He says ‘we have made a good start [but] we are only at the beginning of the journey. Therefore, 2016 will see the same focus on winning more recreational customers, excellent operational delivery and a performance driven approach as the basis for delivering on our clear 2017 financial targets.’ He concludes ‘while it is pleasing to report that after two quarters we have made a good start, we are only at the beginning of the journey. Therefore, 2016 will see the same focus on winning more recreational customers, excellent operational delivery and a performance driven approach as the basis for delivering on our clear 2017 financial targets.’
Finance & Markets:
• International Energy Agency warns consumers not to become accustomed to cheap oil. It forecasts recovery next year, price spike by 2021. The IEA reports ‘it is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-too-distant-future.”
• Oil price a shade higher as OPEC gets its act together. Says could take “other steps” to remove global oversupply. OPEC Secretary-General Abdullah al-Badri said the body would work with non-OPEC producers to smooth the cycle.
• Oil price weakening a little but up over last 24hrs. Trading at around $34.20 per barrel.
• World markets: UK sharply better, Europe stronger and US in positive territory. Far East lower in Tues trading
Retail Roundup from Nick Bubb:
Sainsbury/Home Retail: As, expected, Sainsbury has got an extension to the Takeover Panel timetable and shifted today’s “Put up or Shut up” deadline to the close of play on Cheltenham Gold Cup Day, March 18th, exactly the same as the Steinhoff bid deadline. Oddly enough, however, the announcement at 4.40pm came from Home Retail, which may well be feeling embarrassed that it recommended the lower offer of shares and cash from Sainsbury valuing Home Retail currently at c165p, compared to the mooted 175p cash bid from Steinhoff.
John Lewis Partnership Sales Watch: Last week was skool half-term and a year ago trading was reasonable for John Lewis (with LFL sales up c2.5%) and weak for Waitrose (with LFL sales about 3% down). Against those comps, this morning’s official John Lewis Partnership sales figures for last week (w/e Feb 20th) will probably show that trading was again good for John Lewis (+3% LFL?) and a bit weak for Waitrose (-1%/2% LFL?).
Debenhams Sale Watch: Debenhams is trying to reduce the depth and the breadth of its discounting, so, in case you’re wondering, today’s “New Season Spectacular” Sale promotion (offering “up to 25% off” in every department) is exactly the same timing as last year’s event, even though Easter is one week earlier this year. Nick Bubb – email@example.com
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:
Soho House and debt:
• See earlier email for fuller comment.
• Moody’s makes it clear that it believes Soho House is a robust business with sound cash flows
• But its actions suggest that it is saying, by its deeds rather than its words, that it is possible to load an uncomfortable amount of debt such that it becomes an issue for even the best of companies
• Certainly the above theory as to Moody’s thinking would fit the facts
• Soho House’s bankers appear to be requiring the group’s equity holders to put in more capital as a quid pro quo if they are to increase debt exposure
• We learned over the period of the credit crunch that it was very possible to over-gear.
• Hence the action of the banks seems fair enough, surely?
The youth market, where have all the drinkers gone?
• We have suggested for some time that operators need to be able to evolve their offers.
• And the fact that a study of 1,000 graduates by the NUS and YouthSight shows students are increasingly more likely to go to visit a coffee shop or a study group than go to the local student bar is a case in point
• Times are certainly changing (not that that is new in itself) and operators that make the opposite assumption may find that their market shrinks over time
• That’s not to say that pubs or bars or indeed nightclubs are redundant.
• But they may have to cater their offer to changing tastes. Perhaps offer even more food, entertainment, coffees, breakfasts, accommodation and the like
• Betting is still around 66:34 that we stay in the EU.
• This is, at this early stage in polling & betting, equivalent to a slam dunk.
• Hence planning for a Brexit may be a waste of effort.
• But, for the record, it would clearly impact the hotel and holiday companies across the leisure space more than it would our pubs and restaurants
• Sterling may weaken, import prices (for the brewers etc.) may rise and travel may become more problematic
• Whether it would be a good thing or a bad thing over time we’ll leave to the politicians to argue about.
• We have our own relatively strong views (that needn’t be aired at this stage) and don’t believe that we will be leaving any time soon in any case.
Interest rate moves:
• There are still some observers, presumably those who are attracted to symmetrical objects, who are saying that the next rate move could be downwards
• We don’t think that’s the case – but nor do we see rates rising in a hurry, either
• Over on the other side of the Atlantic, the betting on a March rate rise has diminished to only 2% vs 98% either banking on held rates or presumably of no opinion
Random information, hopefully not all of it useless:
• Markets in Europe taking their lead from Far East rather than the US, likely to go higher. Could break above recent down-trend. Will give the chartists something to talk about at least.
• Sterling down on Brexit fears. Down half a cent in an hour vs the US$ this morning and down around the same amount vs Euro.
• Oil price up from its weekend lows but still down a little from Friday.
• Gold price down a shade over the weekend but still up strongly over last month or so. Now up 2% over the last 12mths
• Most soft commodity prices still very weak. Some strength in metals, particularly precious metals
• Greece. More evidence from the nation’s own Press over the weekend that the problem hasn’t gone away. It may not even be sleeping. It might be just waking up again.