Langton Capital – 2016-03-21 – DP Poland, sugar, craft beers, Starwood & other:
A Day in the Life:
I think that we must have something a bit special in the water around our neck of the woods because I can think of little else that would account for the lunatic behaviour of some of the wild (and not so wild) life chez nous.
I mean not only is the dog insisting on knocking over the bird table in order to eat birdseed and various bits of bread but we have a couple of blackbirds, which should, presumably, be nest-building at this time of year, that have taken to sitting on the wing-mirrors of both of the household cars in order to battle with their reflections whilst at the same time taking the opportunity to use the handy perch as a convenient toilet into the bargain.
And that would be amusing if it wasn’t so annoying because sporting poo-stripes the length of both doors on what would otherwise be a black vehicle is not altogether a good look so what do we do?
The use of firearms in the immediate vicinity of the vehicle isn’t really an option and I draw the line at buying a cat. On to the news:
Pub, Restaurant & Drinks Producer News:
• DP Poland reports full year numbers, system sales +22%, total store EBITDA >1m PLN for the full year. Group EBITDA loss down 31%.
• DPP FY. Group now operates in five cities, Warsaw, Krakow, Wroclaw, Gdansk and Szczecin, with 16 managed & 8 sub-franchised units
• DPP FY: System sales up 15% including impact of 3 stores closed in 2014. Seen 13 consecutive Qtrs. of double digit LfL growth
• DPP FY: Group says LfL system sales +16%, LfL gross profit +27%, LfL order count +14%. Group is ‘maintaining strong like-for-likes’.
• DPP FY: Now has 67% of total delivery sales made online. Total stores EBITDA positive in every month last year
• DPP FY: Group’s top 3 corporate stores averaged £58k EBITDA each in 2015 vs £24k each the year before
• DPP FY: Says ‘stores 25 and 26 to open imminently’ and adds that it has a ‘substantial store opening pipeline for 2016’.
• DPP FY: Group says ‘double digit like-for-like System Sales growth continued January-February 2016 at 27%’. CEO Peter Shaw reports ‘the improvement in Group EBITDA in 2015 is a result of a strong combined performance from our corporate stores and our commissary. Corporate store EBITDA went strongly positive in 2015 and commissary sales to our sub-franchisees, plus sales royalties, grew significantly thanks to the strong sales performance of sub-franchised stores.’ He concludes ‘with a presence in 5 cities we will be opening a significant number of new stores in the coming year, both in those cities and in new locations. I am delighted with the performance of our latest store openings in new cities.’
• DPP points out that commissary now has its own P&L account. Chairman Nick Donaldson writes ‘the contribution from the commissary through sales to sub-franchised stores, plus royalties, increased through the year and, with the opening of our new commissary in September we saw that contribution enhanced further through more cost efficient dough production and warehouse product handling.’ Sub franchisees are performing well allowing the Chairman to report ‘your board believes that the strong performance of our stores, existing and new, plus the contribution of the commissary will continue to build over the coming year and that 2016 will be another important year for this business.’
• JDW announces buy-back of another 85k, these at 700p. Group now this year bought 1.46m for £9.6m, an average of 656p per share
• Research from Lancaster University suggests that the relaxation of licensing hours in the UK has led to a rise in binge drinking.
• Alison Brittain, CEO of Whitbread, is facing calls to consider spinning off its highly successful Costa Coffee business in the wake of its sliding share price. The former Lloyds Banking Group executive took the reins in September following a period of aggressive expansion under its former chief executive, Andy Harrison.
• Burger King has got permission to sell alcohol in the UK for the first time, in its Waterloo Station branch.
• Soft drinks companies preparing to sue government over proposed tax reports Sunday Times. Points out there have been successful challenges in Finland and Denmark
• EAT is reported to be facing a £3.6m VAT bill for charges relating to heated sandwiches
• Petainer, one of the UK’s largest beer-keg manufacturers, is said to be considering a c£100m IPO on the London Stock Exchange
• Consumer spending rose by 3.3% in February, making it two months of declining growth out of two since its peak of 4% in December 2015. The latest Barclaycard data found that the bulk of February’s growth was driven by experiences. Restaurants (+13.8%), pubs (+12.8%), and hotels (+7.5%) all saw an increase in spending as couples celebrated Valentine’s Day with evening meals and weekend breaks. However, just 54% of consumers said they are confident in their household finances as things stand, down from 71% in December.
• Risk Capital-backed Red Hot World Buffet has placed its entire estate of six sites on the market for c£5.5m, writes MCA. The group is understood to have appointed CDG Leisure to market the sites (in Cardiff, Leeds, Leicester, Liverpool, Manchester and Nottingham), with rival world buffet operator Cosmo thought to have already made an offer.
• The BBPA expects changes to the way the government levies business rates from April 2017 could save English pubs £39m per annum. Around 81% of pubs will benefit from either the small business multiplier, or the Small Business Rate Relief, or both, while over 16,500 pubs will pay no business rates at all.
• BBPA Chief Executive Brigid Simmonds commented: ‘These changes are a real boost, especially for much-loved community locals. They reflect much of what BBPA called for in its response to the recent Government review, and show that the Government is listening to concerns, when it comes to both the big burden of the current rates regime, and also the vital role that pubs play in local communities.’
• Whitbread is converting its seven-strong Taybarns buffet chain to its larger traditional pub food format, Brewers Fayre.
• Chancellor George Osborne’s move to increase wine duty in line with inflation will see drinkers pay £1.3bn more over the next five years. Research from the Drinks Business shows that total alcohol duties are now forecast to top £13bn by 2020/21, with the majority of that growth set to come from wine drinkers. Total duties collected on wine are expected to increase by 32% between 2014/15 and 2020/21, and have already been flagged as a risk to the UK’s growing domestic wine industry by experts.
• Hackney-based London Fields Brewery, also known as ‘Britain’s most fashionable brewery’, has been placed on the market for around £3m. MCA writes that Coffer Lyons has been instructed to sell the business, which was launched in 2011 and whose owner, Julian De Vere Whiteway-Wilkinson, was recently charged with a suspected £1m fraud following an investigation by tax officials.
• The ALMR is encouraging local authorities to work with the licensed hospitality sector in dealing with alcohol-related harm.
• Craft beer is continuing to boom in the UK, according to the Society of Independent Brewer’s managing director, Mike Benner. Speaking at the association’s festival, BeerX, Benner revealed that four out of five of the group’s members are expecting increased turnover this year and one in six anticipates a 25% boost. Benner also credited the duty freezes in Osborne’s Budget, adding that 12.3% of savings available thanks to recent duty cuts were spent on pub acquisitions by small brewers last year.
• The Centre for Economic Performance says that British households could be £1,700 a year worse off on average if the UK leaves the European Union. The figure could growth to as much as £6,400 in the long term, according to the think tank, which says a decline in trade would cost the economy ‘far more’ than would be gained by lower EU contributions.
• Deltic Group turnover grew by 8% in the year to February thanks in part to 5.9% increase in sales over the Christmas and New Year period. Speaking to the MCA, CEO Peter Marks commented: ‘Despite recent speculation, clubs aren’t dying; they’re evolving and demand for well run, refurbished venues is strong. Just like bars and restaurants, clubs have had to adapt to survive and, whilst entry fees have remained consistent over the last five years, premium drinks packages, pre-bookable booths, world class DJs and live entertainment, together with admission fees, are all key trends that are continuing to grow sales.’
• Starwood has become the first US firm to agree a deal with Cuba since 1959. Will renovate & run 3 hotels in Havana
• Five killed in suicide attack in Istanbul, FlyDubai plane crashes in Russia killing all on board
• Starwood Hotels & Resorts says a $13bn cash offer from China’s Anbang Insurance Group Co is ‘superior’ to one from Marriott International Inc. The announcement paves the way for the largest-ever deal by a Chinese company in the United States. The Anbang-led consortium – which also includes private equity firms J.C. Flowers & Co from the United States and Primavera Capital – has bid $78 per share in cash (c$13.6bn).
• Starwood has further informed Marriott that it means to terminate the merger agreement with Marriott unless new terms can be struck. Under the terms of Marriott’s merger agreement with Starwood, Marriott has the right to propose revised terms until 28 March. If the merger does not go ahead, Starwood must pay Marriott a termination fee of $400m in cash.
Finance & Markets:
• The Federation of Small Businesses’ latest survey shows the owners of SMEs are less confident than at any time since 2013. Pensions auto-enrolment and the upcoming National Living Wage changes are seen as key concerns. The survey was conducted before the Budget however, which has been received as generally favourable for small and medium-sized firms.
• Oil price down a little over the weekend, trading at present at around $40.90 per barrel.
• World markets mixed. UK mixed, Europe higher, US higher and Far East mixed in Monday trading
• Rightmove reports UK house prices rose 1.3% in March. It reported prices had risen 2.9% in February.
• European leaders have made progress with Greece on tax and pension reforms in a package of measures the country must adopt to win new loans and debt relief.
Retail Roundup from Nick Bubb:
News Flow This Week: The pace of company news accelerates this week, ahead of Easter, with Wednesday bringing the Kingfisher finals, the Game Digital finals and the DFS interims (as well as the vital BHS CVA vote), whilst on Thursday we get the Next finals, the ONS Retail Sales for February and the Signet Q4 update. Nick Bubb – firstname.lastname@example.org
This was produced for distribution Friday 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:
DISCOUNTING IN THE OFF-TRADE:
• Premium Bottled Beer report suggests that Sainsbury & Waitrose have taken a large number of beer off offer.
• This fits in with SBRY’s avowed intention of cutting offers across the board.
• Prices, margins should edge up a bit, hopefully volumes won’t fall too much.
• Sainsbury doing 500ml premium beers (Old Speckled Hen, Pedigree etc.) for £1.80 per bottle, some at £1.60. They were doing £5 for three bottles pretty much across the board.
• ASDA still doing 4-bottles-for-a-fiver so guess where Langton will be shopping. Inexplicably selling Banks’s Bitter at 90p a bottle or 102p per pint.
MERLIN & A ‘CHEAP’ POUND:
• See also comments on currencies below.
• Merlin has in the past pointed to a strong UK pound, particularly versus the Euro, as a reason as to why London visitor numbers may be a little weaker than expected & thus revenues at its London attractions were consequently under a little pressure
• But, as the chart below shows, Sterling has weakened vs the Euro by about 8% over the last 6mths suggesting that Euro-denominated visitor numbers may once again be on the rise.
• Indeed we carried the story that ‘a total of 23.6 million tourists visited the UK in 2015, up 7.1% YoY, with much of the growth driven by visitors from EU countries (up 13% to 14.9 million)’ in our earlier email today.
• Merlin updates on Q1 trading at the time of its AGM on 19 May. It would lack a certain symmetry if the group did not make some reference to currency movements and their (hopefully) positive impact on visitor numbers.
US HOTEL MARKET SET TO MOVE DOWN:
• STR suggests (see earlier email) that occupancy across US hotels is falling whilst rates are still rising.
• This is currently leading to a small positive for REVPAR.
• However, STR is also flagging up significant increases in capacity, saying that the US pipeline for new hotels is pretty full.
• That would suggest that both occupancy and rate could come under further pressure and, a swift upturn in the economy notwithstanding, REVPARs will fall.
• The UK – particularly London – is in a similar position.
• It’s tempting to think that everything is about us.
• But in the currency market, it isn’t as what’s actually happening is that the US$ is weakening and, as a result, most other currencies look as though they are strengthening.
• This is particularly the case with the Euro and the Yen where markets have become exasperated with negative interest rates & have decided to move the currencies higher no matter what the respective central banks choose to do.
• Sterling, although it doesn’t look it, is perhaps moving sideways.
• US dollar at two-year lows vs Yen. Aussie dollar rising.
COMMODITY & INPUT PRICES:
• Oil price hitting 2016 highs.
• Gold slightly weaker & gold – oil ratio down to 30.5 from 30.7 and from a March high of 34.5 (on 4th of the month)
• Soft commodities under upward pressure (in US$ terms) due to weakness of reference currency). Sugar prices are at recent highs. Price of Sugar #11 is up by 32% over the last 12mths.
RANDOM INFORMATION, HOPEFULLY NOT ALL OF IT USELESS:
• Bank of England held rates yesterday. That is the 84th straight month that it has done so.
• Various economists suggesting that Mr Osborne has a 50:50 chance of hitting his 2020 Budget Surplus targets. Given where we were in 2010, that’s perhaps not half bad.
• Slightly delayed reaction, AG Barr shares down 5.2% yesterday.
• Travel stocks down on oil strength. Top ten losers in FTSE100 & FTSE250 included Easy Jet, Carnival, Intercontinental Hotels, Millennium & Copthorne.
• M&B shares also in the top-10 losers in FTSE250. Shares now looking very weak. Perhaps overdone?
• Despite upset leading to Feb lows, Dow Jones index is now up on the year.