Langton Capital – 2016-04-21 – Peach Tracker, Punch, Franco Manca & other:
A Day in the Life:
Looking through LinkedIn the other day, I was struck by just how many people have taken selfies whilst trying desperately to make the photographs look as though they were taken by a third party.
And that’s noteworthy for a number of reasons.
One, it suggests either parsimony or laziness with regard to paying for a photographer or even a cheapo selfie-stick coupled with a reluctance to get off one’s bum in the first place.
Second, it suggests impulsiveness, a reluctance to wait and a willingness to hit the ‘send’ button without due thought.
Third, it’s consistent with having no friends. Or at least none that you would trust with your camera. Or your phone.
Fourth, it suggests a belief that other people are idiots. Or that they’re partially sighted or spatially unaware in that they can’t tell that the angle of your arm means that, unless you’ve got elongated limbs or foot-long fingers, your hand must be in the exact spot where the picture was taken.
And I could go on but, as hypocrisy continues to flourish and lives in my house, I have to acknowledge that it’s the sort of thing that I would do. On to the news:
Punch Taverns – H1 Analysts’ Meeting:
Post the announcement of its H1 numbers for the 28wks to 3 March 2016, Punch Taverns hosted a meeting for analysts and our comments are set out below:
Punch pointed out that its total estate, including non-core units, increased LfL EBITDA in H1 by 0.7%
Core units increased LfL EBITDA by 1.6%
The estate size declined by 8%. Inclusive of the Matthew Clark disposal, this had a £9.8m negative impact on EBITDA
This is the 3rd year of positive LfL EBITDA growth. The core numbers are the best since before the Credit Crunch
Trading Outlook etc.:
The group welcomes the certainty that the MRO secondary legislation has provided
Only around 7% of Punch’s pubs will have >5yrs to go on their leases when they are next reviewed
Group will therefore have more control over its assets
Co is pleased with the way its Retail Agreement units are trading. Sales uplifts have been significant
Food sales are up to 30% in some units – around 1 in 3 new lettings will fall into this category
Mercury units are benefiting from capex, albeit at lower levels of spend
Rent from unlicensed properties will increase – shops, offices, accommodation etc.
Balance Sheet, Assets, Debt:
All disposals have been at above book value. Pubs were sold for an aggregate £12.8m profit & M Clark achieved £46.1m > book value
The bulk of disposals have now been completed but the group should continue to sell around 100 pubs per annum
There are no major debt repayment bullets. The group will have a chance to redeem 15% PiK notes at par from this October
The group says that it believes its NAV (c382p per share) is reasonable
Group now has £117m of cash outside its securitisation
Langton Comment: Punch accepts that it is at an early stage in its transformation but, having said that, it believes that things are progressing well.
Retail uplifts have been material and have come through quickly. There is more to be done here and, though running a business the size of Punch (or Enterprise) will never be the hands-off, spreadsheet exercise that it perhaps was in the past, incremental profits should accrue to shareholders over time.
We believe that, though extremely thinly-traded, Punch’s shares deserve to be re-rated. This because both firstly we should acknowledge that it is no longer in imminent danger of going out of business and secondly, that it has a model upon which it can and should build an increasing profit stream going forward.
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Coffer Peach Tracker points to 0.6% LfL increase in sales in March. Says ‘out-of-London trading marginally stronger than in the capital’
• Tracker: Says March up only 0.6% and February flat on last year. This despite clement weather & early Easter
• March Tracker: Says ‘Britain’s managed pub and restaurant operators are experiencing a sales slowdown at the start of 2016’. It says ‘collective like-for-like sales for March were up just 0.6% on the same month last year, and come on the back of zero growth in February.’ Peter Martin comments ‘it’s a generally flat market out there, and the March numbers will be particularly disappointing as they include Easter weekend trading, which fell in April last year. Although the weather over the four-day holiday depressed sales overall, Easter still normally provides a boost to the eating and drinking-out market, no matter how poor the weather.’
• March Tracker: Mr Martin adds ‘sentiment in the market is that 2016 will be a tougher year than last. Optimism levels are still positive, but down on this time last year, and we are already seeing a cutback in site openings among a number of operators.’ He continues ‘it will be interesting to see if confidence among both consumers and operators picks up once the uncertainty surrounding the EU referendum is out of the way.’
• Tracker. March details. Provinces slightly > London (plus 0.8% vs +0.4%), restaurants up 1% versus pubs up only 0.4%.
• March Tracker: Total sales up 4.9% (versus LfLs +0.6%) showing the continuing impact of new openings.
• Tracker: Cumulatively, sales are running +1.3% LfL for the year to end June with little difference between London and Provinces
• March Tracker: David Coffer, chairman of the Coffer Group, says ‘operators have for some months now endeavoured to expand outside of the central London core to avoid spiralling high rents and prices being sought within the capital. This has increased rental values in provincial markets. The acceleration of many excellent brands into these regions has enhanced customer demand and trade, and this is reflected in the latest figures.’
• Tracker: Coffer Corporate Leisure says operators showing ‘far greater reluctance…to pay major premiums especially for licensed premises’. RSM comments ‘another month of sub-1% like-for-like growth figures will be giving investors in the UK eating and drinking out sector pause for thought. Couple this with the EU referendum vote, which is now only two months away, and we are expecting a notable slowdown in sector activity, with investment decisions being postponed until the outcome of the referendum is known.’
• Franco Manca updates on openings. Reports Guildford unit opened Friday, taking the total number to 20 in operation.
• Franco Manca. Fulham-Shore-owned group says new restaurants now being built in Brighton (May), Tooting Market (June), Muswell Hill Broadway (June), Bromley (June) and on Kilburn High Road (July). Franco Manca has also signed units in Putney High St and the Nova Victoria development, which will bring the estate size to 27 by summer this year.
• Franco Manca reports on further sites under negotiation. Chairman David Page says ‘we tread slowly – we sometimes sign sites but do not develop them immediately.’ He adds ‘Bermondsey Street was empty for two years and Stoke Newington for six months until we were ready to open them. We will do the same thing going forward.’
• YUM Brands Q1 numbers, shares up c4% in after-hours trading on earnings beat.
• YUM Q1: Says revenue $2.62bn for quarter (estimates c”2.66bn) but earnings 95c against 83c estimates.
• YUM Q1: Worldwide system sales +5%. LfL sales +2%. LfL sales in China +6%. CEO Greg Creed reports ‘I’m very pleased with our results in the first quarter, including better-than-expected core operating profit growth of 21%, driven by 42% growth in our China business.’
• YUM raises guidance, looking for operating profit growth for full year of c12%, up from 10% previously.
• YUM opened 295 new restaurants worldwide in Q1. CEO says ‘companywide, all four of our Divisions posted positive same-store sales and core operating profit growth. I’m especially encouraged by the continued turnaround of our Pizza Hut U.S. business, which delivered 5% same-store sales growth.’ Greg Creed says ‘while it’s early in the year and there may be bumps in the road, we’re confident in raising core operating profit growth guidance to 12%, from 10% previously. This is a transformational year for our company as we remain on track to finalize the separation of our China business by year end. We look forward to establishing two powerful, independent, focused growth companies dedicated to building on our brand strengths and rewarding our shareholders.’
• Share buybacks: Enterprise yesterday bought back 112k shares for cancellation at around 94p. JDW bought back 50k at 698p.
• SAB Miller 12mth update. CEO Alan Clark reports ‘we have had a strong year and increased momentum in H2’. He adds the growth comes ‘notwithstanding economic volatility and the potential distraction of the AB InBev offer.’ Clark adds ‘our results reflect our strategy to expand the beer category and to grow and premiumise our diverse brand portfolios.’
• SAB 12mth update. Total 12mth revenues +5% in constant currency but down 8% in reported currencies. Group says ‘we have seen increasing momentum in lager volumes over the year with growth of 3% in the second half and fourth quarter. Subsidiary lager volumes grew by 6% in the second half of the year.’
• Coca Cola shares fell >4% after reporting a 4% fall in Q1 profits. Europe was weaker & a strong dollar impacted translation. CEO Muhtar Kent nonetheless reports ‘our operating results are driven by our commitment to sustainable growth, and we are confident that we have the right strategies in place to achieve our full-year outlook and drive long-term value for our system and shareowners.’
• Western Gate has responded to Stock Spirits’ dismissal of its concerns by reiterating its six-point criticism of the firm’s management. Luis Amaral’s office described Stock Spirits’ recent statement as making ‘various unjustified statements about [Western’s] intentions’ and maintains that there is a link between the group’s high head office costs, its management culture, and its eroding market share of the Polish spirits market. Western also stressed the independence of its two proposed NEDs, noting that Randy Pankevicz and Alberto Da Ponte have both been assessed by Heidrick & Struggles ‘as strong, independent non-executive director candidates, meeting the independence requirements of the UK Corporate Governance Code.’
• Mitchells & Butlers is trialling a revamped look and menu, including stone baked pizza, for its 36-strong O’Neill’s brand. Speaking to MCA, a spokesperson for the group commented: ‘We have recently renovated O’Neill’s, Broad Street, Birmingham to trial a new look including refreshing the food and drink offer. This is at very early stages and we will continue to review feedback from our guests over the coming months.’
• Tesco is closing its seven in-store Giraffe sites as it looks to focus on its core retail business.
• Enterprise Inns has appointed Julia Poulson as Group Property Director, who will join in August after stints at M&B and Domino’s Pizza.
• McDonald’s is preparing to install Samsung Galaxy tablets across the majority of its UK stores as the chain continues to evolve its image. Customers will be able to play games, use social media, and surf the web on the tablets, which have so far proven ‘extremely popular’ with diners.
• McDonald’s France has been hit with a €300m tax bill for allegedly boosting profits by shifting them to other countries with lower tax rates. French tax officials say the fast-food giant has been using a Luxembourg-based company, named McD Europe Franchising, to bill its French branches excessive amounts for the use of the McDonald’s brand. McDonald’s says its franchises in France paid €1.2bn in tax, invested another €1bn in France and created more than 15,000 jobs in the country since 2009.
• The ALMR, BII and FLVA are teaming up to provide lessees with advice following the publication of the Statutory Code for pubs. The three bodies will be holding a series of seminars and surgeries across the country from 26 May in London. ALMR Chief Executive Kate Nicholls said: ‘The introduction of the Code will be one of the biggest changes that the sector has had to face. It is therefore very important that licensees are fully aware of their obligations and opportunities and that the change is made is simple as possible.’
• A more than 10% increase in value of the global wine market in 2015 has been attributed to an increase in domestic wine demand in China.
• Amazon has extended its Prime Now one-hour £6.99 delivery service to Surrey-based addresses.
• Ongoing restructuring at Monarch could mean the loss of up to 123 jobs as the airline sets about closing a maintenance base at Manchester. The company says 109 jobs are under consultation in Manchester, 12 in London, and two in Birmingham.
• Accor Q1 like-for-like sales rose 1.9% to €1.161bn, with most of its markets doing well although ‘France and Brazil remain complicated.’
• The US hotel industry reported mostly positive results during March 2016, although occupancy was down -0.4% to 66.4% according to STR data. However, average daily rate for the month was up 3.2% to $124.37, and revenue per available room increased 2.7% to $82.60.
• Ladbrokes updates on Q1 trading, says net revenue +10.6%, UK retail revenue +4.1%, digital revenue +36.5%.
• LAD Q1: CEO Jim Mullen reports ‘since July 2015 we have been successfully implementing our strategic plan and the encouraging customer metrics we saw at the end of the year have continued during the first quarter of 2016. While results have generally been favourable, Cheltenham proved to be the worst in living memory which took some of the shine off the period. While we see plenty of evidence to support that our plan is working, our focus remains on delivering against our strategy and our 2017 targets.’
• LAD Q1: CEO Jim Mullen reports ‘we have had an encouraging start to the year. Results throughout the first few weeks were largely in our favour and our customer metrics have continued to be strong. In Retail the favourable margin trends inevitably began to take their toll on customers’ staking levels.’ He says ‘we are currently a little ahead of our plans on key customer metrics and benefited from favourable results up until Cheltenham. However, experience tells us to expect results to normalise over time. We remain confident to deliver a result in line with our expectations.’
FINANCE & MARKETS:
• UK unemployment rose by 21k to 1.7m in the three months to end-Feb reports the ONS. This is the first rise since July last year
• ONS reports unemployment rate in the UK held steady at 5.1%, well down on the 5.6% reported at this time last year
• ONS reports earnings including bonuses rose by 1.8% in the quarter to end-Feb, down on 2.1% over previous three months
• World markets: UK mixed yesterday, Europe higher. US markets up and Asian/Australasian markets higher in Thurs trade
• Oil price sharply better. Trading at around $45.90 per barrel. US production lower than expected.