Langton Capital – 2016-04-27 – More on Whitbread, share buybacks, travel & other:
A Day in the Life:
So a bit of snow fell in London yesterday.
And, the last time I looked at my watch, it was May next week confirming that the weather, particularly if you live on an island near a major land mass but at a relatively high latitude, will always retain the capacity to surprise.
But anyway, what’s that to the hardy commuters who work in the City. It’s barely noticeable and, if we can put up with crammed tube carriages, crazy cyclists, irate taxi drivers and off-the-boil, half-full, grumpily-served coffees every morning, what’s a few flakes of snow, a mere trifle.
And, as far as the leisure industry is concerned, at least this bout of cold weather looks as though it’s going to avoid any of the big days. We’ve had Valentine’s Day, Mothers’ Day, Easter and even St Patrick’s Day so, provided that it warms up nicely for the first weekend in May, and accepting that trading is somewhat tougher than it was a year ago, the pubs don’t have too much to complain about. On to the news:
Whitbread – FY Analysts’ Meeting:
FY Numbers 2015/16 – Analysts’ Meeting:
Following the announcement of its FY numbers this morning, Whitbread hosted a meeting for analysts and our comments are set out below:
Trading & Outlook – Premier Inn:
Group says the London market ‘was weak’ in H2
Whitbread says that 85k rooms is a realistic 2020 target. Much of the shortfall will come from extensions & filling in in London. The Independent market will continue to decline. Whitbread will put on about a half of the market’s increase in capacity between now and 2020
Hub will allow PI to grow ‘in high property value areas’
Internationally, India looks to be losing high single digit millions. The Middle East is in profit & it’s very early days for Germany
A modest German acquisition, in order to road-test the model more rapidly, is not out of the question
In the UK, rents will be something of a drag on margin as the group opens more leasehold units
Looking forward, WTB concurs with the STR suggestion that the London market will see a further decline in REVPAR, at least in early 2016. Extensions will also depress REVPAR – but they help LfL sales
Re current trading, no numbers were given but ‘PI is taking share in a weak market’ – this will have been skewed by an early Easter
The group has ‘modelled Airbnb’ and is sanguine about competition. Thus far, though WTB denies any charge of complacency, it has not felt an impact
PI’s price premium ‘has come down’. But this is at least partly because Travelodge has been putting up its prices
Extensions and new build should stem the ‘leakage’ of customers to rival operators
Trading & Outlook – Restaurants:
Alison Brittain says that she has reviewed the role of restaurants within the organisation and, where they are co-located, they are a valuable addition to the group
They differentiate the group ‘from its major competitor’ but also from disruptors such as Airbnb
The group would like to add on-site restaurants where this is possible. Breakfast is critical. Third party restaurateurs on site are understandably unwilling to push the boat out at 7am
Trading & Outlook – Costa:
Whitbread confirms that £2.5bn of sales (around £1bn ahead of the current position) is a reasonable 2020 target
Food opportunities ‘are huge’ and the group will road-test ‘finer coffee’
The group will be inventive when it comes to points of distribution, this for the machines business
Questioners wondered whether China wasn’t being ‘de-emphasised’. The group denied this but stressed that returns would come over the longer term. Starbucks ‘has been there 15yrs & has made mistakes along the way…’
Costa trading is currently said to be ‘good’ but WTB gave no further detail
Medium term, it expects LfL sales growth of perhaps 2% to 3%.
Current growth is partly volume & partly the January price increase.
Food is around 30% of revenues. This could go up but ‘Costa will always be primarily a coffee shop’. Costa margins could come down a little as the proportion of food sold rises.
Trading & Outlook – Overall:
The 53rd week was worth £13.9m to profits
Whitbread says it is committed ‘to building a bigger & better business’
CEO Alison Brittain says that she expected to find a good business & that she has not been disappointed – the group ‘has a good platform upon which to build’
The growth targets, which were inherited by Ms Brittain, have been audited & approved as reasonable by the new CEO
The group ‘is in good shape’ but markets evolve & there will be a degree of evolution at Whitbread going forward
National Living Wage will ‘cost around £10m this year’ (no change from earlier estimates)
Whitbread expended some £510m in expansionary capex in FY16. This number will moderate to around £550m to £600m in FY17 ‘and there is likely to be more sale-and-leaseback activity’
Langton Comment: Whitbread has modestly beaten current year numbers and it has reiterated its commitment to medium term targets.
Airbnb is not (currently) taking share and, though Costa’s growth has moderated, WTB believes that it can continue to grow share in what remains an expanding market.
And WTB’s rating is not stretched. Well at least it’s not as stretched as it was and the group has well-regarded brands with international potential.
Here we would like to see some evidence that sales lead to profits but clearly a freehold-based hotel expansion programme in Germany will take some time to produce results.
Overall, there was little by the way of drama in these numbers.
More markedly, there was a commitment to prior targets and that’s not altogether a bad thing. An incoming CEO saying ‘do you know what, snowdomes are the way forward…’ would be much more upsetting than one that retains previously announced expansion targets.
Some China froth may have come out of Whitbread’s shares but, at less than £40 and trading on around 15x current year earnings, they offer solid value.
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Buybacks. JDW Monday bought back 25k shares at 695.5p. Enterprise bought back 105k at around 91p.
• Yesterday, both companies were at it again. JDW retired 25k shares at 697p & Enterprise bought 102k at around 93p
• Imbiba-backed Darwin & Wallace is holding a private launch party for the opening of its fourth site, No 197 Chiswick Fire Station. Darwin & Wallace, led by Mel Marriott, is a collection of independent bars and restaurants in various London villages, and its latest addition will bring with it a stripped back atmosphere and ‘Antipodean-influenced’ dishes.
• Spend at breakfast and lunch hit a 12-month high in March, although participation levels remained flat year-on-year at 93.1%, according to MCA’s Eating Out Panel. Average spend per visit was up year-on-year for lunch (+8% to £7.60), breakfast (+11% to £4.93), and dinner (+1% to £17.16), while spend per snacking increased 15% to £3.82. Frequency of visits was up throughout the day, with breakfast showing the sharpest increase of 35% to 2.5 visits per month.
• Risk Capital Partners has sold its flagship Red Hot World Buffet site in Nottingham to Framemill yesterday for c£350,000, writes Propel.
• Punch has announced plans to invest £550,000 in a site in Urmston, Manchester, which will re-open on 3 June as the group’s seventh Champs Sports Bar and Grill. The transformed site will have an American theme, with booth seating and nine HD TV screens showing sports. Commenting on the investment, Andy Wilkinson, concept development manager for Punch said: ‘We know that Champs is a winning concept and are delighted to bring it to Urmston. The investment will create a premier destination to watch the very latest sporting action, showcasing everything from football to rugby to horse racing, and we’re sure it will be a big hit with local customers.’
• Keith Knowles, CEO and founder of Beds and Bars, has criticised Enterprise Inns as ‘totally self-interested’ in an open letter to the pub operator. Knowles says he has received no support from the pub company since taking on an Enterprise site in Camden five years ago, adding: ‘I ask what Enterprise has done to assist us in the running of our site in Camden in the last five years? What training has been offered? Marketing? Promotions? Sky charges? What are Enterprise doing about business rates?’ Enterprise has expressed a desire to speak to Knowles in order to further understand his complaints.
• Tyne Bank Brewery has raised £108,000 from 15 investors so far on Crowdcube as it looks to open its first canning line in the North East.
• Nielsen figures show Easter-time sales of Champagne have ‘fallen back significantly’ in UK retailers, while sparkling wine continues to thrive. Champagne sales lagged all other categories, with sales down 5.1% year-on-year over the course of the period.
• China is reported to have overtaken the US as the largest travel market in the world reports the GBTA Foundation. Says China spend in 2015 hit $291.2bn compared with $290.2bn in the US. In 2016, spend in China is expected to rise by 10.1% whilst it may be only 1.9% higher in the US. GBTA says ‘despite a relative slowdown, China’s business travel market remains one of the fastest growing in the world.’ It adds ‘China surpassing the United States in business travel spending marks a major inflection point and truly demonstrates the global nature of today’s economy.’
• Private equity firm Caledonia Investments is reportedly exploring options for Park Holidays, the UK’s fourth-largest caravan holiday operator. The potential sale of Park Holidays, which is set to see earnings rise to £35m this year, could be worth more than £250m. The business was bought from Graphite Capital for £172m three years ago.
• Greece-focussed Sunvil Holidays has acquired assets from failed Turkey specialist Jewel in the Crown and now owns its name, website, and mailing list.
• The European hotel industry reported a 0.8% increase in occupancy to 61.1% in Q1 2016, while average daily rate rose 2.3% to €102.98 and revenue per available room grew 3.1% to €62.94.
• Twitter’s latest results have failed to meet expectations, leading to a 13.6% drop in share price as the group struggles to monetise its platforms. Revenue of $594.5m missed expectations, while guidance for the current quarter of between $590m and $610m may also fall short of investor targets.
• Apple posted a 13% decline in its second quarter revenue on Tuesday as the previously flagged drop in iPhone sales dragged sales down from $58bn to $50.56bn. The results mark the first fall in sales since 2003. Although some 51.2 million iPhones were sold during the quarter this is still down from 61.2 million for the same quarter in 2015, with China highlighted as a particular source of weakness after sales fell 26%.
FINANCE & MARKETS:
• World markets: UK up yesterday, Europe also higher. US slightly higher but Far East mostly down in Weds trading
• BP shares higher yesterday on Q1 numbers. Belief that big-oil may get through this cycle without dividend cuts
• Oil price sharply better. Trading at around $46.30 per barrel
• US dollar on the slide yesterday on the back of relatively weak macro-data. Sluggish durable goods & capital goods orders
• UK mortgage approvals fell in March to 45.1k vs 45.65k in Feb. This despite the rush in buy to let buying