Langton Capital – 2016-04-29 – Restaurant Group, Snoozebox, Peel Hotels & other:
A Day in the Life:
So walking around some of the many major building projects with empty A3 units at their feet going on near Aldgate Tube Station reminded me that the market for property in the UK has no braking mechanism.
What it has, is a crashing mechanism.
That’s when the market signals to the various operators that, well, they’ve built far too many flats and that there are only so many Chinese students with rich parents out there and that the local inhabitants may baulk at paying the ‘between £708k and £5m’ being asked by Berkeley Homes for flats in its Goodman’s Fields development.
I mean I like Aldgate, don’t get me wrong.
Because, whilst we might occasionally like to say that we have a flat in Spitalfields, we live in Aldgate really and the office is in Aldgate but so are a lot of other people, some of whom are far from savoury and others of whom are intensely savoury but for all the wrong reasons.
So who would pay £5m for a flat & then spend the next couple of years dodging panhandlers, drunks and even less desirable people, such as Langton staff members after a night on the tiles in order to get to Aldgate Tube and nip around to Knightsbridge or Chelsea? You tell me. Perhaps there’s a bit of a bump in the market coming, who knows…
Anyway, we’ve made it to Friday so, without further ado, let’s move on to the news:
Restaurant Group warns, CFO leaves Group…
The Restaurant Group has this morning announced that ‘since we updated on current trading with the preliminary results on 9th March, we have seen a further deterioration in trading conditions’.
• 7.15am conference call is ongoing. The tone is very poor.
• Group says sees deterioration with ‘our Leisure business, in particular, continuing to be impacted by the structural and business challenges referred to in the March Preliminary results statement.’
• It says ‘as a result for the 17 weeks to 24 April, total sales are up 4.7% and like for like sales are down 2.7%.’
• Group adds ‘in the short term, we do not anticipate any improvement to underlying like for like trends and, on this basis, we now expect full year like for like sales to be down between 2.5% and 5.0% which would translate into full year profit before tax in the range of £74m to £80m.’
• RTN says ‘we are actively implementing the operational initiatives to improve performance that we outlined in detail at the Preliminary results in March.’
• Group adds it ‘is cash generative and our balance sheet strong, supporting the dividend.’
• A comprehensive review is ongoing.
• Group announces CFO Stephen Critoph is to leave the company with immediate effect.
• Group AGM will take place on 12 May and says ‘the next scheduled announcement after today’s update will be the Interim results announcement, which will be issued at the end of August.’
• CEO Danny Breithaupt reports ‘we are focused in the short term on the operational levers that will improve our trading performance. In the medium term, we are reviewing the core strategic assumptions that differentiate our operating model to ensure that we optimise returns for shareholders.
• He adds ‘in spite of the current like for like challenges, overall returns remain strong, the business continues to be cash generative, and there is a strong core business to build on.’
Langton Comment: RTN has shocked the market. The group is hosting a 7.15am conference call and we will report back shortly. Watch out for Langton Tweets. Fuller details on the website.
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Adnams updates at AGM saying ‘underlying trends remain good with strong growth in key products’.
• Adnams says ‘our operating profit was slightly ahead of expectations at the end of the first quarter.’
• Adnams says ‘we see further opportunity to grow our businesses and are investing strongly to realise this potential. We have trebled our distillery capacity to deal with the very strong growth that we have seen in spirits sales.’ It adds ‘we are also investing heavily in our brand’ and says ‘these additional investments will add to the costs that we face in the first half of 2016 and we are not anticipating an advance in our profits at that point. This is in line with our expectations and we aim to reap the returns from our investments in future periods.’ The group concludes ‘the uncertainty created by the forthcoming EU referendum means that we need to be cautious in our assessment of the economic outlook, but Adnams has a firm commitment to the long term and we will continue to invest on that basis.’
• CGA Strategy reveals that more than three quarters of the UK’s bars now sell cocktails, with healthier and premium mixed drinks two of the big trends. The latest Mixed Drinks Report has found a growing number of people ordering skinny options (29%), while one in four frequently drink cocktails made with premium spirits. Craft producers and micro distilleries continue to benefit.
• The mojito remains the country’s most popular cocktail and vodka is the most commonly-used ingredient, although gin and sparkling wine are being used increasingly often. Men now account for 45% of total cocktail consumption, highlighting the growing popularity of the drink.
• MCA data points to a ‘new and step-changed period’ of menu price inflation as operators feel the pressure from rising costs. The average price for the cheapest dishes on the menus of 120 casual restaurants rose 3.8% from Q2 2015 to Q2 2016 to an average of £7.20, compared to a 2.6% increase in the year before. Meanwhile, the most expensive dish rose by an average of 5.2%, compared to just 0.1% previously.
• Telepizza has completed its IPO on the Spanish stock exchange, raising €118.5m, which will go towards repaying the group’s debt. The pizza delivery group has a market cap of €780.6m, with businesses in Spain, Poland, Portugal, Colombia, and Chile, and is backed by KKR and Permira. In 2015, Telepizza reported total revenues of €329m and recurring EBITDA of €58m. The company reported improved performance in 2015 with good organic growth across major geographical segments and positive like-for-like sales of 5.5% in 2015 and 1.2% in 2014.
Deliveroo has launched a new pop-up kitchen concept called RooBox, which has been trialled in Battersea over the last six weeks, writes MCA. Dan Warne, UK managing director at Deliveroo, commented: ‘We are not inhibited at all by space, which is one of the really exciting things about the project and a major reason why we can make this economical for the restaurant industry versus perhaps setting up a site on a high street. It certainly is a game changer, certainly for us as the volumes we now do with some our restaurant partners are very significant.’
• Pizza Pilgrims has secured a fifth site, in London’s Docklands, which is set to open later this year.
• A study by the Royal College of Physicians concludes that e-cigarettes should be widely promoted as a substitute for smoking. The RCP says that smokers should be ‘reassured and encouraged’ to use the electronic devices, as they are much safer than smoking.
• Young leaders in the eating and drinking out sector are more optimistic about the future and more attuned to the value of technology, according to CGA Peach data. CGA Peach’s Business Leaders’ Survey, in association with Korn Ferry, shows that nearly a quarter of leaders under 40 are ‘very optimistic’, compared to just c10% of those over 40.
• The administrator to BHS has received ‘around 50’ expressions of interest for all or various parts of the retailer, with partial sales looking the more likely option.
• Peel Hotels reports FY numbers, says turnover up 3.4% to £17.0m, EBITDA +3.9% to £2.6m. Debt now £752m. EPS 5.7p vs 5.2p. Group says ‘our results continue to improve on the back of Revpar growth and a lessening overall cost of finance due to sustained repayment of debt. Our cash resources allow continued investment in our product and this gives us confidence for future growth in the current year.’
• Snoozebox. Tiddler £1.3m hotel operator Snoozebox announced on Monday that its CEO was to leave the company with immediate effect. It followed this up on Tuesday with a review of the business saying that it expected to report an EBITDA loss of around £5.5m for the year to end-December. Note the loss in the context of the size of the company. The group has around £5.4m of net debt. The group had said that it intended to raise further funds back in December.
• Snoozebox. Group says it has ‘recently initiated discussions with its primary lender…seeking an amendment to its debt servicing obligations.’ It adds that ‘lead times to secure new Semi-Permanent contracts for the Group’s V1 stock in 2016 are proving to be longer than had been planned.’ This would appear to confirm that business is not quite going as planned. It says various contracts ‘have seen their planned completion dates delayed further into 2016, or beyond, with commercial discussions on-going, and there can be no certainty that these discussions will be successfully concluded.’ The group’s shares have fallen from highs of around 50p some 3yrs ago to yesterday’s 0.35p. Nonetheless, the group says ‘the Board has taken a more cautious view about the trading for the balance of 2016’ and says it is ‘mindful of the
• Chinese co HNA is to purchase Carlson Hotels, owner of the Radisson hotel chain. Carlson also owns 51% of Rezidor chain.
• Carlson Hospitality Group remains a major leisure & travel player. CEO David Berg reports ‘Carlson Hotels own a powerful set of global brands and this historic agreement provides tremendous opportunities for growth.’ He adds ‘we look forward to working within HNA Tourism Group, a greatly respected global enterprise, in what will be an exciting new chapter in the history of Carlson Hotels’. The price of the deal has not been announced.
• Carlson says ‘the combination of HNA Tourism Group and Carlson Hotels to have robust presence in international hospitality, with increased ability to accelerate growth, expand key brands, and strengthen its best-in-class hospitality experience for its guests.’ HNA Tourism Group Co is a global integrated tourism conglomerate engaged in aviation, hospitality, tourism, finance and online services. It was founded in Beijing in only March 2007. It now owns more than 20 subsidiaries including Capital Airlines, Deer Jet, Tangla Hotels and Resorts and Caissa Touristic.
• US hotel occupancy continues to fall, down 1.9% to 68.4% in the week to 23 April, although its effects were negated by a 1.8% increase in average daily rate to $122.47. Revenue per available room was down 0.1% to $83.76.
• Tui is to sell its B2B Hotelbeds subsidiary to GNVA Acquisitions Limited for €1.19bn as part of its strategy to become a ‘content-centric, vertically-integrated’ tourism business. Hotelbeds achieved total transaction value of €3.6bn, turnover of more than €1bn and underlying EBITDA of €69m in the year to September 2015.
• Hilton Worldwide profit more than doubled in its first quarter, helped by an income tax benefit as revenue rose more than expected. The group earned $309m, or 31 cents a share, compared with $150m, or 15 cents a share, a year ago.
• Francesco Schettino, former captain of the sunken Costa Concordia, has begun his appeal trial in Florence.
• Federal Aviation Administration figures show 38 US airline pilots tested positive for drugs of alcohol last year from a total of 12,480 random tests.
• The IEA has criticised the BBC for biased coverage of the Brexit debate and argues that a privatised BBC might be ‘more appropriately sceptical’.
• Amazon shares surged on the news of a 28% jump in sales to $29.1bn for the three months to the end of March, with a profit of $513m. Rising sales of its Kindle e-book device and Fire tablet fuelled the strong figures, while strong growth in customers for the online retailer’s Prime service also reassured investors.
FINANCE & MARKETS:
• UK house price growth slowed to 4.9% in year to April from 5.7% in the month before per Nationwide
• US economic growth slowed to an annualised 0.5% during Q1.
• World markets. UK mixed but Europe higher yesterday. US down and Far East markets mostly lower in Friday trade
• Oil markedly better at around $48.10 per barrel
• China has raised its fixed exchange rate for the yuan by 0.56% against the US$
Retail Roundup from Nick Bubb:
Consumer Confidence Watch: The gloomy mood on the High Street will not be helped by today’s news that the market research firm GfK has said that its widely-followed consumer sentiment indicator for April was the weakest for 15 months, as households became gloomier about the UK’s economic outlook. The index dropped to -3 from a March reading of 0, when GfK also claimed EU referendum jitters had hit consumer confidence. “Mixed messages about a post-Brexit world and the ongoing Eurozone crisis are casting a cloud over our economy” said Joe Staton of GfK.
Fashion Sales Watch: Having noted yesterday that the Boohoo share price has moved back over the 50p level on the back of upgrades with the finals on Tuesday, we popped along to their Autumn/Winter Fashion range preview in the West End and found management in very good heart, with UK trading said to be notably strong for Boohoo, despite the cold spring weather. But then the Online fashion market is still booming and the High Street is having a tough time…Last week’s figures for the BDO High Street Sales Tracker were very poor, with Fashion store LFL sales down by 11.7% in w/e April 24th, whilst John Lewis Fashion sales (Including Online) were down by 10% gross. John Lewis will hope that this week is boosted by price matching the House of Fraser “Brand Event” over the last few days, but the weather has remained unhelpfully cool…
Trade Press: The front cover of Retail Week magazine today is, inevitably, dominated by BHS, with the headline “BHS 1928-1916?”, to flag a focus on “the implications of the biggest retail collapse since Woolworths in 2008”, with the Editor thundering in his column that “The BHS brand looks as if it’s reached its sell-by date”. RW also flags that potential buyers are circling the collapsed Austin Reed chain, Wyevale Garden Centres’ bid to snap up rival Dobbies from Tesco could put at risk hundreds of jobs at both head office and in branches, Jessops plans to open 15 new stores by 2018, targeting cities in Northwest England and Scotland and the Chinese tycoon who owns House of Fraser may sell a stake in the business.
News Flow Next Week: After the Bank Holiday on Monday, the big day for company news is Wednesday, which brings us the Next Q1 update, the Sainsbury finals, the Intu Properties AGM trading update and the Ocado AGM. The latest Kantar and Nielsen grocery market share figures are also out on Wednesday. Nick Bubb – firstname.lastname@example.org
Yester-tweet – Yesterday in a Nutshell:
• Panera Bread reports Q1 numbers, says LfL sales +6.2% (versus estimates of 5.3%) leading to share rise in extended trading.
• Buybacks. Enterprise Inns announced that it yesterday bought back 104k shares for cancellation at around 93p.
• Luke Johnson has become a major shareholder in three-strong chain Lussmann’s Fish & Grill
• The eminently quotable Tim Martin believes JD Wetherspoons is a ‘groovy company’ as it is maintaining staff perks and bonuses
• Marriott reports Q1 numbers, worldwide REVPAR +2.6%, US REVPAR +2.4%. EPS 87c, up 19% on last year.
• Marriott now has 275k rooms in its development pipeline worldwide. Group added 10k rooms to its system during Q1.
• Marriott says the acquisition of Starwood Hotels & Resorts Worldwide is on track to close mid-2016
• French air traffic controllers have been criticised for staging the third strike in a month, leading to hundreds of flights being cancelled
• Economic growth in the UK in the first quarter of 2016 was held back by a drop in manufacturing and construction output, according to ONS
• UK inflation expectations are reported to be at their highest level since July last year at 1.6% per YouGov
• Fed leaves interest rates unchanged. Was expected given slight US slowdown but leaves door open for July rise
• Sterling holding near 10wk highs. Positive implications for tour operators, a little less so for the domestic hoteliers etc.
• Oil at $47.30. Now hitting ‘highs’ (everything is relative) last seen in early November last year. Oil definitively higher on calendar 2016
• McCarthy & Stone. Good company but placing by pre-IPO shareholders shows perils of holding (even good) stocks post IPO.
• Interest rate rise in the US in June now only given a 15% chance. July rise – only the second in c10yrs – looking relatively likely.
• UK GDP slowdown was as expected. Bit flimsy to blame Brexit as these are Q1 numbers. Things are just, well, a little slower