Langton Capital – 2016-05-17 – Enterprise Inns, drinking limits, Premier Foods & other:
A Day in the Life:
Because he tends to eat like, well, a dog, we’ve taken to feeding our partially domesticated resident canine outside.
And there, after slobbering and drooling and wolfing down the best part of his meal of a morning, he likes to play it cool for an hour or two and pretend to ignore the smattering of biscuits that escaped his attention the first time around.
Of course he keeps a sharp eye on his bowl but he does manage to convey a certain dignity and, unless you knew him, you might conclude that he had a modicum of self-control but it’s not long before his bowl attracts the local magpies who, after eating his food use his bowl as a toilet before flying away cackling.
And this doesn’t please the dog at all.
He’s never been picky about what he eats but bird droppings leave him cold and, as he seems to know what’s going on, he’s spending a lot of time with murder in his eyes hiding in the bushes in an attempt to make the acquaintance of said corvids.
They’re far too clever for him, of course, but whatever keeps him happy. On to the news:
RECENT WEBSITE ARTICLES:
• Main features London hotels, slowing markets, Restaurant Group etc. Link to index page – here
• Ongoing tweets found – here
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• CAMRA tells Guardian that men ‘do not believe’ new drinking limits of 7pts per week. It says ‘it would be helpful if the UK’s chief medical officers could explain what evidence they have that is not available to their equivalents in other EU countries. For example, the equivalent figure in Spain, not a country traditionally noted for a culture of problem drinking or alcohol-related health issues, is 34 units.’ It adds ‘the new UK guidelines seem to ignore previous well-regarded studies which showed the beneficial health effects of moderate alcohol consumption of alcoholic drinks with total abstinence.’ It also seems inconsistent that the figures for men & women should be the same when calorie intake, oxygen intake etc. are higher.
• St Austell reports numbers, says that it hopes to grow its exports to Europe & elsewhere. Revenues up 7.9% to £137.4m in year to 2 Jan. Group reports operating profits up 7.6% at £13.5m and says ‘we’re hoping that that might unlock some more export markets and in particular America.’
• Pub operator and brewer Castle Rock Brewery has narrowly missed out on becoming Nottingham Post’s Company of the Year for 2016. Managing director, Colin Wilde, said: ‘It’s gratifying that our beers and well-run consumer-focussed pubs have been recognised by the judges. We’ll continue to work as hard as we can every day to be as good as we possibly can to attract customers to our pubs and beers.’
• Global Brews has finished its ‘raw, kick-ass’ 5.5% ABV Motörhead’s Snaggletooth Cider, endorsed by guitarist Phil Campbell.
• British Land has reported a 3% rise in footfall across its estate in the year to 31 March as retailer sales grew 2.4%. The group’s underlying profit increased 16% to £363m and its total portfolio valuation grew by 6.7%, with occupancy standing at 99%. Chief executive Chris Grigg said: ‘We are focusing the business around long term trends and continue to see the benefits of the investments we have made in recent years.’
• Deltic (was Luminar) yesterday said that ‘late night visitors [are] on the rise’
• Deltic says that the group attracts 6.9m customer visits per annum. Music-led entertainment has boosted trade. Group is going to target early evenings and will offer street food from some units from 5pm. Deltic now says that it is once again focussing on growth. CEO Peter Marks reports ‘it is very heartening to report these excellent results which reflect the hard work, capital investment and imagination of everyone at Deltic.’ He concludes ‘we now have the ideal platform to be the dominant late night player in each of our 58 clubs and bars. Our ability to respond to customer trends, backed by our financial firepower, gives me confidence in Deltic Group making further progress over the coming year.’
• Pragma Consulting reports that, whilst 27 pubs a week are closing, smaller players (sales <£25m) grew revenues by 29% over the last 5yrs. Pragma says ‘an underlying factor has been oversupply’ but it maintains ‘operators are recognising this and are focusing their propositions.’ A more diversified offer is a feature across the industry. Pragma says ‘our work in F&B has revealed how the lines between eating and drinking are becoming increasingly blurred. Pubs need to continue to diversify and improve their food offer further to compete with restaurants, as well as offering evening events and late licenses. In the future, the term ‘pub’ will stand for many different things, as we see operators continue to evolve to remain firmly fixed in our repertoires and find a sustainable position in a competitive market.’
• Premier Foods reports FY numbers. FY group sales +0.6% with branded flat. Q4 numbers +1.4% & +1.0%.
• Premier Foods reports adjusted PBT £86.1m, EPS 8.3p. Debt down from £585m to £534m (incl. Knighton)
• Premier Foods: CEO Gavin Darby reports ‘we are very pleased to report sales growth both in the year and the fourth quarter in what continues to be a deflationary market. Our strategy of investing behind our brands and bringing new innovative products to market continues to deliver very positive results, with six of our major brands growing on average +3.4% in the year.’
• Premier Foods reports ‘we recently set out some additional strategic initiatives which we believe will further accelerate our growth and now expect to deliver sales growth of 2-4% in both FY16/17 and the medium term. The potential opportunities presented by our partnership with Nissin are also very exciting. The Board is focused on delivering shareholder value and we see a strong future for Premier Foods with its leading category positions, great brands and strong operational cash flows.’
• China Lodging Group announced in its Q1 call that it has invested 113m Chinese yuan (£14.2m) in five apartments and shared offices companies. CEO Min Zhang said Chinese apartments are still mostly owned by individuals rather than corporations, adding: ‘The market potential for the apartment is huge, estimated to be over 1 trillion yuan ($153.3 billion). Right now, this market is still at its embryo and fast-growing stage with numerous smaller players.’
• A national strike in France this week is likely to disrupt travel. Air traffic controllers are due to down tools on Thursday
• Nintendo has revealed plans to use a number of its characters including Mario, Donkey Kong and Zelda, in feature films
• Sportech updates on trading, says ‘the Group has seen a positive start to 2016, trading in line with management expectations’. It says
FINANCE & MARKETS:
• The Prime Minister has warned that leaving the EU would hit the poorest and most vulnerable people in the UK, labelling such a move ‘a national error’.
• World markets: UK up yesterday but Europe down. US markets higher & Far East up in Tuesday trading
• Oil price hitting 6mth highs. Trading at around $49.20 per barrel
Enterprise Inns – H1 Numbers:
H1 Results – 6mths to end-Mar 16:
Enterprise has today reported H1 results for the 6mth period to end-March and our comments are set out below:
Revenue is £305m vs £302m last year. EBITDA before exceptional items is £142m (2015: £144m)
PBT (and exceptional items) is £57m (2015: £57m) with EPS coming in at 9.2p vs 9.0p last year
The group has fewer pubs (downward pressure on EBITDA) but is saving interest (on disposals) & has fewer shares in issue
Operational & Strategic Highlights:
Enterprise reports across its new operating structure
Re Enterprise Publican Partnerships, the group reports that ‘leased and tenanted like-for-like net income is up 1.8% (H1 2015: 0.6% growth) across the whole estate’. Here, unplanned business failures are down by 9% y-o-y
Commercial properties: Here ‘like-for-like net income [is] up 5.2% (H1 2015: 5.0% growth)’. Enterprise says it has a ‘rapidly expanding portfolio with 264 commercial properties at 17 May 2016 at an average annualised rental income of £59,000’.
The group is selling a further 22 pubs here for £20m (yield of 6.7%, premium to book of 9%)
Managed pubs: Enterprise has 75 managed pubs as at 17 May ‘with 21 trading under our Bermondsey operation, 50 under our Craft Union operation and four within Enterprise Managed Investments’.
Enterprise has three ‘managed expert’ arrangements in place and has the ‘strategic capital allocation framework in place to optimise returns from cash generated by the business.’
Balance sheet, cash flow & other:
Enterprise says it has seen net cash flows from operating activities rise to £129m from £120m last year
It says it has generated ‘additional net proceeds from the disposal of primarily under-performing assets of £27m’ against £34m last year
CEO Simon Townsend reports ‘we are continuing to make good progress.’
He says ‘our leased and tenanted business is maintaining its growth momentum while the rapid expansion of our managed operations and commercial property portfolio is on track and delivering results in line with our expectations.’
Mr Townsend concludes ‘we are confident that the execution of our strategy is demonstrating a clear path to maximising long term shareholder value and our returns driven approach to allocating excess cash will deliver near term benefits to all our stakeholders.’
Langton Comment: Enterprise has reassured that its strategy is being implanted and it has been able to advise that early results have been good.
The plan appears solid. Execution will be the challenge but trading is in line with expectations across the group’s businesses.
Re the outlook, Enterprise says ‘the first week of the second half of the year was inevitably adversely affected by the timing of the Easter period, but since then trading has been broadly in line with our expectations.’
It adds ‘we forecast trade to benefit from the UEFA Euro 2016 football championship in June and July although we do anticipate a period of disruption to follow the introduction of the Pubs Code.’
The group concludes ‘we remain confident that we will deliver positive like-for-like net income growth in our leased, tenanted and commercial estates for the full year.’
The challenge for Enterprise remains 1) executing on plan and 2) persuading analysts and would-be shareholders that it should be valued on a ‘normal’ basis.
Should number 1) work out according to expectations then number 2) will follow and, on this basis, the share look to be far too cheap.
The above will not be achieved without effort but, as the company itself is buying back shares and trading continues to be in line with expectations, there are increasing grounds for optimism.
Retail Roundup from Nick Bubb:
Today’s Press and News: BHS and Philip Green are still in the news today…after the Telegraph scoop that John Hargreaves of Matalan fame is fronting a bid for BHS with the administrators, whilst the Times flags that the property millionaire Yousuf Bhailok is pulling out of the race. The bigger news, however, is that Mike Ashley has at last agreed to appear before MPs in Westminster next month to give evidence about Sports Direct’s workplace practices. There is also plenty of coverage of the news that Mountain Warehouse has reported a big jump in sales and profits in y/e February and is weighing up an IPO after the EU Referendum. Finally, the Guardian highlights that Game Digital has warned shareholders about credit insurance risks at Xmas, unless the EGM refinancing package is approved on Thursday.
Next Share Buyback Watch: The hard-working “Mr Share Buyback Man” at Next was in action again yesterday, for the fifth working day in a row, but he reined in his enthusiasm somewhat, by picking up only just over £3m worth of Next shares (rather than his usual £5m worth), to take his post-results activity to a cumulative total of c£63m. Coincidentally, ahead of the AGM on Thursday, Next launched its refinancing of its expiring £213m October 2016 Bond yesterday with a shiny new £300m Bond, with a 3.625% coupon and a 12 year shelf life.
News Flow This Week: Tomorrow brings the Burberry finals, but the busiest day this week is Thursday, with the Asda/Wal-Mart Q1, the Mothercare finals, the Booker finals, the ONS Retail Sales figures for April and the Game Digital EGM vote on their refinancing. The Moss Bros AGM update is then on Friday. And at some stage this week the administrators should finally unveil the outcome of the bidding for BHS and Austin Reed…Nick Bubb – email@example.com
Yester-tweet – Yesterday in a Nutshell: Live Tweets on Website:
(SOME OF OUR) EARLY TWEETS:
• GNK. More debt will increase fire power but hit debt/EBITDA ratios. Unless, of course, group buys more EBITDA. Acquisition likely?
• Sainsbury said move to big ticket spending would have worked its way through before end-2015. What happened there, then?
• Patisserie Valerie. Group reports H1 numbers on Wednesday. Group’s shares down by 25% since Jan peak as growth euphoria has dissipated
• Talking of which, ETI, MARS & MAB all report numbers this week. Single or near single digit multiples & asset backing look good to us.
• Restaurant Group is launching a trial with Deliveroo next month at 12 Chiquito sites. Has ‘every intention’ of introducing to other brands
• Chartered Institute of Personnel & Development has said that wage growth is likely to be “stuck in the slow lane” until end of decade
• Sunday Times reports that caravan operator Parkdean is ‘laying plans for a £1bn sale or stock market float’
• Thomas Cook CEO tells Sunday Times market is difficult but the ‘summer exodus’ is looking ‘stronger than it has in recent years’
• All Leisure to go private. The group has said that 76% of the register, basically the directors, has agreed to delist the company
• Loan problems? c86% of new car buyers in US take loan. Virtually no C2C deals involve one. Some ‘disrupters’ are putting loans in place.
• Deltic (was Luminar) reports 4th consecutive year of growth. Says ‘late night visitors on the rise’.
• Deltic reports sharp rise in pre-booked sales. Says ‘the group’s trading performance continues to improve’
• DFS shares & trading remain strong. Idea that ‘big ticket’ spending would be abating by now looks premature
• China growth. Put it into perspective, mate. Can we really call 10.5% increase in retail spending ‘sluggish’?
• UK market still edging down say chartists. Yet to break the 200dy and 50dy moving averages
• Debt & lending in the US. Seeds of the next big problem. Is P2P a good thing? Should we be incenting C2C car buyers to take out loans?
• Grocer Watch. See earlier email. Aldi basket <£41, SBRY basket c£58. And that after 2yrs of price cuts? Really? BTW Waitrose c£62.
• BRC monitor shows retail footfall down 2.4% in April vs year ago. Easter has impact but not helpful for RTN etc.