Langton Capital – 2016-05-20 – More on M&B, Thomas Cook, Conviviality & other:
A Day in the Life:
I don’t know for sure whether it’s ‘better’ for kids to have siblings or not and, as we’ve got five children, the point is a little moot.
Or at the very least it’s somewhat late in the day to be thinking about such things but, as there’s more than a 10yr gap between our (now not so) little girl and her four brothers, she’s kind of both an only child and at the same time she’s grossly over-siblinged.
And here the bald age difference can be a bit misleading. Because the fact that there’s a 10yr plus physical gap doesn’t mean that the mental gap is anything like as large. The boys might be buying cars and flats but they’re just as territorial when it comes to who controls the TV remote or who gets to sit in the front seat in the car and they can be pretty crushing when it comes to comment and their advice can be a little suspect too.
Like, for example, when one of them told her that she shouldn’t eat too many beans because she might have a fartplosion. Not surprisingly, the latter had to be explained and, as it was made to sound like a serious medical condition with pretty grim consequences, she’s been off her beans ever since.
And the fact that she may (or may not) have explained the condition solemnly to both her friends at school and her teacher, may have caused permanent scarring. On to the news:
Mitchells & Butlers – Analysts’ Meeting:
Following the announcement of its H1 numbers earlier this morning, Mitchells & Butlers hosted a meeting for analysts and our comments are set out below:
Today’s 28wk update does confirm that the group suffered from the industry-wide slowdown in sales from around end-January
The second quarter looks to have been down around 2.8%
However, the group reports that, although no numbers are given, trading has picked up a little in recent weeks
The environment, however, remains competitive. M&B seemed to accept that it has ‘taken price’ in the past. It may have to be more competitive going forward.
LfLs were positive if the negative performances at Harvester and Toby would have been excluded
Un-invested units may have been down by around 4%. The overall estate was down c5% in volume terms (down 1.6% in ££s). This is clearly not acceptable
The NLW will cost £7m in H2 alone. This will be a ‘significant headwind’. It is clearly industry-wide and there will be some upward pressure on prices.
The outlook for margin (as commented by MARS yesterday) will therefore be somewhat more challenging
Competitor new openings growth has slowed. But the units that have already been opened won’t be removed.
Competitor pressure has been most intense re the mid-market, especially Harvester & Toby
The group concluded that the status quo was not acceptable. Running the business for cash would have led to ultimate decline.
Acquisitions could have been risky & expensive. Disposals would have been value dilutive hence the group aims to grow organically
Much capital spending until recently has been back of house re systems and non-customer-facing areas.
This is arguably to the credit of former CEOs. It builds the fabric of the business but it protects rather than builds sales.
Spending will now be more customer-facing. Conversions to Miller & Carter cost around £650k. Some 7 have been done. Returns are very good (>30%). Returns on Harvester refurbs (c£400k) are ‘very strong’. Says this brand ‘can be a powerhouse again’.
M&B will move to a 5yr to 6yr refurb cycle, down from its previous 11yr cycle. This will cost money but the latter strategy left it very vulnerable to new entrants, evolved offers etc.
Group reiterates that it has (some) fantastic brands and a large number of great properties – which are held 85% freehold. It may also have some tired, dated offers.
Toby & Harvester numbers will come down (a little) & Miller & Carter numbers along with Sizzling Pizza & Carvery
Group CEO Phil Urban accepts analysts have ‘heard this all before’ but he says the business & its staff are energized & focused
Prices will be addressed. Sounds like they will come down. Or at least not go up as the group strives to increase volumes once more
Balance sheet, cash flow and debt:
Net debt is manageable. It will not fall much further.
Dividend growth will be modest.
No new news on the triennial pension negotiations
Langton Comment: The market has been tough this year to date, and not just for M&B.
Indeed, today’s Coffer Peach Tracker (for April) shows that, even when we add March & April together in order to smooth Easter, trade has been down (by around 0.2% LfL) over that period.
However, the wider market is what it is. M&B can only play the ball that it is bowled and, in that context, it appears to be pulling the right levers.
At some point, in order to avoid a déjà vu feeling sense of disappointment from setting in, this will have to come through to numbers but, even with the best will in the world, this is not likely to be discernible for some quarters to come.
Hence we fall back on the suggestion that M&B has great assets, some good (and some just acceptable) brands, is adequately financed & is well-managed.
This being the case, though a major hiccup in the economy as a whole would cause problems, we believe that value will come out.
The share register is what it is but, that said, a PER of 7.5x with a 2.6% and growing yield, seems a little too low.
Execution is key. The proof of the pudding is in the eating but, we believe, the risks are on the upside. There is every possibility that MAB will change the big figure in its share-price (for the better) this year, next year and the year after.
If it were to do so, and assuming market growth forecasts are not too wide of the mark, the asset-backed shares would still only be trading at around 12x FY18 numbers.
RECENT WEBSITE ARTICLES:
• Market getting tougher? See here
• Main features London hotels, slowing markets, Restaurant Group etc. Link to index page – here
• Ongoing tweets found – here
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Cinven, the private equity firm and former owner of Pizza Express, is weighing up a bid for Restaurant Group, writes Sky News. The name Apollo has also been mentioned (owner of Casual Dining Group) and Greene King is also in the process of raising the thick end of £300m of debt.
• Enterprise Inns bought back 104k shares on Wednesday & another 106k yesterday.
• Restaurant Group yesterday announced the appointment of Graham Clemett as a Non-Executive Director & Chairman of the Audit Committee. Mr Clemett will join the Board on 1 June 2016. Chairman Debbie Hewitt reports ‘I am pleased to welcome Graham to the Company. As well as his strong technical credentials and his broad strategic insight, he brings a wealth of experience as a listed company director. I am sure that he will add considerable value to our Board and we look forward to working with him.’
• JD Wetherspoon has appointed CBRE and Savills to handle the disposal of 45 pubs, 33 of which are being brought to the market for the first time. The sites are located in strong town and city centre locations around England, Scotland, and Wales. The move follows the successful sale of packages of pubs in recent months to operators including Amber Taverns, Brewhouse & Kitchen, Hawthorn Leisure, Stonegate and Urban Pubs & Bars.
• Conviviality Retail has seen group sales jump by 137% to c£864m for the 53 weeks to 1 May 2016, hailing its ‘transformational’ acquisition of Matthew Clark on 7 October last year. Conviviality’s strategy ‘of leveraging its strength as the UK’s leading specialist alcohol wholesaler and distributor’ will be further enhanced by its acquisition of Bibendum. Net debt for the year stood at c£87m.
• CVR. During the year, Conviviality Retail opened 126 new stores and closed 34 (2014/15: 63) resulting in net store growth of 92 and an increase in the number of stores to 716 as at 1 May 2016. The group also attracted 38 new Franchisees. Wholesale sales were in line and like for like retail sales generated by our Franchise stores improved to (1.3)% (FY15: (1.7)%). Wine Rack continued to trade well with like for like sales up 3.2%.
• CVR. Matthew Clark has traded strongly since with sales up 4.9% year on year, and the number of outlets supplied has increased 2.9% since acquisition with the number of customers also 2.9% higher. The Bibendum acquisition should provide further operational synergies, on which Conviviality will update at its FY results in July.
• CVR CEO Diana Hunter commented: ‘We look forward to a strong set of results reflecting our transition to being the UK’s leading independent alcohol wholesaler, serving consumers through the on-trade and through its Franchise retail estate. The acquisitions of Matthew Clark, Peppermint and Bibendum PLB Group enable Conviviality to fulfil its aim to satisfy all consumer drinking occasions, enabling it to have unrivalled insight and expertise as the drinks sector’s leading wholesaler and distributor.’
• Horizons data shows sales of food and drink in the UK’s foodservice sector were worth a total of £10.8bn in the first quarter of 2016 (+2.3%). Second quarter trading is expected to pick up 2.1% year-on-year in the second quarter to c£12.4bn, demonstrating the resilience of the sector in the face of wider economic uncertainty.
• Patisserie Holdings CEO, Paul May, harbours ambitions of doubling the group’s estate in the coming years as the roll out of its core brand continues apace. Speaking to MCA, May said that while Baker & Spice (four sites) and Brasserie (seven sites) will grow opportunistically, Patisserie Valerie is going to make up the bulk of the group’s target of 20 openings a year.
• iNTERTAIN has completed on a lease for a new site in Coventry called ‘The Establishment Bar & Grill’, which has a focus on food, cocktails, and post-work drinks. John Leslie, CEO, iNTERTAIN commented: ‘The Establishment is a fantastic venue, with a stunning outdoor area, located in the heart of Coventry. It has a strong reputation in the city for food, drink and great service. It is our intention to not only maintain that reputation but also expand the bar’s appeal, building its name for sport and brilliant party nights in the great city of Coventry.’
• Global sales of duty free fell by 2.3% in 2015 as wine and spirits reported a 2.7% decline, according to the Tax Free World Association (TFWA). Wine and spirits remains the second largest category within duty free following fragrances and cosmetics, accounting for 16.5% of global sales and representing a value of $10.2bn.
• The number of EU workers in Britain has risen by 94,000, meaning EU workers now make up some 6.8% of the total UK workforce.
• Google’s contactless smartphone payment system, which uses tokenisation to secure payment info (much like Apple Pay and Samsung Pay) will soon be available in at least eight UK banks.
• UK retail sales volumes grew by 4.3% year-on-year in April according to the ONS, which has also revised March figures up from -1.3% to -0.5%.’Clothing stores remain the main drag on growth in the retail sector, with sales hampered by unseasonal weather,’ although ‘sales increased in April compared with March as lower prices boosted sales,’ said ONS statistician Melanie Richard.
• Asda has posted a 5.7% drop in Q1 like-for-like sales after facing ‘fierce competition’ as the Walmart-owned food retailer continues to struggle. The poor figure comes straight off the back of Q4 2015, which saw Asda’s biggest sales fall on record. Walmart’s shares rose as the company nonetheless beat market expectations.
• Thomas Cook gets a reasonable press this morning, despite share price weakness yesterday.
• Still no definitive news as to why Flight MS804 crashed into the Eastern Med in the early hours of yesterday morning
• Directors Frank Meysman (£25k) & Michael Healy (£23k) bought shares in Thomas Cook yesterday.
• Travelodge has acquired two Ramada Encore hotels, in Milton Keynes and Chatham, and a Days Inn hotel in Derby, taking the group to 530 properties. Paul Harvey, Travelodge Managing Director, Property said: ‘We are delighted to have secured these three mid-market hotels and converted them into Travelodge’s. Britain has become a nation of value shoppers and as a result the budget hotel market continues to go from strength to strength… We see the potential to grow our network of hotels in a further 250 UK locations and currently have approximately 100 hotels in our development pipeline.’
• Business travellers still prefer hotel chains to independent properties, according to a survey of more than 1,000 UK corporate travellers. Just 2% said they would prefer to stay in accommodation booked through disruptive channels such as AirBnB, compared to 75% who would prefer to stay in chain hotels.
• More details are slowly emerging about the crashed EgyptAir plane, with terrorism emerging as the likeliest cause for the tragedy.
• US hotel industry ‘mostly negative’ in week to 14 May reports STR. Occupancy down 2.9%, rate flat at +0.2% & REVPAR down 2.7%
FINANCE & MARKETS:
• B of England MPC member Gertjan Vlieghe has said that the UK may need more stimulus if the economy does not pick up. Speaking at the London Business School, Vlieghe said that growth had slowed since 2014 and firms were now to some extent holding off from making investment before the June 23 EU referendum. Vlieghe said ‘if such improvement is not apparent soon, this will reduce my confidence that inflation is likely to return to the target within an acceptable time horizon without additional monetary stimulus’.
• World markets: UK down yesterday, Europe also lower. US down in later trading but Far East mostly up this morning.
• Oil price firm once more & trading over $49 at around $49.25 per barrel.
• ECB minutes show that the bank remains concerned over low inflation expectations. Further aggressive moves were not ruled out
Retail Roundup from Nick Bubb:
News Flow Next Week: A busy week kicks off with the Kingfisher Q1, the Card Factory Q1 and the Topps Tiles interims on Tuesday, but the big day is Wednesday, with the long-awaited Marks & Spencer finals and Strategic Review and the Dixons Carphone Q4. On Thursday we then get the B&M finals, the Pets At Home finals and the Inchcape Q1.
Lakeside Watch: We popped into Lakeside shopping centre yesterday, as we were in the area, and took advantage of the “Come on Britain”, “Up to 50% off Everything” Sale in BHS to help our beloved mother buy a new table lamp in the once highly respected lighting department (which is now short of stock and short on staff). The BHS store was by no means empty of customers, but the big Primark was much busier…It’s a while since we’ve been to Lakeside and, other than the never-ending BHS Sale, our eye was drawn to the posh-looking new cafes and restaurants that now proliferate in the centre, including a new-look SpudULike and Starbucks…Nick Bubb – email@example.com
Yester-tweet – Yesterday in a Nutshell: Live Tweets on Website:
Crazy busy yesterday, here some of the early tweets:
• M&B H1: reports sales from invested sites +10% but this was offset by falls in sales at uninvested sites to give an overall LfL fall of 1.6%
• MAB H1: Adjusted operating profit is up by 2% at £156m and PBT is £83m compared with £75m a year ago
• MAB H1: Operating margin edged up from 13.7% to 14.2%, EPS is 18.4p (2015: 14.4p) and a H1 dividend of 2.5p approved
• Coffer Peach April Tracker shows LfL spend in pubs & restaurants down by 0.8% in April. Easter fell in April last year.
• Coffer Peach says that a drop in pub sales in April ‘undermines growth in [the] casual dining trading’.
• April Tracker: The April fall of 0.8% follows a sluggish 0.6% rise in March, a month that should have benefitted from Easter
• April Tracker: Says ‘while restaurant groups saw like-for-like trading increase 2.5%, pub groups experienced a 2.7% decline’.
• April Tracker: London better than provinces, spend in capital +1.0% but down 1.3% outside the M25.
• Fever Tree updates on trading says is ‘pleased to announce that momentum seen in 2015 has continued into the start of 2016.’
• Young’s revenue for the year ending 28 March 2016 was £245.9m (+8.3%), driving a 9.6% rise in adjusted operating profit to £41m
• YNGA: Current trading, Young’s says that: ‘Managed house revenue in first 7wks of the new financial year was up 8.1% in total & +5.3% LfL’
• Britvic’s H1 figures for the 28 weeks to 10 April show revenue up 5.1% to £678m on a constant currency basis
• MCA reports that Luke Johnson, when asked whether or not he will buy Giraffe back from Tesco, has been saying ‘watch this space’.
• TCG cautions that Turkey & drop in Belgian demand are leading it to guide down on FY profits
• TCG H1 numbers. Revenues down 9% at £2.67bn, gross margin higher at 21.7% vs 21.3% last year
• TCG H1: Says underlying loss reduced to £163m from £173m. Loss before tax £288m vs £303m.
• TCG H1. ‘Further progress despite continued market disruption.’ Group is ‘trading well to destinations other than Turkey’
• TCG H1: Summer bookings ex-Turkey +6%. Seeing ‘strong growth to alternative destinations’ but summer down 5% overall.
• easyHotel has announced that it has been granted planning permission for an 84-room easyHotel in Birmingham.
• MERL says ‘market conditions in London remain challenging despite recent favourable movements in foreign exchange rates.’
• CINE updates on Q1, says total revenues to week 19 are +9.8%. Says it has seen ‘solid revenue growth.’
• ONS says the UK jobs market could be ‘cooling off’, following the first drop in the number of vacancies in c1yr
• M&B meeting: Says Q2 down 2.8% but very recent trading has been better. Volumes in H1 down 5%. That can’t continue
• M&B meeting: Group says it has ‘taken price’ in past. It may have to be more competitive going forward.
• M&B meeting: Group LfLs would have been positive if slippage at Harvester &and Toby was excluded. Brands need attention
• M&B meeting: NLW will cost £7m in H2 alone. This will be a ‘significant headwind’. It’s industry-wide, will put upward pressure on prices
• M&B meeting: Competitor new openings growth slowed. But units already opened won’t be removed.
• M&B meeting: Much capital spending in past was back of house. That’s laudable but not sales-generating. Will be more front-of-house now
• M&B meeting: Net debt is manageable. It will not fall much further. Dividend growth will be modest.
• MERL. Shade disappointing to have the group say London is still tough ‘despite recent favourable movements in exchange rates’
• Bit of a pattern emerging, trading tougher. Peach Tracker for Mar & Apr (smoothing Easter) was down 0.2% LfL
• Tougher comps with NLW to impact margins. But much of NLW should be recycled, pub tills could be ringing
• Pubs trading, recent learnings. Consumers eschew gimmicks. Vouchers best avoided. Price-gouging is a no-no. Good operators can still prosper