Langton Capital – 2016-06-21 – Whitbread Q1, Saga update, Brexit fears abate & other:
A Day in the Life:
So Friday we had to dash out and buy a lawn-mower.
And given that the overgrown jungle that we call a lawn is quite large, this was no minor purchase meaning that we had to pay the thick end of a couple of grand just to effectively keep the house tidy.
Now an expenditure of a similar amount on holidays, beer, sundry gadgets or even clothing would have left us feeling rather happy about things but, when you’re effectively buying the horticultural equivalent of a mop, it’s not quite the same.
Anyway, that’s our problem. And, to put things in perspective, I’d have been feeling worse still if Slovakia had stolen a win last night after 90 minutes during which ‘England’ and ‘scoring goals’ once again failed to come together. We’ve got an early one from Whitbread this morning so, without much further ado, let’s move on to the news:
RECENT WEBSITE ARTICLES:
• Pubs & restaurants, trading trends – here
• Other recent notes – here
• Ongoing tweets, older emails found – here
WHITBREAD Q1 TRADING UPDATE:
• Whitbread has this morning updated reported on trading for the 13wks to 2 June and our comments are set out below:
• Q1 Trading Comments:
• Whitbread reports that total sales are +8.0% in the 13wk period to 2 June. LfL sales are +1.8%
• Premier Inn sales are +8.0% (LfL +2.1%), Restaurant sales are +1.4% (LfL +0.2%) and Costa sales are +11,5% (up 2.6% LfL)
• The numbers reporesent a further slowdown from Q4 in the case of Premier Inn (Q4 was +2.2%) and Restaurants (Q4 was +2.3%) but an increase at Costa (which was +0.5% in Q4).
• Premier Inn & Restaurants: :
• In hotels & restaurants, Whitbread says total sales benefited from the group’s extension programme
• It says ‘like for like REVPAR for the quarter was down 0.5% impacted, as expected, by our substantial hotel extension programme’
• Whitbread says total sales in London at PI were +5.6% in Q1 versus the same period last year.
• However, London REVPAR was down 3.0% ‘reflecting a soft market and the impact of our extension programme’
• LfL REVPAR was +0.3% in the UK’s regions
• The group says ‘Restaurants delivered total sales growth of 1.4% and like for like sales growth of 0.2%, slightly ahead of a soft pub restaurant market outside the M25.’
• Costa Coffee:
• Whitbread reports ‘Costa had a good start to the year, growing total system sales by 11.4% to £414.3 million, 10.7% at constant currency).’ It adds ‘within this, franchise system sales grew by 10.5% to £158.7 million.’
• Costa Enterprise’s sales were +11.2% at £103.1m
• Whitbread reports ‘international system sales grew by 11.5% to £88.3 million (8.5% at constant currency).’ It says ‘in China we remain excited about the long term growth opportunity although recently we have seen a tougher trading environment, due to a weaker Chinese economy’
• Debt, balance sheet & cash-flow:
• Whitbread says its ‘strong financial position remains unchanged’
• Whitbread CEO Alison Brittain reports ‘Whitbread delivered total sales growth of 8.0% in the first quarter as we continue with a relentless focus on our customers, innovation and investing in our strong brands. Costa has started the year well and Premier Inn continues to win share, albeit in a weaker than expected hotel market.’
• She says ‘industry data has continued to show a soft hotel market in the UK, particularly in London.’
• The group plans to open 4,000-4,500 new hotel rooms in 2016/17.
• Ms Brittain concludes ‘although it is early in our new financial year and despite current market conditions, with the benefit of our cost efficiency programme we remain confident of making good progress for the full year.’
• Langton Comment: Whitbread has reported that the UK hotel market (and by this it may mean London) is ‘weaker than expected’.
• Expected by whom, one might ask, as the London market has been topping out for some time but, putting that to one side, the above comment does suggest that Whitbread’s timing, it has been putting a great deal of capacity into London over recent years, has been a little off.
• Aside from that, Costa seems to have picked up a little.
• The markets may be buoyant today on diminished Brexit concerns and Whitbread’s shares may be lifted as a part of this.
• Nonetheless, the group has a little work to do. Airbnb is not going to go away any time soon and the capacity that has been put on in London by WTB and others will be with us for decades. Travel is a premium-to-GDP market but, in the short term, terrorist and other fears may put a bit of a dampener on proceedings.
• Overall, we believe that Whitbread has an attractive freehold base and international brands. This is something of a rarity across the leisure sector. The shares are not cheap per se but they are not as expensive as they have been in recent years. At around 16x current year earnings, they represent solid value.
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Data from NPD Group shows German fans lead the Euros insofar as it is the continent’s top beer-consuming country. Germany tops Europe, with an average German making a trip to buy beer 3.8 times a month, while Brits have developed more of a taste for soft drinks.
• Just Eat appoints Paul Harrison as CFO.
• Scottish pub operator G1 is in legals to purchase two ‘iconic’ units. It says it is ‘in the process of acquiring two new venues to compliment the estate. These will be announced in the next couple of weeks.’
• SABMiller’s CEO took a £1.2m pay cut last year but is now in line to receive a £55m pay-out once the group is taken over by AB InBev.
• California-based private equity group GI Partners has purchased Far Niente Wine Estates, which has two wineries and ten vineyards, for an undisclosed sum.
• Almost three quarters of the 41 chief executives surveyed in the latest British Hospitality Association’s Leader’s Report said they will be voting to remain in the EU. The Times writes that just 18% of respondents support a Brexit, with one industry boss commenting that the ‘lack of predictability of outcome is unnerving.’ The survey also identified concerns that London is more at risk than the regions.
• Pub operator and brewer Brakspear is reopening one of its managed pubs in Stow-on-the-Wold on 1 July after a major refurbishment and a change of name to the Sheep on Sheep Street. Brakspear acquired the 22-bedroom and 100 cover pub, previously called the Grapevine, in January.
LEISURE TRAVEL & HOTELS:
• Saga updates on trading, says ‘group remains on track to achieve its targets for the year ending 31 January 2017’
• Saga says it has seen ‘solid trading across the core insurance and travel businesses’. It is ‘investing in future growth through the ongoing development of opportunities in Emerging Businesses’.
• HVS poll suggests >95% of hotel property & investment professionals favour remaining within the EU. HVS says ‘very few of the attendees had changed their minds over their voting decision during the run-up to next week’s referendum vote.’
• HVS says ‘the majority felt that the effect on the UK hotel sector would ultimately be neutral but pointed out concerns over the issue of finding enough staff of the right calibre to operate hotels if immigration were to be severely curtailed.’ It says ‘the overwhelming feeling from our audience was that Britain should remain within the EU, not least because it removes huge uncertainties as to what will happen if there were a vote to leave.’
• Hotel investment down 60% on back of economic uncertainty & terrorism in Q1 2016 reports HVS. It says ‘economic uncertainty combined with issues such as terrorism, the forthcoming US Presidential election and the Brexit vote has prompted a 60% decline in global hotel investment volume in the first quarter of 2016 and the year is expected to end with around €11bn-worth of investment, compared with €25.8bn-worth in 2015.’ It continues ‘however this is expected to improve as we move into 2017 albeit that next week’s referendum vote could slow some of this down.’
• HVS says Dublin has shown the strongest REVPAR growth in Europe in the year to April with growth at 23.2%.
• Tourism bosses in Orlando do not expect visitor numbers to drop in the wake of the Pulse night club shooting.
• A new poll of 2,000 people from Best Western Great Britain shows finances are the biggest factor preventing Britons from taking a holiday.
• New research by Post Office Travel Money shows that holidaymakers staying in all-inclusive resorts are increasingly spending money in the local community. The study found that the amount spent by visitors outside of resorts in long haul destinations has increased by 44% in the space of a year to £287.63. Head of Post Office Travel Money Andrew Brown observed that ‘most holidaymakers now prefer to get out and about, spending money in local restaurants and cafes’.
• This week’s strike by Greek air traffic controllers has been abandoned, granting a reprieve to airlines as they negotiate a busy period of European flight disruption. The Federation of Civil Aviation unions in Greece announced the suspension of the planned five-day walkout, which would have started yesterday, and the Foreign and Commonwealth Office confirmed: ‘All domestic and international flights in Greece are expected to operate as normal on these dates.’
• Airlines are reportedly considering re-launching flights to Sharm el-Sheikh almost a year after the bombing of a Russian Metrojet Airbus. UK airlines were banned from flying to the Egyptian resort following the bombing of the Russian aircraft on October 31 last year which killed 224 people. Now however, Thomas Cook is targeting a resumption of flights from November, while EasyJet and British Airways are aiming for October.
• A speaker at the ITT Conference in Tel Aviv recently commented that the lack of winter-sun capacity could see Mediterranean hot spots turn into year-round destinations. Vertical Group chief executive Peter Healey said hotels in places such as Greece and Cyprus are stretching their seasons, adding: ‘We will start to see destinations that were traditionally closed in the winter develop resources like heated pools that will allow them to open in the winter.’
• The billionaire boss of HNA Group, which owns China’s Hainan Airlines, has confirmed the group is interested in taking a stake in Monarch Airlines. Chen Feng, the founder of Hainan Airlines – China’s fourth largest carrier – has business interests which reported $27bn in revenue last year and has investments across a range of sectors.
• The Original Bowling Company has invested £500,000 in refurbishing and rebranding its Bowlplex at Ozone Leisure Park in Oxford. Steve Burns, CEO at The Original Bowling Company said: ‘The Oxford rebrand follows a similar scheme completed at Bowlplex Poole last month and is the second in a number of significant investments we plan to make in the Bowlplex estate over the next three years.’
FINANCE & MARKETS:
• World markets: UK and Europe sharply higher yesterday on eased Brexit fears. US higher and Far East up in Tuesday trade
• Sterling posted its strongest gains since 2008 yesterday as concerns that the UK would leave the EU continued to abate
• Oil price a little off the top but Brent Crude still trading at around $50.40 per barrel.
RETAIL NEWS WITH NICK BUBB:
• Joules: The trading statement from the recently floated fashion chain Joules for y/e May does not break out what the sunny weather in May itself did to lift trading, but it must have been a help, so that full-year sales are up by 14.2% on a 52 week basis. Joules doesn’t break out its LFL performance either…but says that the final results “are anticipated to be in line with management expectations”.
• Debenhams Watch; Even after yesterday’s rally, the Debenhams share price is still only c73p, after the recent weakness, which is not where the retiring CEO Mike Sharp or the “supportive” shareholder Mike Ashley would want it to be…Hope springs eternal that the new CEO Sergio Bucher will shift the business in the right direction, after his arrival in October, but meanwhile the business is in limbo, still trying to wean itself off its addiction to discounting. And given the unhelpful impact on Fashion sales of the cold weather in March/April, tomorrow’s trading update for the last 15 weeks is unlikely to look good, even after some better trading in May, with the City pencilling in -1% LFL, or worse…
• IR Watch: It’s hard enough to get used to the former Investec Retail analyst Katharine Wynne being the Investor Relations Director of Debenhams, but we will now have to get used to Fraser Ramzan, the Nomura Retail analyst who was notoriously “close” to Marks & Spencer, being the Head of the IR team at M&S! He took over last week from the redoubtable Majda Rainer, who has been promoted to be the FD of the buoyant M&S Food Division.
• Philip Green Watch: We flagged yesterday that the acerbic FT columnist Lucy Kellaway had mixed feelings about Philip Green’s performance in front of MPs last week and, to be clear, her column was headlined “The plainly extraordinary rhetoric of Sir Philip Green”. She admired his “clear language”, but she was shocked that he gave “one of the least straightforward performances I have ever seen” and concluded that his constant repetitions (of phrases like “respect”, “blame” and “I don’t know”) “tell you everything you need to know about his character”.
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Key Early Tweets. Greene King CEO Rooney Anand said in his key note speech at The Pub Conference that pub operators must be alert to changes in their industry
• Majestic Wine FY numbers. Says it is ‘on track with its previously announced three year transformation plan’
• Majestic says ‘trading conditions remain tough in the UK especially, and we expect them to stay that way’.
• A study showing top 10 grievances of diners lists disappointing food, having to ask for service & speed of service as 3 biggest offences
• Walt Disney could face a multi-million-dollar claim after a toddler was killed by an alligator while paddling at the Florida theme park
• EasyJet Holidays is cutting prices on 20,000 holidays for this summer by as much as 20% for bookings made by midnight, 21 June.
• IMF warns a Brexit would cost the UK economy up to 5.6% of its potential GDP by 2019.
• Other Tweets: Rightly or wrongly, Brexit concerns fade. Dollar earners give ground to domestic stocks. RDSA +1% but LLOY +6%
• London property on the slide per Rightmove. Down 0.2% in May. Rest of country up. Might reverse if we don’t Brexit Thursday.
• London vs provinces. Pubs, restaurants, hotels & house prices. Can’t call a turn given Brexit vote but perhaps relative peak has passed?
• Easyjet cutting prices for summer. Only 20k. Perhaps 1/1000th of the market. Also quite a bit of Turkey (understandably).
• Easyjet cutting prices. Why cut Spain? It will fill up at full prices. Volume of cuts to that destination surely miniscule??
• Commodity prices. Oil up, corn, hogs, soybean, sugar all peaking. Inflation where art thou? Margins getting mullered?