Langton Capital – 2016-06-22 – More on Whitbread, May Tracker, staycations & other:
A Day in the Life:
I think that the few brain cells that our dog ever had have started to atrophy.
That because, in addition to barking when the gate opens, barking when someone knocks on the door and barking when he hears a car approaching, he’s now started to bark at the rain and, as we live in England, that could become something of a nuisance.
To give him his due, perhaps, he doesn’t so much bark at the rain as bark when big drops of the stuff fall onto the flat roof of the kitchen as this, to him, presumable sounds as though someone is either tapping on the door (which must have moved to the ceiling) or they are trying to dig their way through the asphalt and tiles in order to attack the family at the breakfast table.
Well, whilst one could not really fault his diligence and focus on the task at hand, that is keeping the pack intact and safe from attack, one would hope that the above isn’t going to happen any time soon.
Whereas, on the other hand, it is very likely to rain at some point pretty much every week so the occasional angry shushing is to be expected. Anyway, here’s hoping for good weather – and good luck in the remaining results to Northern Ireland, of course. On to the news:
RECENT WEBSITE ARTICLES:
• Pubs & restaurants, trading trends – here
• Other recent notes – here
• Ongoing tweets, older emails found – here
WHITBREAD Q1 CONFERENCE CALL:
• Following the release of its Q1 trading update this morning, Whitbread hosted a conference call for analysts and our comments are set out below:
• Q1 General Trading Comments:
• Group insists that it is taking market share. The hotel market, however, is ‘weaker than expected, particularly in London’.
• Efficiencies. Programmes continue. Group pushing for these to ‘move rapidly’. No targets given.
• Premier Inn & Restaurants:
• Group now has 4 Hub units open, 3 in London and 1 in Edinburgh. There is a pipeline for 12 units.
• REVPAR was +0.8% in hotels where there were no extensions.
• Weaker REVPAR due to sluggish leisure or business sales? Both, reports the company. In April, STR was looking for +2.5% REVPAR this year & they have recently cut it to 0.5%.
• Newly-opened units mature in London in c2yrs & in the Provinces in about 3yrs.
• Says London is slower ‘but still good’. Re assets, Whitbread is being more choosy. Prices have risen but not over the last 6mths.
• Group confirms that football is bad news for its restaurants as a whole.
• Restaurant pricing? Transactions were down slightly (around 2%), prices up. Total LfL was only 0.2%. Saw some improvement in spend per head.
• Costa Coffee:
• Costa machines’ growth will be focused on the UK. Still in trial internationally.
• Growth from price or volume? Prices rose in Jan. Group had a ‘good reaction’. Believes product is inelastic. They followed rather than led the competition. No further plans in the short term. About 2% came from price increases.
• Will margin increase as a result of price rises? Group had been guiding to an 80bp drop in margin due to higher investment & NLW.
• China, are you still aiming for 700 by 2020? Targets unchanged.
• High street has been tougher than retail parks & concessions.
• Group has said that a number of units may be maxed out. For some of these a little capex could help. Some others may have to be closed & moved to larger premises. Group ‘still has no unprofitable stores’. These ‘capped’ stores still make a good return on capital.
• Growth in specialty coffees. Will you buy an operator? No, will do it in-house. Maintains that Costa has the credentials & provenance.
• Costa Fresco. This has been evolving. Trials are ‘ongoing’. Says ‘food capture rate is up’. It’s now being tested outside London.
• Other evolutionary changes. Costa Pronto (quick service for travel hubs) will be rolled out to around 10 units this year.
• Overseas, Poland has been ‘quite good’ and France has been ‘mixed’.
• Debt, balance sheet & cash-flow:
• The freehold of the King’s Cross Hub is now reportedly for sale. Group is looking for £100m to £150m of capital release this year.
• Langton Comment: Whitbread has generally reassured that trading is broadly in line with expectations and results should be as forecast. The London hotel market is clearly slowing but Whitbread maintains that it is outperforming.
• The group declined to comment on the Brexit vote but said that, whichever way it goes, it has ‘a number of levers to pull’.
• Whitbread’s shares are not cheap but, given that the group has scalable and potentially international brands, they offer fair to good value.
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Greene King Tracker. May survey shows household spending on leisure in UK fell by 3% over same month a year ago.
• GNK Tracker: May spend (down 3%) impacted by shift in Whitsun half term holiday partly into June
• GNK Tracker: Lower May spend due to fall in ‘Other Leisure’ spending. Spend on drinking out up fractionally
• GNK Tracker: Says more Britons are planning a ‘staycation’ this year versus last. Some 71% will take a holiday in the remaining 6mths of 2016. GNK reports ‘on the eve of a momentous decision for the British public, this month’s Greene King Leisure Spend Tracker suggests many households are looking forward to enjoying some well-earned holidays post referendum. Meanwhile, total leisure spending in May has fallen compared with the same period last year, driven mostly by a sizeable reduction in spending on other leisure activities.’
• Enterprise Inns has maintained its programme of buying back around 100k shares per day for cancellation. On Monday it bought back 95,964 shares at around 96p.
• JDW CEO John Hutson has sold 2,500 shares in the company at 733p. He now owns 73,315 shares.
• 140-unit C-store chain My Local, created when Morrison’s sold its stores 9mths ago, is to call in administrators. Losses are thought to have halved from their initial £36m
• Stock Spirits is reported by The Telegraph to have stopped looking for major acquisition targets in order to return cash to shareholders. A 10p per share special dividend is planned. The move follows pressure from Portuguese cash-and-carry entrepreneur Luis Amaral, who is the biggest shareholder.
• Comptoir Group, which operates Comptoir Libanais, is now trading on AIM with a market cap of £48m. The group trades from 15 sites (11 Comptoir Libanais, two Shawa, and two high-end standalone sites caked Levant and Kanza) and will now be chaired by Gerald Edelman CEO Richard Kleiner, while Jonathon Kaye joins as non-executive director. Comptoir Group aims to have over 50 restaurants open within the next five years.
• Deliveroo has begun selective trials with Bill’s, KFC, and Burger King, and is also in talks with pub chains regarding delivery options, writes MCA. The online delivery service has recently begun delivering from Rose Pub & Kitchen in London’s New Cross, which is owned by Urban Pubs and Bars.
• The former bosses of Tesco, Sainsbury’s, Asda, Morrisons, M&S, and B&Q have all warned that leaving the EU would push up prices on everyday essentials such as food and drink. Retail union USDAW predicts the average household could be £580 a year worse off, although Vote Leave rejects these claims.
• A proposal to limit the sale of alcohol at Scottish pubs has been criticised as ‘one step away from prohibition’ by the ALMR. Association of Licensed Multiple Retailers chief executive Kate Nicholls said such a move would lead to greater legislative and administrative burdens on pubs and would not tackle the root causes of alcohol abuse.
• Crown Cellars’ first on-trade study suggests that 41% of wet-led pubs don’t have a wine list and that the drink is underrepresented compared to craft beer and spirits. The study found that there is a clear difference between millennial consumers and those born earlier in terms of an increasing trend towards health and moderation, although both groups said they would like help when choosing wines.
• Fuller’s 16 Ale and Pie pubs will now be open earlier serving breakfast as it looks to capitalise on the growing morning market.
LEISURE TRAVEL & HOTELS:
• More Britons visiting US. Numbers up by 18% last year per US National Travel & Tourism Office. The UK is still the largest long-haul market into the US but it could be overtaken by China in the very near future. The total number of foreign visitors into the US stayed level last year at around 75m.
• Motel One Group, a German budget hotel chain, is reported to be searching for sites in the UK. Big Hospitality reports the company’s chief marketing officer Ursula Schelle-Müller as saying ‘we are still looking for good sites in London, but also for new sites in Liverpool and Birmingham. We don’t have a saturation point, but the nature of what we offer means we are suited to city centre locations.’ Competition for sites is increasing with Travelodge, Premier Inn, Tune, EasyHotel and others all opening sites. Motel One, which operates 54 units across Europe, opened its first site in the UK in Edinburgh in 2013.
• US hotel industry occupancy fell 0.5% to 67% during May 2016, although revenue per available room rose 1.9% to $83.01 as average daily rate was pushed up 2.4% to $123.87. ‘The 5% RevPAR increase we saw last month appears to have been an outlier rather than a reversal of fortune,’ said Patrick Mayock, STR’s senior director of research and development. In May, growth slowed to 1.9%—the lowest of any month this year. And year-to-date RevPAR growth (+3%) is the lowest since the recovery started in 2010. On an absolute basis, however, the hotel industry is actually quite strong, with occupancy, ADR and RevPAR all reaching record highs for the May year-to-date period.’
• The UK Civil Aviation Authority is to investigate hidden fees levied by airlines on top of basic ticket prices to help ‘people understand what they are actually paying for.’ The CAA added it will look at ‘anything that is an additional charge’, from name changes on a booking, to in-flight meal options.
• Tunisian authorities have extended the country’s state of emergency instated after the massacre of 38 people last June for another month until 21 July.
• Security services were investigating a bomb threat at a shopping complex in Brussels yesterday morning although reports suggest it was a false alarm.
FINANCE & MARKETS:
• ECB Boss Mario Draghi has said that the bank stands ready for “all possible contingencies” post the UK EU vote tomorrow
• Federal Reserve chair Janet Yellen has suggested that rates may not rise in the US until the jobs market picks up again. She told Congress ‘without a doubt, in the last several months a number of different metrics suggest … a loss of momentum in terms of the pace of improvement.’ Her comments were seen as dovish. Ms Yellen added ‘we believe that will turn around, we expect it to turn around, but we are taking a cautious approach and watching very carefully to make sure that that expectation is borne out before we proceed to raise interest rates further.’
• Janet Yellen reports a UK vote to leave the EU “could have significant economic repercussions”.
• World markets: UK and Europe higher yesterday. US also up and Far East higher in Wednesday trade
• Oil price firmer. Brent crude changing hands at around $50.80 per barrel.
• Government borrowing fell £0.4bn year-on-year to £9.7bn in May, beating expectations of £9.5bn, but the amount of borrowing in the year so far is up £0.2bn to £17.9bn.
• The lull in UK property sales continued in May, with a total of 84,300 homes sold in the month compared to the March peak of 171,220.
• HSBC has launched a mortgage deal with an interest rate of less than 1%, with a fixed interest rate of 0.99% for two years for more than 35% of the property’s purchase price. Consumer website Moneyfacts said the HSBC product was the lowest offered since it began recording product rates, although it is not the only bank to become more aggressive in its policies in order to boost profitability.
RETAIL NEWS WITH NICK BUBB:
• IT problems but Debs update looks reassuring, with LFL sales only 0.2% down over the last 15 weeks, which is not as bad as feared. And profits for the year should be within the range of expectations. Call at 8.30am.
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Some of our morning tweets: Whitbread Q1: Sees total sales +8.0% in the 13wk period to 2 June. LfL sales are +1.8%. Premier +8.0% (LfL +2.1%).
• Whitbread Q1: Restaurant sales +1.4% (LfL +0.2%) and Costa sales are +11,5% (up 2.6% LfL). Numbers represent a further slowdown
• Whitbread Q1: Total sales benefited from group’s extension programme. REVPAR was down, however, particularly in London at down 3.0%
• Whitbread Q1: Restaurants’ growth ‘slightly ahead of a soft pub restaurant market outside the M25.’
• Whitbread Q1: ‘Costa had a good start to the year, growing total system sales by 11.4%’. Costa Enterprise’s sales +11.2% at £103.1m
• Whitbread Q1: Says its ‘strong financial position remains unchanged’. Says will hit targets ‘despite current market conditions’
• Saga updates on trading, says ‘group remains on track to achieve its targets for the year ending 31 January 2017’
• HVS poll suggests >95% of hotel property & investment professionals favour remaining within the EU.
• Hotel investment down 60% on back of economic uncertainty & terrorism in Q1 2016 reports HVS.
• Sterling posted its strongest gains since 2008 yesterday as concerns that the UK would leave the EU continued to abate
• Other Tweets: Sterling has best day in 8yrs. Good news for overseas tour operators, less good for domestics, hotels, Merlin etc.
• Margins. How does this work? NLW, higher oil prices, commodity prices higher but no end-price increases? Margins must be under pressure.
• Bit of a breather on the markets today. Big move yesterday, risk-off stocks lost ground, financials the real winners.
• Whitbread adds to evidence London is slowing. Been on the cards for a while. Not the end of the story but more modest growth likely
• WTB says London hotel market ‘worse than expected’. Surely it’s been looking toppy for a while? See earlier Langton emails
• Costa growth relying on price. WTB restaurant growth more than 100% price. Hotel growth ditto. Great but gouging tends to be finite, huh?
• WTB says hotels tougher. Sluggish demand (esp. London) meets increased supply. Budget hotels & increasingly pubs putting on capacity