Langton Capital – 2016-06-29 – Greene King FY, Brexit, UK holidays & other:
A Day in the Life:
Bit busy this morning, will comment tomorrow:
RECENT WEBSITE ARTICLES:
• Recent notes – here
• Ongoing tweets, older emails found – here
LEISURE NEWS – BREXIT SHOCK:
• Molson Coors yesterday sold $5.3bn of bonds on the US markets. It is the first major financial deal since last Thursday’s Brexit vote
• Revolution Bars pulls out of acquisition that it was considering. It blames ‘market uncertainty following the result of the EU Referendum’. It says the ‘discussions have been terminated and the Group will not be proceeding with the proposed acquisition at this time.’
• Kantar has said that grocery sales should not fall as a result of the Brexit. People’s gotta eat.
• Kantar says food prices will rise. Says ‘with an estimated 40% of the food we consume sourced from overseas, any long term change in exchange rates may threaten the current period of cheaper groceries.’ It suggests that consumers may trade down.
• Ryanair is to divert expansion away from the UK. Boss Michael O’Leary says ‘we will pivot all of our growth into the EU’. He said he expected 3-4mths of “considerable uncertainty” due to the vote.
• PWC has said the economy will be smaller than it would otherwise have been as a result of any ultimate Brexit. Senior economic adviser Andrew Sentence told the British Hospitality Association ‘I don’t buy into the argument that somehow this is a boost for the economy.’ He added ‘it’s important to recognise the world goes on and we have not left the EU yet.’
• Tax rises & spending cuts will have to follow in due course said UK Chancellor George Osborne.
• UK tourist destinations could benefit as a result of a cheaper pound. See below for details.
• M&G (part of Prudential) is reported to be looking at a move of more of its operations to Dublin.
PUBS & RESTAURANTS – GREENE KING FY NUMBERS:
• Full Year Numbers – 52wks to 1 May 2016:
• Greene King has this morning reported full year numbers for the 52wks to 1 May and our comments are set out below:
• Full Year Numbers:
• Greene King reports group revenue, including Spirit, up by 57.6% at £2.1bn with adjusted PBT +52.2% at £256.5m
• Adjusted EPS is up by 14.6% at 69.9p and the group is to pay a full year dividend of 32.05p (+7.7%)
• LfL sales are +1.5% at managed houses and LfL net income is +2.7% for tenancies. Brewery volume is +2.9%
• At wk40, managed houses were some 2.2% ahead suggesting that trading in April, along with most of the industry, was challenging
• LfL sales are better (helped by the football and by better weather) in the first 8wks of FY17. LfL managed sales are ahead by some 2.8%
• Chairman Philip Yea reports ‘2016 was a year of strong growth for Greene King, reflecting a continued good performance from the underlying business, enhanced by a substantial contribution from Spirit. Including a 45 week contribution from Spirit, group revenue grew 57.6% and exceeded £2bn.’
• He says ‘including synergies, operating profit before exceptional items increased by 53.1% and profit before tax and exceptional items grew 52.2% to £256.5m, resulting in a 14.6% increase in adjusted earnings per share to 69.9p.’
• Mr Yea adds ‘cash generation remained strong and net debt to EBITDA improved to 3.9x. Excellent progress has been made integrating the Spirit business and we realised synergies ahead of target in the first year.’
• Cash Flow, Balance Sheet & Debt:
• Operating cash flow was +24.1% and net debt to EBITDA was 3.9x
• Group return on capital is +10bps at 9.4%
• Strategy and Other:
• Re Spirit, the group says that it has driven £16.7m of cost synergies in year one versus estimates of around £12m
• CEO Rooney Anand comments ‘it has been a transformational year for Greene King.’
• He says ‘we completed the acquisition of Spirit Pub Company and reached the milestone of £2bn revenue. We have delivered growth across each of the three divisions, outperforming the market in a challenging environment, while making significant progress in combining the best of both businesses to build Britain’s best pub company.’
• Mr Anand continues ‘I am pleased to report a strong start to the new financial year, although it is likely that consumer confidence will be affected by Brexit in the near-term.’
• He says ‘however, Greene King has a strong track record of performing well in challenging conditions, we are a resilient business with a talented team and a strong balance sheet, and we will benefit from the opportunities created by the Spirit acquisition. We are well placed to continue delivering value to our shareholders.’
• Langton Comment: Greene King has turned in numbers slightly ahead of expectations.
• The integration of Spirit would appear to be going well and the group is well-positioned to prosper.
• However, the Brexit vote will cause and is causing a degree of uncertainty for domestic stocks, pub companies amongst them.
• Uncertainty is unavoidable. This is more likely to lead to a delaying of large-ticket rather than small ticket purchases, however, and the UK’s better-positioned pub companies, Greene King amongst them, should continue to trade acceptably, if not as well as they may have done given a better economy.
• The shares are trading on around 11x EPS for the year just started and they are not expensive.
PUB, RESTAURANT & DRINKS PRODUCER – OTHER NEWS:
• Research firm Canadean’s latest Quarterly Beverage Tracker shows sales were flat across both west and east Europe in the first three months of 2016. Improving GDP growth projections in the larger economies, coupled with falling unemployment levels, and low interest rates have been credited for making a more favourable spending environment in Europe.
• Chris Moore, a non-executive director of Domino’s Pizza Poland, has purchased 500,000 ordinary shares in the company at 36.5p. Moore now has 3,655,333 shares in DPP representing 2.8% of the company.
• Dark Star Brewing Co is ready to increase its production capacity via acquisitions as a result of strong demand for its drinks. Nick Pyle, director at Dark Star, commented: ‘Back in 2010, we thought we’d “future-proofed” ourselves, but we got it wrong and the demand for the beer has far outstripped what we can brew and has meant that we’ve been unable to pursue some interesting brewing ideas and developments.’
• The team behind restaurant chain Bill’s have released their own brand of gin, which is now being sold in their sites as Bill’s Gin.
• Brakspear is bringing back its Brakspear boater hat and its annual Club to Pub Swim to celebrate summer in its hometown of Henley.
• Two-thirds of restaurant operators are having to push up menu prices to balance out rising staff and other costs, according to a study of 200 by Oracle.
• Shepherd Neame has completed the purchase of seven freehold pubs from Enterprise Inns in Kent, Surrey, and Sussex, with an eighth to follow.
• Research by Savills has found that casual dining brands with under 25 sites have grown 39% over the past three years and comprise nearly 80% of the market.
• Figures from the Department for Work show the average income in the UK in 2014-15 surpassed its 2009-10 peak thanks to a rise in the number of people in work. Average income before housing costs reached £473 per week – around £24,600 a year.
LEISURE TRAVEL & HOTELS:
• Merlin CEO Nick Varney has said the fall in the pound is good for domestic tourism as Britons will holiday at home and those from overseas will be more likely to visit. Varney added: ‘The pound was too strong against the euro… The problem for British tourism is that we have a really good product but pricing has been out of our hands.’
• Flights have been suspended at Istanbul’s Ataturk international airport in Turkey, where least 28 people have died and 60 injured after a terrorist attack.
• Snoozebox reports FY numbers. Sales £5.8m (vs £2.8m) but loss before tax up to £18.9m from £5.6m. Says it has been ‘a very tough year for the Group’. Chairman Chris Errington reports ‘whilst we have challenges ahead of us, we are now approaching these with a clear sense of purpose. Our task is to improve the Group’s fortunes for the longer term, recognising that our main challenge will be securing new customers in the short to medium term. The appointment of a small team of experienced executives is designed to address these challenges head on and improve our chances of success. Concurrently, we will continue to work with our primary lender seeking an amendment to the debt repayment terms to place the Group on an improved financial footing.’
• Airbnb is in talks for a new round of funding that would value the apartment-sharing service at $30bn.
• Royal Caribbean Cruises has announced an agreement with Miami-Dade County to construct and operate a new cruise terminal at Port Miami. The terminal will serve as homeport to Royal Caribbean International ships, including a 5,400-passenger Oasis-class ship.
• An 11th French strike in three months caused flight delays and cancellations, further hitting UK airlines which have already taken big losses from the Brexit.
• A third of business travellers want more in their travel budget to complete the aims of their trip, according to a report from GBTA. When asked what could be done to improve the efficacy of their excursion, travellers responded: better wifi access (46%), clearer objectives (42%), more time with clients (40%) and a larger budget to extend the trip (37%).
• Provincial Hotels and Inns has acquired nine pubs and two hotels from Mitchells of Lancaster as part of its strategy to become a national chain.
• Carnival reports Q2 numbers, says net revenue yields +3.6% in constant currency compared to prior year (> guidance of +1.5%)
• CCL Q2: Says Q2 net cruise costs ex-fuel per berth day down 1.9%, adjusted net income $370m or 49c per share
• CCL Q2: Re outlook. Says ‘at this time, cumulative advance bookings for the remainder of 2016 are well ahead of the prior year at slightly higher prices’. It says ‘FY 2016 net revenue yields are expected to increase approximately 3.5% in constant currency compared to the prior year, better than March guidance of 3.0%.’
• CCL Q2: President and Chief Executive Officer Arnold Donald commenting on these results said ‘our strong second quarter demonstrates continued momentum as we again achieved a near doubling of adjusted earnings per share. Our ongoing effort to drive demand for our brands in excess of our measured capacity growth has led to increased revenues and helped maintain the mid-point of our full year earnings guidance despite the recent currency movements and rises in fuel prices that combined represent a negative $0.17 per share.’
• Canadian online gaming co Intertain is said to be considering a listing on the London Stock Exchange. On Tuesday the co provided an update to an ongoing strategic review, saying that it had appointed Neil Goulden (ex-Gala Coral) as its new chairman and Andrew McIver (ex-Sportingbet) as CEO. It said the UK would be a “natural home” for the company. The majority of Intertain’s customers are in the UK and northern Europe, particularly Sweden.
FINANCE & MARKETS – BREXIT SHOCK:
• European leaders are leaning on Britain to move quickly on Article 50 in order to get Brexit negotiations going
• Fitch has become the 3rd ratings agency to cut the UK’s credit rating
• George Osborne has said that the UK will need to raise taxes and cut benefits in order to cope with the implications of Brexit
• Some are calling for increased borrowings to take the strain in the short & medium term. We were about half way towards getting our house back in order.
• Scottish First Minister Nicola Sturgeon is to meet EU officials today in order to try to secure Scotland’s position in the EU
FINANCE & MARKETS – OTHER NEWS:
• The US economy is now estimated to have grown by an annualised 1.1% vs earlier estimates of 0.8% in Q1 this year
• World markets better: UK & Europe up yesterday, US also better. Far East up in Wednesday trading
• Oil price up a little. Currently trading at around $48.85 per barrel
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Some of our morning tweets: Scotch Whisky Association says its industry faces an uphill struggle as the single markets is ‘central to the success of Scotch’.
• Food & Drink Federation boss Ian Wright has said that Brexit is a ‘disaster’ for the UK food & drink industry.
• Asda & M&S came out in favour of ‘remain’ whilst other retailers remained silent for fear of ostracising customers
• JDW’s Tim Martin has said that democracy was at risk in the EU & concludes that we will prosper outside it.
• Travel companies could be facing a decline in holiday bookings as a result of the referendum and consequent sterling weakness.
• UK air travel could drop by as much as 5% by 2020 as a result of the UK’s vote to leave the EU per IATA
• EasyJet has attributed a profit warning to an ‘extremely challenging’ operating environment in May and June
• Farmers have called for guarantees that they will retain the same subsidies from the UK government that they currently get from Brussels.
• Sterling yesterday fell to a 31yr low vs US$. This has implications for commodity prices
• Benchmark 10yr gilt yields fell below 1% as the ‘flight to quality’ led to funds switching out of corporate paper
• Property agent Foxtons has warned on profits. Says it now cannot see an upturn in prices in H2.
• George Osborne has said that the UK, despite voting for Brexit, can face the future “from a position of strength”
• The UK has lost its AAA credit rating according to ratings agency S&P following last Thursday’s Brexit vote
• Hate crimes are said to have ‘surged’. Racist abuse of foreigners is said to be on the rise. Slogans, shouting, spitting etc.
• Germany is to roll out the welcome mat to British techies. Emigration may become a thing.
RETAIL NEWS WITH NICK BUBB:
• Dixons Carphone: There look to be few surprises in today’s finals for y/e April, with underlying PBT of £447m bang in the middle of the guided £445-450m range. The Divisional split shows that the core UK business (and “old” Carphone Warehouse, if truth be told) was the big driver of the 17% profit growth at Dixons Carphone, contributing £365m to the overall £468m operating profit, with the fledgling Connected World Services business contributing just £7m in profit. Seb James, the ebullient CEO, says that “We are far from done, though. We have very ambitious plans this year”, but there is no update on current trading, ahead of the Q1 on Sept 8th. Inevitably, the focus will be on the concluding remark after the UK vote to exit the EU in due course: “As you can imagine, we have been giving some thought to this. Our view is that, as the strongest
• ASOS: The Strategy Day for analysts and investors begins at 1pm this afternoon in London HQ, but in that deathless phrase, “no new financial information will be provided”, ahead of the trading update on July 12th. No doubt one subject will be why the ASOS website crashed at the weekend…
• Share Buyback Watch: It was again interesting to see which companies took advantage of the recent share price slump in the Retail sector to buy back some more cheap stock yesterday…Next bought c104,000 shares at an average price of c4782p and WH Smith bought 25,000 shares at c1484p, whilst Pendragon and DFS carried on with their modest buyback programmes.