Langton Capital – 2016-09-22 – M&B in growth, GNK Tracker, property issues & other:
M&B back in growth, GNK Tracker, Christie on property & other
A DAY IN THE LIFE:
A bit going on this morning so no time for gossip. On to the news:
MITCHELLS & BUTLERS F.Y. TRADING UPDATE:
• FY Trading Update:
• Mitchells & Butlers has this morning updated on FY trading for the 51wks to 17 Sept and further comments are set out below:
• M&B has reported that sales picked up in the last 8wks (to 17 Sept) with LfL numbers coming in at plus 1.8%
• This is the best result for some time and, though aided by the weather, will be taken positively
• M&B says the numbers represent ‘a continuation of the improved trend both over time and relative to the total eating-out market, supported by favourable weather in recent weeks.
• Dragged back by earlier results, sales for the 51wks of the year to date are still down by 0.8%
• More on recent trading:
• M&B reports ‘we continue to generate good sales growth from our invested sites, now starting to be underpinned by relative improvement in the performance of sites without recent investment.’
• Food sales in the last 8wks were +0.4% but drink sales were +3.7%
• This highlights the impact of better weather – and it does begin to make it look as though the Peach Tracker data (only +0.6% for August) may be either a little off the market – or it could be comprising of a good performance by some operators and a terrible one elsewhere
• Shepherd Neame yesterday, for example, said that it was +8.2% over the last 10wks
• For the 51wks to date, M&B’s drink sales are down 0.1% and its food sales are off by 1.4%
• M&B says ‘margins for the full year will be below last year, as previously advised, particularly as a result of acceleration of investment in the estate and wage inflation following the introduction of the National Living Wage in the second half.’
• Balance sheet, cash flow and debt:
• M&B reports ‘so far this financial year we have converted or remodelled 244 sites, and opened 7 new sites.’
• CEO Phil Urban reports ‘we are encouraged by our improved trading performance in recent months.’
• He cautions slightly that ‘weather in recent weeks has certainly been helpful to sales, but in addition we are starting to benefit from increased investment activity, instilling a commercial culture and a faster pace of execution and innovation in our business.’
• Re costs, the news is not so good. Mr Urban comments ‘we enter the new financial year facing an increasing number of cost headwinds, most notably labour. However, based on recent progress we remain committed to our strategy going forward.’
• Langton Comment: Re current trading, M&B is performing more strongly than may have been feared.
• That sounds a bit grudging, but it’s not meant to.
• M&B is a big ship and, if it has been guilty of pushing prices a little too aggressively (see also RTN), then this will not be changed around overnight.
• Margins, with the above in mind, will understandably be lower.
• However, the result is positive and should lift spirits both within and without the company. The group has outperformed the Coffer Peach Tracker by some margin for the first time is quite a while & that is no small feat.
• Regarding average performances for August, we would reiterate that, as the weather was good but the average pub/restaurant raised sales by only 0.6%, some operators must have performed very poorly if Shepherd Neame and now M&B come in above the average.
• M&B’s performance at its converted and invested units has been good,
• As regards its share price, we are now at a point where the group is trading at only around 7.4x current year earnings and it has a 2.8% (and hopefully growing) yield.
• One would hope that the management revolving door (and lack of clarity as to the longer term objectives of shareholders Joe Lewis and Elpida) can be put to one side for the moment – but we have arguably been here before.
• Nonetheless, M&B has an extremely attractive estate and, we would suggest, at less than £3 per share, the risks may be on the upside. The catalyst to unlock value may remain somewhat elusive but, as the group moves from planning to execution, we will be awaiting further news with interest.
PUB, RESTAURANT & DRINKS PRODUCERS:
• Greene King Leisure Spend Tracker concludes the ‘last days of summer lead to increase in leisure spending.’
• Tracker: ‘Leisure spending increased in August as households took advantage of both the school holidays & the end of the summer weather.’
• GNK Tracker says average British household spent £229 on out of home leisure activities in August, up 3% on last year
• Tracker: Says spend rise ‘driven by greater spending [+10%] on Eating Out and Drinking Out.’ Other Leisure spend was down 10%
• GNK Tracker: 40% of those surveyed suggested Pokemon Go had helped to get them out of the house in August
• GNK Tracker says 5 of last 7 months have delivered a y-o-y increase in spending. Says better weather helped in August. GNK’s head of marketing Rob Rees comments ‘many British households enjoyed the last days of their summer by spending more on out-of-home leisure activities. This is likely to be a result of both the end of the school holidays and the positive weather seen across the country over the course of the month.’
• GNK Tracker findings jar a little with GNK’s own 9 Sept RNS. Group then said ‘as expected, uncertainty surrounding the UK’s future withdrawal from the European Union has translated into a softening of some economic indicators and a reduction in consumer confidence. While the broader implications remain unclear, a number of recent industry surveys have flagged risks to leisure spend and we are alert to a potentially tougher trading environment ahead.’
• A new report from CGA Strategy and BarChick highlights the iconic American Bar at the Savoy as the most influential bar in London. The Connaught Bar, Dandelyan, Hawksmoor Spitalfields, and Hawker House A round off the rest of the top five. Bars around Shoreditch and Old Street populate a lot of the rest of the top ten, including Callooh Callay, The Draft House, and Night Jar. The report also brings attention to the growing importance of ‘thought leaders’ both online and in groups of friends, as well as high-profile mixologists and in-house distillation.
• Christie & Co Insight Report suggest market activity in pubs sector ‘was relatively subdued during H1 with little M&A activity.’ It goes on to say ‘the most notable exception was Hawthorn Leisure acquiring 11 pubs from JD Wetherspoon to bolster further their managed house division.’
• Christie: Lack of asset transactions ‘may in part be due to subdued activity pre the UK referendum on 24 June 2016 where general activity levels across all sectors was down.’
• Christie: Referring to a number of transactions, the company says ‘the first and most obvious point is that the EU Referendum result did not derail these deals which clearly had been in the pipeline a long while before the vote to leave was known.’
• Christie: ‘There remains uncertainty in the market and we anticipate that this will remain until there is further clarity on when the UK will inform the EU that it is withdrawing under Article 50, although clearly there are opportunities within the market.
• Shares in Majestic Wine fell by 24% to 330p yesterday on the back of the group’s profit warning. Majestic says it will resume dividend payments this year. The group will announce H1 numbers on 17 November
• UK Cask Report sees cask beer as a £1.7bn market.
• Ed Standring has stepped down as managing director of Richoux Group to join the co-founder of Cabana and the former CEO of Wagamama in acquiring gourmet burger group Haché. The group has restaurants in Camden, Chelsea, Clapham, Balham and Shoreditch and was established over twelve years ago by founders Berry and Suzie Casey. The Caseys believe Jamie Barber, Ian Neill, and Standring are ‘the right people to steer the brand in realising its true potential’.
• The UK supermarket sector has put together two consecutive months of growth in both volume and value sales for the first time in two years according to Nielsen data. Value sales rose by 0.4% and volume sales increased by 0.3% during the four weeks ending 10 September, driven primarily by discounters Lidl and Aldi. Mike Watkins of Nielsen’s said, however, that the results point to ‘the green shoots of recovery for the leading supermarkets in their battle against the discounters and price deflation.’
• The number of people smoking in England has dropped to below 17%, marking the lowest ever rate on record, according to figures commissions by Public Health England (PHE). The Nielsen data show that the biggest declines over the last four years can be seen in the South West (18.7% to 15.5%), the North East (22% to 18.7%), and Yorkshire and Humber (21.9% to 18.6%), while the total number of cigarettes sold in England and Wales has fallen by 20% in the last two years. Devices such as electronic cigarettes (e-cigs) have been credited with helping more smokers to quit successfully.
• Research from IRI of 85,000 promotions concludes that retail promotions should focus on price cuts rather than multi-buys.
LEISURE TRAVEL & HOTELS:
• Loveholidays has purchased some digital assets from Lowcost-travelgroup, whose shortfall runs into ‘many tens of millions’ according to administrators.
• The US hotel industry saw occupancy fall 0.4% to 70.2%, although a 2.5% increase in average daily rate to $125.42 helped push RevPAR up 2.1% to $88.10. ‘The slowdown continued in August with the second-lowest RevPAR growth figure of the year,’ said Jan Freitag, STR’s senior VP for lodging insights. ‘With year-to-date supply growth (+1.5%) ahead of demand (+1.3%), ADR is the sole driver of RevPAR, and the 2.5% ADR increase matched May for the lowest this year… RevPAR has now grown year over year for 78 consecutive months, and even with muted expectations, we don’t anticipate that changing anytime soon.’
EasyJet has made a last ditch effort to avert a strike by its pilots in a row over cockpit fatigue, which will be discussed today.
• Orange Lake Resorts and IHG have announced a five-year project to design, update, and renovate more than 3,100 villas at 13 resorts acquired by the former in May 2015.
• Hollywood Bowl shares finished their first day’s trading yesterday at 171p, an 11p premium to their listing price of 160p
FINANCE & MARKETS:
• US Fed leaves rates unchanged. As expected, Ms Yellen’s Fed OMC left US rates at between 0.25% and 0.5% yesterday
• Fed signals rate rise by end of this year as labour market improves. Ms Yellen said ‘we judged that the case for an increase has strengthened but decided for the time being to wait. The economy has a little more room to run.’
• The Federation of Small Businesses has reported that small and medium-sized businesses are pessimistic for the first time in 4yrs. This is the third quarter in a row that confidence has fallen. FSB chairman Mike Cherry reports ‘the political shock of the Brexit result has taken place at a time of weakening business confidence.’ Mr Cherry goes on ‘small firms are resilient and will survive the current fragile economic outlook, but to avoid an economic slowdown this data should be a wake-up call for our elected politicians.’
• World markets: UK and Europe up yesterday and US also higher. Far East mostly up in Thursday trade
• Oil price up. Brent crude trading around $47.20 per barrel.
• B of England’s survey: ‘The annual rate of activity growth had slowed overall as uncertainty rose following the EU referendum.’ It says growth is still positive and adds ‘consumer spending growth and confidence had been more resilient. Although housing market activity had fallen markedly in London and in parts of the surrounding area, it had held up relatively well in other parts of the United Kingdom.’ Re employment, it says ‘companies’ investment and employment intentions had fallen, and were consistent with broadly flat levels of capital spending and employment over the coming 6-12mths’.
• OECD cuts UK growth forecast to 1.8% this year and 1% next.
• UK government borrowing fell in August per ONS to £10.5bn from £11.4bn a year ago. No clear Brexit impact
• House buying in August stood at 109.6k properties changing hands. RICS says the market is ‘settling down’.
• ONS says ‘the referendum result appears, so far, not to have had a major effect.’
• The SMMT has said that British car production reached a 14-year high for August as demand rose both at home and overseas following investment in car plants. Although it is ‘too early to tell,’ so far there has been limited impact from Britain’s decision to leave the EU, with 109,004 vehicles rolled off British production lines in August, up 9.1% on the same month in 2015.
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Majestic warns on 2017, says profit that year will be below expectations. Says will hit 3yr plan numbers by 2019.
• Majestic reports retail is ‘on track and making good progress on the transformation plan’ but will not hit targets.
• Majestic points to problems in Commercial division and rising costs in the USA. Says this is ‘disappointing’. Will update fully at H1
• Shepherd Neame has reported a 10.7% increase in underlying profit before tax to £10.3m on the back of a 1.2% rise in turnover for FY.
• A study from Kantar Worldpanel suggests alcohol sales rose by 8.5% in the summer, while sparkling wine sales jumped by 36%
• Saga reports H1 numbers. PBT +8.5% at £109.9m, EPS 7.9p (+8.2%) and H1 dividend of 2.7p (2015: 2.2p)
• The merger of Marriott & Starwood is now expected to complete on 23 Sept as approval for the merger has been given in China
• 32Red reports H1 numbers, revenues +63% at £30.4m, EBITDA £4.5m (vs £1.2m), PBT £2.5m (vs £0.1%) & EPS of 2.8p (vs 0.1p).
• MPC member Michael Saunders says Britain’s economy should grow at reasonable rate in coming years
• B of England’s Saunders says QE could be stepped up, says ‘there is substantial scope to expand asset purchases if needed.’
• Other tweets: It’s hangover time at Maj Wine says FT. Group will miss FY17 target of £16m. Market was looking for 32% growth thereafter. Woops.
• Shepherd Neame: current trading pretty stellar. Last 10wks LfL +8.2%. That’s more like it. See our comments re some other soggy trading http://www.langtoncapital.co.uk/2016/09/coffer-peach-tracker-could-have-been-much-better/
• Sterling hit 5wk lows yesterday but, in all honesty, does that mean a great deal? It took a dive June 24 & hasn’t recovered
• Hog prices hit the floor. Down 24% in last 12mths – but more than all of that in the last quarter. Good for CWK etc.
• Fed = 22% chance of rate cut. Also B of England puts out quarterly review today, will opine on Brexit impact
• Alcohol sales surged 8.5% in last 4wks per Kantar. Sheps’ numbers stellar so who are the losers if Coffer Peach only +0.6%??
• Majestic. Is it a one-off or will there be a Crawshaw-type reaction as investors question raison d’etre? Safer course of action? Avoid
• Barbells in pub performance? Sheps +8.2%, Kantar alcohol +8.5% but Coffer Peach +0.6%. Who are the mega-losers? Hands up, please…