Langton Capital – 2016-09-27 – Thomas Cook, AG Barr, Fulham Shore & other:
Thomas Cook, AG Barr, Fulham Shore & other:
A DAY IN THE LIFE:
We’ve taken to letting the duck out on the grass these days but, as there are plenty of half-rotten windfall apples, pears and plums knocking around, they’ve taken to getting drunk & violent and I may have to confine them to quarters until there’s nothing more intoxicating for them to eat but grass.
And, whilst the above could be viewed as funny from some angles, the local amphibians don’t think so as the ducks have taken to hunting them down and playing toss-the-frog with them, often with fatal consequences.
And I’m sure they would try it with bigger animals too. Certainly the local foxes seem to hope so as they’re just waiting their chance to have a dance with any duck bold enough to think that it has a chance. On to the news:
PUB, RESTAURANT & DRINKS PRODUCERS:
• AG Barr reports H1 numbers, revenues down to £125.6m from £130.3m, LfL revenues down 2.8%
• AG Barr H1: Normalised PBT up to £17.0m from £16.9m, says seen ‘strong International performance, with revenue up 16%
• AG Barr reports 3.53p H1 dividend (2015: 3.36p). CEO Roger White comments ‘we have delivered a solid first half performance, maintaining market share, improving our operating margin with a slight improvement in our pre-exceptional profit versus the prior year. This is despite continued price deflation in the UK market, a challenging customer and consumer environment as well as poor weather in the important early summer months leading up to the end of the reporting period.’
• Mr White adds ‘good progress has been made across the key areas of innovation, product reformulation, brand development and operational efficiency’ and concludes ‘we are beginning to see the benefits of our product development and innovation initiatives with both consumers and customers.’
• AG Barr concludes with a note of caution saying ‘market conditions remain volatile and somewhat unpredictable however, assuming a strong trading performance in the key festive period, we remain on track to deliver profit (before tax and exceptionals) slightly ahead of last year.’
• Franco Manca operator Fulham Shore has announced the appointment of D&D London co-founder Des Gunewardena as a non-executive director. Gunewardena has over 25 years’ experience in the restaurant industry, having also co-founded Conran Restaurants in 1991 before moving on to buy out the restaurants and create D&D London with business partner David Loewi in 2006.
• Commenting on the appointment, David Page said: ‘We warmly welcome Des to the Fulham Shore board where he will add both wit and gravitas. We have watched the expansion of D&D London under his guidance with admiration. He brings with him his extensive industry experience and market know-how, both of which will greatly benefit Fulham Shore as we grow over the coming years.’
• D&D London sales and EBITDA reached record levels in the year to 31 March 2016, rising by 3% to £107.8m and 16% to £13m respectively. Like-for-like sales increased by 3%. The group, which has been operating for a decade now, attributed the strong financial performance to a series of refurbishments it has taken across its estate, while the opening of the German Gymnasium in King’s Cross in November 2015 also boosted revenue. Strong performers included London sites Paternoster Chophouse (+28%), Quaglinos (+22%), and Madison (+18%).
• Gunewardena, chairman and CEO of D&D London said: ‘The second half of our last financial year was certainly not a bed of roses. But our restaurants’ revenues held up well and we managed to post another year of solid sales growth and record profits. And in the current financial year, despite a disappointing early summer and uncertain period around the date of the EU Referendum, our revenues have continued to increase. Much of this growth is coming from new ventures such as the German Gymnasium and from our recently refurbished restaurants.
• ‘This month sees Bluebird being given a new look and in early 2017 we will open restaurants, cafes and bars at Land Securities’ Nova development in Victoria. Later in 2017 we will open new restaurants in Leeds and Manchester.’
• iNTERTAIN has opened a Walkabout at a former JD Wetherspoon site in Chelmsford. John Leslie, CEO, iNTERTAIN said: ‘This opening builds on a strong period of growth for iNTERTAIN and is a fantastic opportunity for us. The bar is in an excellent location and the space lends itself to our new-style Walkabout brand, allowing us to focus on live sport, bookable VIP areas and booths, brilliant party nights and a great daytime food offering.’
• The BBPA has decried the government’s decision to make changes to the Late Night Levy and to put Cumulative Impact Policies on a Statutory Footing. Chief Executive Brigid Simmonds, said: ‘This will make it easier for local authorities to impose a Late Night Levy – something the BBPA has always been against, as it is a tax and not a local partnership. We are therefore against the flexibility that is being proposed, which would allow local authorities to impose this tax on particular geographic areas, rather than the whole local authority.’
• Just Eat has appointed Paul Harrison as its chief financial officer and an executive director, while Mike Wroe steps down.
THOMAS COOK FULL YEAR TRADING UPDATE:
• Group Updates on Full Year Trading:
• Thomas Cook has this morning updated on full year trading saying ‘summer 2016 [is] closing out as expected, with strong demand for most destinations apart from Turkey’.
• Trading update:
• Group says ‘winter 2016/17 bookings are in line with last year’
• It adds ‘full year underlying EBIT guidance unchanged’
• Group says it is ‘focused on continuing to improve the customer experience, and delivering substantial progress in our New Operating Model, including a new hotel sourcing partnership with Webjet and the launch of Thomas Cook China’
• CEO Peter Fankhauser comments ‘the Summer season has progressed largely as expected.’
• Fankhauser adds ‘customers’ desire to go abroad on holiday has remained strong with the exception of Turkey where demand continues to be volatile.’ He says ‘to date, sales for the Winter season are in line with last year while sales so far for Summer 2017 suggest that customers are booking early in an effort to secure their first-choice destination and hotel.’
• Mr Fankhauser goes on to say ‘we remain focused on ensuring that we have the right holidays available in the most popular destinations in order to meet changes in customer demand. At the same time, we continue to transform our business for profitable growth.’
• Overall positive tone as the group says ‘we’ve taken big steps forward in recent months with the agreement of a new hotel sourcing partnership with Webjet and the launch of Thomas Cook China. However, we’re particularly proud of the improvements we’ve delivered in customer satisfaction thanks to the work we’ve done to strengthen the quality of our offering. We know that the increased loyalty we get from happier customers is key to driving the future success of our business.’
• Further detail:
• Thomas Cook says ‘overall [summer 2016] Group bookings remain in line with our expectations. Excluding Turkey, bookings are up by 8% across the Group as a whole, while including Turkey, bookings are down by 4%.’
• TCG says ‘sales have been driven by demand for high-volume destinations including the Balearic and Canary Islands and the USA, alongside smaller destinations like Bulgaria and Cuba.’
• Re summer, the group concludes ‘our Summer 2016 programme is 89% sold for the Group, 3% below the same period last year.’ It adds ‘in the UK, bookings are slightly higher than the prior year.’
• Northern Europe bookings are 6% lower ‘in line with capacity cuts made as part of our destination strategy, and against a very strong performance in the comparative period last year.’ Here ‘pricing is up 3% compared to last year, reflecting strong demand for our differentiated holidays.’
• TCG says ‘in Continental Europe, bookings are 9% lower than at this time last year reflecting continued weak consumer confidence, including in Belgium where demand is significantly down as a result of the Brussels terror attacks.’
• Re Continental Europe, the group adds ‘overall pricing is 3% below last year’s levels. In Germany, bookings are 6% lower than this time last year, but we continue to outperform the wider tour operating industry.’
• TCG says ‘we continue to experience good demand for our holidays in the UK and Northern Europe, offset by weaker demand in Germany, particularly for Turkish destinations.’
• It adds ‘our expectations for full year underlying operating profit remain in line with previous guidance’ and says ‘the Group is well positioned for future growth.’
• TCG says ‘we have a strong balance sheet, a resilient business model and a strategic focus on strengthening our holiday offering for the benefit of our customers.’
• Langton Comment: Thomas Cook’s shares have recovered a little from oversold levels but the market remains nervous.
• That said, today’s update should reassure.
• Trading is in line with earlier expectations and, if the group is to deliver on previous forecasts, then its shares are trading on less than 7x next year’s earnings.
• There is no mention of a dividend. Opinion is divided but a payment is expected for the full year, which will be reported on 23 November.
• As we mentioned before, the group flirted with death in 2012. It then righted its balance sheet and its shares moved up from sub-20p to a high of a shade under 190p.
• The group has shifted capacity to the Western Med, the Canaries & the USA.
• This has not been achieved without great effort but, as the group moved quickly, it has been at minimal marginal cost.
• Margins are therefore being protected and, as bookings normalise, the group should deliver on estimates.
• Consensus numbers have the group trading on a next year PER of around 7x earnings. This is rather lower than one would expect for a company whose recovery is not complete.
• TCG’s China JV is potentially very exciting and we believe that its shares offer good value.
LEISURE TRAVEL & HOTELS:
• EasyHotel has confirmed that the acquisition of the freehold of 3-5 Northgate Street in Ipswich has completed. It adds ‘as previously announced, easyHotel was granted planning permission for a 94-room hotel in August 2016. The hotel is expected to open by July 2017.’
• Carnival reports Q3 numbers, net revenue yields +2.7% (guidance 2% to 3%) & costs +5.5%, better than guidance of around 6.5%.
• Carnival Q3: Adjusted net income $1.4bn, EPS 192c.
• Carnival outlook: Says ‘cumulative advance bookings for H1 next year are ahead of the prior year at considerably higher prices’.
• Carnival expects net revenue yields to rise around 3.5% this year versus last. EPS should be around 335p (2015: 270c). President and Chief Executive Officer Arnold Donald comments ‘we delivered the strongest quarterly earnings in our company’s history affirming our ongoing efforts to expand consumer demand in excess of measured capacity increases and leverage our industry leading scale. Revenues during the peak summer season were bolstered by strong performances from both our North American and European brands and across all major deployments including the Caribbean, Alaska and Europe.’
• Carnival says ‘we are well on track to deliver nearly 25 percent earnings growth in 2016. With cash from operations expected to reach a record $5 billion this year, we continue to fund our growth and return cash to shareholders. During the third quarter we repurchased $700 million of Carnival Corporation shares bringing the cumulative total to $2.5 billion in share repurchases over the past year.’ The group’s CEO Arnold Donald comments ‘looking forward, we are well positioned for continued earnings growth given the current strength of our booking and pricing trends in 2017.’
• Monarch has denied it is in financial trouble but admits it needs a ‘significant investment’ to be made within days in order to weather ‘tougher market conditions’. Travel Weekly reports that the group is still on track to generate c£40m in pre-tax profit for the financial year to October, but has been forced to respond on social media to persistent rumours of financial ill health and admits to launching a refinancing deal.
• EasyJet has put off a strike over pilot fatigue after talks on Friday that concluded with a set of proposals to be put to pilots in a consultative ballot.
• Bourne Leisure posted profits of £111.2m last year, up from £102m, and has paid out more than £100m in dividends since the start of last year.
• Record numbers of foreign tourists visited the UK in July, which was the highest month ever for inbound tourism to the UK with 3.8 million visits, up 2% year-on-year. Visits from EU countries reached 2.3 million, a rise of 3%, according to new Office for National Statistics data. Growth of 5% to 580,000 was recorded from North America and arrivals from the ‘rest of the world’, which includes Australia, China, the Gulf markets and India, increased by 6% to 790,000.
• Pragma Consulting writes that global cruise passenger numbers are experiencing growth across the board and could reach 24 million passengers this year. This compares to just 15 million passengers registered a decade ago. Cruises are increasingly appealing to younger consumer groups, bringing down the average age for a North American cruiser to 49, and driving a shift in the quality of F&B concepts and entertainment brands.
• Workers on Virgin Trains East Coast are ready to stage a 24-hour strike next Monday over threatened job cuts, according to the RMT union. Virgin Trains said it would be running a full timetable during the strike.
• Merlin is to blame for the Smiler rollercoaster crash at Alton Towers that resulted in life-changing injuries to five passengers, Stafford crown court has been told. Engineers apparently lacked a ‘structured system of working’ and frequently overrode the Smiler’s alarm warnings as they distrusted them. Merlin Entertainments, which has more than 100 attractions worldwide, could be fined £10m or more, if Judge Michael Chambers, QC, assesses that it is in the public interest.
• Walt Disney and Microsoft have reportedly joined the list of potential suitors for Twitter, which also includes Alphabet, and may soon receive a formal bid. Salesforce is also working with Bank of America on a potential bid, according to Bloomberg, while CNBC added that a sale could happen over the next 30 or 45 days.
FINANCE & MARKETS:
• Observers’ assessment of the first of three television debates between Hillary Clinton and Donald Trump seems to suggest an inconclusive Clinton victory. Financial markets and traders have bet on a rising peso, among other plays, although ultimately there may have been enough from both candidates for both sides to spin a win.
• Number of mortgages granted in August at lowest level for 19mths reports BBA. Some 37k loans approved. The BBA reports ‘mortgage borrowing is growing at a slower pace than it has for the last few months reflecting both the slowdown in housing market growth after the April spike and broader trends in the sector.’
• BBA points to higher loan and overdraft borrowing, says ‘given the low interest rate environment and high levels of confidence during the summer, the strong credit growth can be interpreted as strong consumer sentiment.’
• The impact of the ECB’s programme of QE may have been diminished by external shocks reports ECB board member Benoit Coeure. Re the Brexit vote, M Coeure says ‘the longer term effect is unknown.’
• London is still rated the top global financial centre by Z/Yen. It says any Brexit is not yet reflected in the ranking
• World markets: UK down sharply yesterday & Europe also lower. US markets down but Far East up in Tuesday trade
• Oil price up to around $47.20 per barrel for Brent Crude
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• The BBPA has reported that alcohol consumption in the UK remained stable last year but is still 18% below its 2004 peak
• BBPA points out UK beer duty is ‘54% higher than it was in 2000, despite recent cuts to the duty rate.’
• BBPA points out the number of breweries in the UK rose by 1,380 between 2000 and 2015.
• Annual admissions to nightclubs in the UK has tumbled by nearly a quarter in the last five years
• Morrison’s is launching a 10% student discount off beers this month, presumably to target freshers’ week.
• Marriott International believes it can realise $250m of annual cost savings through its $13bn merger with Starwood
• Times quotes former Chancellor George Osborne as warning PM Theresa May not to trigger Art 50 until late next year
• Other tweets: Eurozone PMIs a little behind estimates. The real world failing to live up to stock market expectation?
• Grocer 33 suggests ASDA’s price cuts don’t amount to much. Sainsbury basked cheaper last week – see email
• ASDA price cuts perhaps not putting as much cash into people’s pockets as hoped/expected. Not therefore as helpful to pubs, restaurants etc.
• FT highlights clothes buying disappointing in Sept. Blames ‘weather, the lure of eating out and full wardrobes’
• BBPA stats (see full email) belie ‘boozed up Britain’ headlines. Drinking down 18% over last 11yrs
• Nightclub admissions down 25% over 5yrs. Need to evolve offer. Easier said than done if you have 25yr lease on a big box unit
RETAIL NEWS WITH NICK BUBB:
• Boohoo: Today’s interims from mighty Boohoo are notably strong and will drive further full-year profit upgrades, so it is not beyond the realms of possibility that the share price of our shrewd “Tip of the Year” could top 100p today, notwithstanding the incredibly good run they’ve had over the last couple of months! Sales growth was as much as 40% in H1, so Q2 (to end August) was barely any slower than the heady 41% growth seen in Q1 and it is not surprising that management has increased its full-year sales growth guidance again, to +30%/35%, although this still looks conservative, notwithstanding the importance of Xmas trading and tougher H2 comps. UK sales growth of 38% is particularly impressive, given how difficult the UK clothing market has been, but International is now 36% of total sales and the US segment has been broken out for the first time.
• Card Factory: Given declining High Street footfall, Card Factory did well to grind out 0.2% LFL sales growth and 5% EBITDA growth in the first half (to end July), but shareholders will be pleased to hear about another special dividend of 15p. The new CEO Karen Hubbard says “Trading in recent weeks has been similar to the trends seen in the first half, with encouraging continued growth in average spend. We approach the important final quarter with confidence in the quality and value of our offer, including our new Christmas ranges, and remain confident of delivering full year underlying profit before tax within the range of expectations”. There is a 9.30am analysts meeting, but we suspect that the Boohoo meeting will be better attended (albeit both companies now have a market cap of just over £1bn)…
• Today’s Press and News: We haven’t had time to read all the papers, as we have to wend our way to the Boohoo analysts meeting, but the Aldi UK 2015 results dominate the coverage, with the Daily Mail headline “Aldi’s £300m bid to topple Waitrose” (“It’s going posh and wants a store on every High Street”). The Business editorial in the Guardian thunders that Aldi is not going away as a threat to the big supermarket chains, despite its slightly falling profits, and the Times highlights its plan to refresh its stores. The Times and the Guardian both flag that Sainsbury’s is testing a bicycle delivery service in south-west London, promising to get groceries to customers within one hour. And the FT market report notes broker downgrades on N Brown and Kingfisher yesterday.
• News Flow This Week: The monthly CBI Distributive Trades survey for “September” is out later this morning. Tomorrow brings us the Sainsbury Q2 update, as well as the Moss Bros interims and the MySale finals. Then the GFK Consumer Confidence survey for September is out first thing on Friday.