Langton Capital – 2016-10-12 – Marston’s FY update, Domino’s, Hollywood Bowl & other:
Marston’s FY update, Domino’s, Hollywood Bowl & other:
A DAY IN THE LIFE:
Bit busy this morning. Plenty of RNSs and a conference to go to. On to the news:
MARSTON’S YEAR END TRADING UPDATE:
• Marston’s has this morning updated on trading for its full year to 1 Oct 2016 and our comments are set out below:
• LfL sales at the group’s Premium & Destination outlets are up by 2.3% for the full year period. This represents +1.8% in the last 10wks (tough comps last year) with food +1.7% and wet sales +2.3%
• Premium & Destination margins are in line with last year.
• Taverns’ LfL sales are up by 2.7% on the year as a whole. Sales are +2% in the last 10wks compared with a tough, +3% for the same period last year
• LfL EBITDA from leased pubs is +2% on last year
• Brewing volumes are +13% over the year (+8% or so over the last 10wks). The group says ‘our beer brands have performed very strongly’.
• More on Trading:
• Marston’s has opened some 22 new pubs during the financial year just ended in addition to 6 lodges
• It expects to open around 22 more in the current year with 5 lodges. The company says ‘we continue to have a good pipeline of sites to maintain similar levels of expansion for the foreseeable future.’
• Openings in FY17 will be back-end loaded
• The trading statement includes no comment on debt but this is expected to have edged up (on new openings) whilst leverage ratios should have fallen. Fixed charge cover should have risen
• We are not expecting changes to forecasts on the back of today’s news
• Marston’s is not commenting on Brexit. It has said in the past that it has yet to see any impact.
• CEO Ralph Findlay comments ‘Marston’s has delivered another year of solid progress with underlying growth across all of our pub divisions and continued outstanding performance from our market-leading beer business.’
• Mr Findlay says ‘trading has continued at similar levels since the year end which is encouraging. In addition, our new pub-restaurants, lodges and Revere premium pubs all continue to perform well.’
• Marston’s is able to conclude ‘looking forward, our estate is well balanced and we have a well-developed, strong pipeline of sites to continue our current level of expansion.’
• Langton Comment: Marston’s has reassured that FY16 has closed out as expected.
• The summer weather was helpful on the whole but comps were not easy and results have been in line.
• The group continues to open new units (in the shape, size and location of its choosing) and the quality of its earnings continues to improve.
• Comps were a little more challenging in H2 and the NMW will put some pressure on margins but Marston’s continues to outperform both its market and the majority of its competitors.
• The winners and losers in respect of sales (JDW & MARS vs RTN and perhaps MAB, arguably GNK at the moment) are beginning to make themselves plain with the former comfortably beating the Peach Tracker on a regular basis and the latter underperforming.
• This is not achieved without effort and, amongst the first as it was to dispose of tail end units, to identify new build as an area of growth and to embrace franchises and everyday low pricing, Marston’s has worked hard over a number of years to achieve its current position.
• Marston’s now has a smaller number of pubs overall but it has improved the quality of its estate markedly. It has transformed its business over recent years and it is now beginning to reap the benefits. Its tail has gone and its c140 new-build pubs are trading strongly.
• It is adding its own units at an attractive EBITDA multiple of under 6x and the return on capital on these freehold units remains between 13% and 15% depending on location.
• We continue to believe that well-located units selling customers what they want to buy at a price they are prepared to pay, will perform well.
• Though not immune to moves in the wider economy, Marston’s is in control of its own destiny. It has repositioned its estate and controls trading at the majority of its units.
• The group’s shares offer good value. Marston’s is growing EPS and cutting its debt. Its shares now trade on a single-digit multiple for the current financial year and offer a 5.4% yield.
• We see estimates as unlikely to change materially in the near term but accept that Brexit uncertainty (though there is no evidence of a downturn) may continue to weigh on consumer facing stocks as a whole.
• Marston’s quality of earnings continues to improve & we believe the company is capable of delivering double-digit EPS growth into the medium term and see its shares as offering extremely good value.
PUB, RESTAURANT & DRINKS PRODUCERS:
• Domino’s Pizza Group says it ‘continued to trade well’ in its third quarter, although its like-for-like system sales growth fell across its markets amid ‘tough comparators’. UK system sales LfL growth declined from 14.9% in the same period last year to 3.9% for a total of £220.9m, while ROI system sales growth fell from 14.1% to 7.6% for a total of €14.9m, and Switzerland fell from 5.3% to no growth and CHF 4.8m. The group’s total year-to-date performance is up by 11.5% versus 15.2% in the prior year.
• Domino’s Pizza Group currently has 920 stores in the UK and 34 of its 51 openings so far this year have been generated by splitting its trading areas between units. Commenting on the results and outlook, chief executive officer David Wild, said: ‘The business continues to trade well with a strong sales uplift across the Group during the period. As highlighted at our interim results in July, we face tough comparatives in the second half of the year, but our continued investment in e-commerce, our international expansion and the launch of our new Italiano range taking us to new customers, will help to drive performance for the remainder of the year. Our new store programme provides a strong platform for future growth.’
• Barclaycard data suggests consumer spending exceeded expectations in the wake of the EU referendum result
• Barclaycard reports spending rose by 3.6% y-o-y during the warmer weather in Q3 this year versus last
• Barclaycard says consumer spending +2.6% in July but +4.2% in the months of August and September. Barclaycard reports ‘this recovery in confidence, combined with the warmer September weather, helped to prolong the summer feeling amongst consumers last month.’ It continues ‘increased spend on experiences, and in particular with friends and family in pubs and restaurants, delivered one of the strongest months for spend growth so far this year.’
• AB InBev has completed the divestiture of SABMiller’s Peroni, Grolsch, and Meantime brands.
• Ask and Zizzi operator Azzurri has bought the former Monikers site in Hoxton Square for the first site of its new fast-casual pizza concept, Radio Alice.
• iNTERTAIN has launched a new employee engagement app called Pulse, which is designed to allow staff to share best practice in the workplace.
• UK food and drink manufacturers express concern over increased ingredient prices and lower margins in a survey conducted by Food and Drink Federation (FDF). This news comes alongside the highest quarterly results for UK retailers in food sales since 2013.
• YUM Brands has updates shareholders at a capital markets day saying ‘our mission is to build the world’s most loved, trusted and fastest-growing restaurant brands.’
• YUM to focus more on a franchised model. The group has told shareholders ‘partnering with growth-minded franchisees, Yum! Brands will increase franchise restaurant ownership from 77% currently to 93% at the time of the separation of the China business to at least 98% by fiscal year ending 2018, with a focus on equipping and recruiting the best restaurant operators in the world to deliver great customer experiences and drive brand growth.’
• YUM will use its China separation as a catalyst to drive change and growth. Execution will be an issue but CEO Greg Creed maintains ‘the separation of our China business provided a once-in-a-lifetime opportunity to review our operating model and consider all possibilities available under our new structure. The transformed Yum! Brands will maintain its geographic diversity with continued, meaningful exposure to the growth potential of the world’s largest consumer market, China.’
• YUM outlines that its China business will become a licensee of Yum! Brands in Mainland China.’ The company says ‘Yum China will have exclusive rights to KFC, China’s leading quick-service restaurant concept, Pizza Hut, the leading casual dining brand, and Taco Bell, which is expanding globally but is not yet in China.’ China boss Micky Pant says ‘Yum China is a powerhouse business that will be one of China’s largest publicly traded retail companies.’ He adds ‘with our unique market position and a rapidly growing middle class and urban population, we believe that we offer an unrivalled opportunity for sustained long-term growth in China.’ The separation is currently expected to occur after the close of business on October 31, 2016.
• YUM has said that it expects to return up to $13.5bn to shareholders by 2019.
• Nearly 100,000 businesses who had to implement the National Living Wage six months ago in April 2016 are now in a state of financial distress. New research from insolvency firm Begbies Traynor shows that 97,342 businesses were experiencing financial difficulties on 1 October in affected industries, marking a 23% increase on the number of firms struggling six months ago.
• This number includes 33,835 retailers, 13,772 wholesale outlets, 13,071 transportation and logistics firms, 10,809 bar and restaurants, 10,019 food and drug retailers, 7,803 food and beverage retailers, 5,406 sports, and health clubs and 3,347 hotels. The situation for these firms is only set to intensify as the government moves towards its target of £9 an hour by 2020.
• Premier Foods has warned that warm weather in September has hit grocery sales numbers. It says, however, that ‘the Group’s profit expectations for the full year remain unchanged due to the careful management of costs.’
LEISURE TRAVEL & HOTELS:
• James Villas is to give agents access to its portfolio of nearly 3,000 properties by selling through the trade for the first time.
• FairFX research shows some airports are now offering as little as 0.88 Euro cents to the pound, while the US dollar is nearly at parity. This means airport providers are charging travellers as much as 26% commission.
• A consumer survey indicates that booking holidays via mobile phone is less popular now than it was a year ago and the PC remains the most widely used method.
• Abta has reported a rise in high street and package bookings in its Holiday Habits Report 2016, with 19% of travellers booking in-store over the past year vs. 17% in 2015. The report, which is based on the Abta Consumer Trends survey, found that the most affluent households and younger people were found to be the most likely to book in-store, with 35% and 29% opting to do so respectively.
• Airbnb alternatives Wimdu (300,000 apartments) and 9flats (250,000 apartments) have teamed up, although the financial terms of the deal have not been disclosed.
• Travel management firm Travel Counsellors has posted a 14% increase in international sales and a 12% rise in UK sales year-on-year for September.
• Profits fell by more than 11% at hotels close to Heathrow in August as airport passenger numbers slowed, according to HotStats. More holidaymakers decided to take a domestic break in August. An increase of 2.8% in average room rate to £68.59 was not enough to offset the 5.8% decline in occupancy during August, as revenue per available room fell 3.9% to £57.32.
• Hollywood Bowl Group has recorded full year like-for-like revenue growth of 6.4% thanks to strong trading, its successful refurbishment programme, and an improved F&B offering. The recently-listed bowling operator’s acquisition of Bowlplex is integrating ‘as anticipated’ and the group has a pipeline of new centres in place, including a December opening for its Southampton Watermark Development. Hollywood Bowl Group plans to publish its preliminary results for the twelve months ended 30 September 2016 on 13 December.
• ‘We are pleased to report another successful year for Hollywood Bowl Group. We have traded very well through the year and the customer response to our investments and offer has been encouraging.’ Commented CEO Stephen Burns. ‘We continue to make good progress with our refurbishment and Bowlplex rebranding programme. The Board believes Hollywood Bowl has a very promising future and is focused on capitalising on the growth opportunities ahead as a listed company.’
• Samsung has scrapped its flagship Galaxy Note 7 smartphone two months after its launch, following numerous reports of exploding batteries. Shares fell in reaction to the news, which has dealt a significant blow to its reputation and outlook.
• Samsung has over $20bn market value loss as production on Note 7 model is scrapped, shares opening 3% down on Tuesday’s 8% fall.
FINANCE & MARKETS:
• 10yr gilt yields have passed 1% for the first time since the Brexit vote as Sterling has continued its fall
• BBC says FTSE100 near its highs on better export prospects. Would that 10% of the economy could power the whole. It’s just translation.
• Crude oil prices stronger on back of Vladimir Putin’s support of OPEC’s production cap plan. Oil price now +135% in Sterling terms.
• Bank of England’s Michael Saunders suggests ‘given the scale and persistence of the UK’s current account deficit, I would not be surprised if sterling falls further, but I am fairly agnostic as to whether any further depreciation is likely.’
• Alcoa disappointed in the US overnight. Seen as a bellwether, poor numbers suggest there may be something in the suggestion that corporate earnings may struggle to match expectations thereof
• World markets: UK mixed with FTSE100 down on oil worries. Europe down, US down and Far East down in Weds trade
• Oil price edging back. Brent crude $52.60.
• Sterling hitting new lows. Below 123c per pound vs dollar.
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Businesses will not now have to publish how many foreign workers they employ. That policy didn’t last long. Clarity still gone missing
• BBPA sets out manifesto for Britain’s exit from the EU, with policies including a focus on free trade and attracting and retaining overseas skills
• UK retail sales returned to growth in September thanks to higher spending on food, more purchases on big-ticket items
• Motoring organisations are suggesting that petrol prices will have to rise by 5p this month. Further rises may follow
• Domestic visitors to the UK spend £19.7bn in record growth last year, while China entered the top 10 most valuable markets, reports VisitBritain.
• Peel Hotels reports H1 numbers, sales +1.8% at £9.1m, PBT +19.2% at £592k. REVPAR +2.9% with occupancy down 2.3%
• Monarch is thought to be close to agreeing a revised aircraft order with Boeing that could help secure the airline’s future
• Pure Gym has cancelled its IPO per Sky News citing challenging IPO market conditions. The company declined to comment further
• Times points out Wm Hill potential merger partner was recently fined $870m and its former CEO is being investigated over insider trading
• Other Tweets: Sterling at 30yr lows. Stuck recordsville Arizona. Nonetheless worth noting some airports now offering 88c for the Euro to the Pound
• Markets going up? Headlines true but misleading. Foreign companies (STAN, miners etc.) going up & domestics (builders, REITs etc.) falling
• BCC looking for 1% growth next year. Deloitte says CFOs focusing on cost cutting to hit targets rather than growth
• BRC says retailers making more concerted effort to pass on price rises. Why should they be stuck holding the baby, right? Any volunteers?
• Inflation in the offing? Low margin operators will be in direr need of passing on price rises. Fat margin operators a bit more sanguine?
RETAIL NEWS WITH NICK BUBB:
• Vertu Motors: It is worth looking at what the fast-growing car retailer Vertu says today with its interims (to end August) about the outlook. The headlines are “Growth strategy delivers record half year revenues and profits” (with adjusted PBT up 15%, albeit earnings were flat) and “Full year results anticipated to be in line with market expectations”, with talk of “robust” trading in September (the key plate change month). “The Group’s service and used car performance continued to demonstrate strong underlying growth trends in September. Like-for-like new car private volumes for the Group were down 1.7% year on year, in line with the SMMT registration data…The result of the EU referendum has not materially impacted consumer confidence and the Group has not experienced any significant change in consumer behaviour. We remain in a low interest rate environment with record high
• Next Share Buyback Watch: The Next share price has been under the cosh again recently and on Friday it slipped below the £45 level, after a gloomy sector report from Numis. And what has the shrewd “Mr Share Buyback Man” been doing about it? Well, nothing has been the answer, as there had been no buyback activity since July 13th. But he woke up on Monday and evidently decided that enough was enough (perhaps having seen some improved sales figures for last week), because he hoovered up c66,000 shares at an average of c4526p. And he picked up a few more yesterday (c16,000 at c4628p), to help drive a mini-rally in the share price over the £47 level.
• News Flow This Week: Tomorrow morning brings the WH Smith finals, the Game Digital interims and the Booker interims and tomorrow evening the BRC is holding a timely debate on the meaning of “Brexit” for the Retail sector.