Langton Capital – 2016-11-08 – Punch Taverns, Marriott, Tasty, Sterling & other:
Punch Taverns, Marriott, Tasty, Sterling & other:
A DAY IN THE LIFE:
Bit busy this morning & early Punch meeting. On to the news:
PUNCH TAVERNS – FULL YEAR NUMBERS:
• FY Results:
• Punch Taverns has this morning reported full year numbers for the 52wks to 20 August 2016 and our comments are set out below:
• Key numbers:
• Punch Taverns has this morning reported full year numbers for the 52wks to 20 August saying that its ‘performance [was] in line with management expectations and reflects the completion of our strategic disposal programme’.
• Group reports average profit per pub across the entire estate up 4%; benefiting from the disposal of non-core pubs
• It says ‘core estate like-for-like net income growth [was] 1.0%’ – this had already been reported in August
• Although no numbers are given for post year-end trading, the group reports ‘we are making good progress delivering on our strategy’
• Further comments:
• The group reports underlying EBITDA of £178 million (August 2015: £196 million)
• This reflects the impact of £324 million of disposals over the last 24 months
• Punch reports underlying PBT of £53 million (August 2015: £61 million, estimates for 2016 as show above of around £51 million)
• Reported PBT is £60m (2015: £105m)
• Strategic progress, managed houses etc.:
• The group reports its .strategic disposal programme is now complete, having delivered ahead of expectations with net proceeds of £234 million in the year; £75 million above book value’
• Punch says that its retail division (managed houses) is ‘operating ahead of expectations’
• Here the group says ‘242 pubs identified to operate under the Retail contract, of which 109 pubs are trading at November 2016 (November 2015: 32 pubs trading)’
• The group will roll out its retail contract (franchised) offer to around 150 pubs per year. Previous guidance had been 100-120 pubs per year
• Punch reassures that ‘under the Retail contract, anticipated pub EBITDA is between £100,000 and £110,000, representing an expected profit uplift of between £15,000 and £25,000 as compared to historical EBITDA under the tenanted and leased model’
• Punch says ‘Mercury pub division, our smaller drink led pub estate, is on target to deliver like-for-like growth from the end of 2017’
• The group adds that it is making ‘positive progress in realising additional value from the non-trading parts of our extensive freehold property and land estate, having identified the potential for upwards of £100 million of additional value (not currently recognised in the external property valuation), of which £11 million was realised in the year.’
• Balance sheet, cash flow…:
• Punch announced in October that it was redeeming £65m of its PIK notes for cash. This will materially reduce the level of interest paid for the current year
• The group reports it has strengthened its balance sheet saying nominal net debt is down by 16% or £223m
• Debt stands at 6.6x EBITDA (2015: 7.2x)
• Punch’s property estate was externally valued by GVA at £2,030 million; £848 million in excess of nominal net debt
• Loan to value therefore is reduced to 58% (August 2015: 67%)
• CEO Duncan Garrood reports ‘the business has ended the year with a solid set of results, in line with our expectations, and which reflects the completion of our strategic disposal programme.’
• He says ‘we have made good progress towards delivering on the strategy we set out in November 2015. In particular the roll-out of our Retail division is progressing well and we are accelerating the roll-out to c.150 pubs per year.’
• Mr Garrood comments ‘the new Pubs Code Regulations has resulted in us having to re-market all lets in line with the new regulatory requirements. While this is impacting letting activity in the short-term, our expectations for the longer-term growth prospects for the business remain unchanged.’
• The CEO concludes ‘Punch has a clear plan for the future, a strategy that is progressing well, and a unique operating model that is expected to drive improved performance over the coming years.’
• Langton Comment: Punch has slightly beaten estimates and the tone of its statement is positive. Its managed operation, though still in its early stages, is performing ahead of expectations.
• It says that the Pubs Code Regulations is impacting lettings activity in the short term, but it expects this to have little impact over the longer term.
• Good pubs may now be managed going forwards and shorter lets are likely elsewhere.
• Trading has stabilised. The group has been in LfL growth for a number of years now.
• Debt is declining & is manageable. The repayment of a portion of the group’s PIKs will positively impact reported numbers. More repayments are likely. A dividend may not be on the cards for a while but share buybacks are not out of the question.
• Debt now stands at 6.6x EBITDA. LTV is sensible and the group’s NAV is around 284p per share.
• Both Punch and Enterprise are adopting new business models in response to the MRO. Whilst this adds uncertainty, performance, to date, has been ahead of plan.
• We note that Punch’s shares will comprise a large part of the small cap index and, as such, the upside represents a risk to those non-holders who are benchmarked against it. We would suggest that the shares, which have been optically very cheap for some time now, are worth a look.
PUB, RESTAURANT & DRINKS PRODUCERS:
• A group of Deliveroo couriers are taking legal steps in the UK to gain union recognition and workers’ rights, after two Uber drivers won a similar court case. Billy Shannon, a rider who works for Deliveroo in Camden, north London, said riders receive £3.75 per delivery. He added: ‘We don’t get an hourly fee, so that means at times when there aren’t that many deliveries and it is not that busy, we can be waiting for up to an hour for a delivery without getting paid a penny.’
• The value of merger and acquisition deals between UK companies has plummeted 62% to a 30-year low since the vote to leave the EU, per Reuters data.
• KPMG & BRC release data suggesting retail sales up 2.4% y-o-y in Oct, the strongest figure since January. Survey says spending on food +1.5%, a larger amount in volume terms given the deflation present in the marketplace, and clothing sales up on colder October weather
• Tasty has raised £9m in an over-subscribed placing of 6,210,000 shares priced at 145p per share, the proceeds of which will be used to fund the Wildwood operator’s continued expansion. The new shares represent approximately 11.6% of the group’s current issued share capital. The restaurant operator’s joint chief executives, Simon Kaye and Jonny Plant, took 1,060,349 shares and 68,966 shares in the placing respectively, while chairman Keith Lassman subscribed for 13,793, meaning the co-CEOs now own 18% and 7.14% of the enlarged company and Lassman owns 0.25%. Non-executive director Adam Kaye also purchased 517,241, taking his holding to 12.12%.
• Christmas spend in pubs rose by more than 13% last year, according to research by catering supplier Stephensons, with customers willing to spend up to £45 a head.
LEISURE TRAVEL & HOTELS:
• Marriott reports Q3 numbers, says co (including Starwood) now has 1.6m room open or in its pipeline
• Marriott Q3: Group says reported EPS for the quarter came in at 26c, down 67% on last year but diluted EPS of 91c was +17%. Group says ‘on a pro forma basis reflecting the performance for both companies for the three months ended September 30, 2016, North American comparable systemwide constant dollar RevPAR rose 2.6 percent, while worldwide comparable systemwide constant dollar RevPAR rose 2.2 percent.’
• Marriott Q3: Group reports adjusted EBITDA totalled $474 million in the quarter, +10% over Q3 2015
• Marriott Q3: Group CEO Arne M. Sorenson reports ‘we were thrilled to close the acquisition of Starwood in late September. We are enthusiastically engaged in welcoming Starwood’s associates around the world into the Marriott family and are working diligently on integrating the companies and realizing revenue and cost synergies as quickly as possible.’
• Marriott CEO Sorenson continues ‘we’ve already had a big win on the integration front.’ He says ‘looking forward to 2017, we expect systemwide constant dollar RevPAR for the combined portfolio will be flat to up 2 percent in North America, outside North America and worldwide. Our group booking pace at company-operated North American full-service hotels for 2017 is up 2 percent with about 70 percent of 2017 expected group business volume booked thus far. While special corporate rate negotiations are still underway, we expect room rates for comparable customers will increase at a mid-single digit rate in most markets.’ Sorenson concludes ‘based on our preliminary estimates for the combined company, we believe we are already within our targeted leverage range of 3 to 3.25x adjusted debt to adjusted EBITDAR, excluding merger-related costs and charges. Given our
• AccorHotels is purchasing a 30% stake in Germany’s 25Hours Hotels for €35m (£31.19m), furthering its expansion into the fast-growing boutique hotel market. 25hours Hotels runs seven boutique hotels in Hamburg, Frankfurt, Berlin, Zurich and Vienna and has another five slated to open in Zurich, Munich, Cologne, Dusseldorf and Paris in the next two years, while it also has expansion plans in Melbourne, Miami and Milan. The chain will continue to be run by chief executive and co-founder Christoph Hoffmann.
• Morocco has become the most popular African country for UK travellers as it is increasingly being viewed as the safe destination in the Muslim world. Moroccan National Tourist Office Amine Boughaleb said numbers grew by 6% after 660,000 Brits travelled to the country, which also helped drive a 39%-increase in visitor numbers since 2012.
• Boughaleb commented: ‘Given the situation that was a really good performance. When you look at what is happening in other Muslim countries like Tunisia or Turkey we are very happy with the performance. Maybe it is just a mass perception of Morocco. Morocco did not experience any kind of problems or terrorist activity in the last few years. The reason why we haven’t been attacked (by terrorists) is I think we have a very good security force and we share a lot of information with France, the UK and Spain.’
• The high-street travel agent still has a role to play despite technology helping create a more personalised and scalable service. This appeared to be the consensus from a panel of industry experts at a Travolution conference on The Future of the Travel Agent.
• The Croatian National Tourist board revealed that UK visitor overnight stays increased by 26% this summer. These figures were presented at London’s World Travel Market, with announcements of plans for more flight and hotel capacity to accommodate 2017’s predictions of increased demand. Thomas Cook, Jet2.com, Monarch and Ryanair have all announced new routes to various Croatian cities.
• Turkey is looking to attract five million holidaymakers to its shores in 2017 to offset a 30% drop in visitors in what it has called a ‘very difficult year’. Speaking at WTM London, director general of the Ministry for Culture and Tourism Ifran Onal said the country had experienced a fall of some 10 million tourists to 20.2 million from January to September this year, on the back of ongoing geo-political troubles in its region.
• ‘This year has been very difficult and each incident has had an effect on our visitor numbers,’ explained Onal at the conference. ‘It is up to governments across the global to act together now to prevent terrorism and stop the problems it is causing countries’ tourism sectors.’ However, the country’s Ministry for Culture and Tourism is ‘confident’ of restoring visitor numbers globally in the next few years and believes that ‘by 2018 we can reach the numbers which we saw in 2015 of 36 million globally.’
• Education secretary Justine Greening is ready to scrap the ban on pupils taking term-time holidays if she loses an upcoming court case, according to reports.
• Egypt’s minister of tourism is ‘very confident’ that tourist figures to the country will grow in 2017, having tumbled from 870,000 to just c300,000 this year. His excellency Yehia Rashed said he believed it was ‘only a matter of time’ before the British government lifts its ban on flights to Sharm el-Sheikh, adding: ‘We respect the government’s decision whatever it is. A lot of tours and inspections have been carried out and these have been very positive.’ Germany and Belgium lifted their bans five months ago.
FINANCE & MARKETS:
• UK public debt will be £25bn higher as a result of the deterioration in finances since the March Budget warns the IFS. Commenting on the upcoming 23 Nov Autumn Statement, it says ‘the new chancellor’s first fiscal event will not be easy.’ The IFS adds ‘growth forecasts are almost sure to be cut, leading to a significant increase in the deficit even if all the very challenging spending cuts currently planned are in fact delivered.’ The Chancellor has to decide whether to cut taxes or increase spending in order to continue to boost the economy.
• PM Theresa May has said she is “clear” she expects to start talks on leaving the EU as planned by the end of March. Not sure what that means.
• World markets: UK, Europe & US up yesterday and Far East up in Tues trade.
• Oil price a shade higher at around $46.25 per barrel.
• Sterling giving back a bit of its bounce. Currently trading around 124c per US$.
• Sterling’s near 20% fall has brought the currency to the ideal rate for the UK economy, per a Reuters poll of economists.
• Annual house price inflation in the UK is at its lowest rate since July 2013 of 5.2% in the year to the end of October, down from 5.8% on September. The average price of a house or flat is now £217,411. ‘This expected slowdown appears to have been largely due to mounting affordability pressures, which have increasingly constrained housing demand,’ said Halifax’s chief housing economist, Martin Ellis. ‘Whilst house price growth may ease further in the coming months, very low mortgage rates and a shortage of properties available for sale should help support price levels.’
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• London mayor Sadiq Khan has appointed Amy Lamé, former mayor of Camden, as London’s new Night Tzar
• Fever Tree updates on trading, says results for the full year will be ‘materially ahead of current market expectations’.
• Whitbread is opening its flagship Bar + Block Steakhouse in London this month and will open its third unit under the marque
• The majority owners of Loungers have decided to offer the 77-strong pub business for sale
• UK restaurant group Azzurri, owner of Ask, Zizzi, and Coco di Mama, has seen a 5% rise in sales to £233.8m and a 6.4% increase in EBITDA
• Plans to build new supermarket stores have ground to a halt, signalling a comprehensive end to the supermarket space race
• Profit warnings. It’s worth sorting he bad from the very bad. And there’s even the odd good one knocking around, see Fever Tree
• Strong US jobs data for October has bolstered the case for a rise in US interest rates
• Sterling up on Fri as a hard Brexit was deemed less likely. We cannot both control EU movement & remain in single market
• Independent quotes ‘bosses’ as saying Brexit is ‘spinning out of control’. They would like some clarity, they say
• Later Tweets: Clinton back in the lead. Gold falls, risk-on investors emerge once more. FBI inaction came too late to prevent 9th drop in S&P500
• Race not over yet but likely Clinton victory means Yellen (more) secure, 67% chance of Dec rate rise.
• MKS rumoured to be set to slide space over from clothing to food. Good idea but shouldn’t that have been done 5yrs ago?
• Household debt now £1.5tn. Will weigh on spending. Maybe not now but eventually it will. Everything takes time. See Hofstadter’s Law
RETAIL NEWS WITH NICK BUBB:
• Marks & Spencer: Ahead of today’s M&S interims, all the focus has been on the accompanying UK Property and International Strategy Reviews from new CEO Steve Rowe (postponed from May), but of course the City has also been waiting for the belated Q2 trading update (for the 13 weeks to end September). This is marginally less dreadful than the Q1 update (with Clothing and Home down by only 2.9% LFL and Food down by 0.9% LFL), but gross margins have been well controlled, so overall underlying H1 PBT was “only” 19% down at £231m (in line with expectations). However, the UK Property and International Strategy Reviews are more radical than expected (as M&S cut c60 Clothing & Home stores, and stop trading in ten loss making owned Overseas markets), so there will be big exceptional charges and write-offs going forward. And Steve Rowe is to also cut the Indigo and North Coast
• Today’s Press and News: Apart from the US Elections, the main focus in the papers today is on the news that the Tesco Bank website was hacked at the weekend, although it is also widely reported that Sainsbury has hired the former Poundland boss Kevin O’Byrne as its new FD and that MPs on the Business Select Committee paid a surprise visit to Sports Direct’s Shirebrook warehouse yesterday…and that the MP’s accused the company of planting a secret camera on a plate of sandwiches to spy on them (the front page headline of CityAM is “Spooks Direct”!).
• BRC Retail Sales for October (4 weeks to Oct 29th): Overall LFL sales were up by a better than expected 1.7% last month (up 2.4% gross), although there were several possible distortions, from the fall of Halloween, Diwali and Chinese Golden Week (quite apart from the impact of the launch of the iPhone 7 and the boost to Jewellery and Watch sales from the boom in Overseas tourists), so it’s unclear how reliable an uptrend this is. In terms of the Food/Non-Food sales split, Food Retailers were only marginally up LFL, so Non-Food overall must have been well over 3% up LFL. Clothing sales clearly improved (although not Footwear, interestingly), but Furniture and Electricals were also strong. Online Non-Food sales grew 11.1% in October, driven by Electronics, and accounted for 2.3% points of the total c3.5% sales growth in Non-Food last month.
• News Flow This Week: Tomorrow brings the Sainsbury interims and the Burberry interims and then on Thursday we get the Halfords interims and the SuperGroup Q1 update…plus the much-awaited new John Lewis Christmas TV ad.