Langton Capital – 2016-11-10 – Young & Co, Sportech, margin pressure, M&B & other:
Young & Co, Sportech, margin pressure, M&B & other:
A DAY IN THE LIFE:
Got to dash to a meeting shortly. Day in the Life should be back tomorrow but, for the moment, let’s move on to the news:
YOUNG & CO – H1 NUMBERS:
• YNGA has reported H1 numbers to 26 Sept saying revenues are +7.7% at £136m & adj. PBT is also +7.7% at £25.2m.
• YNGA H1: Says adj. EPS +8.1% at 36.3p with H1 dividend of 8.88p per share against 8.38p in H1 last year
• YNGA H1: Group says it has had ‘another period of strong trading, with a 7.7% revenue increase against a tough comp’
• YNGA H1: Managed house LfL sales +5.5% with Geronimo returning to growth. Margin ‘strong’ at 18.5%
• YNGA H1: Drink sales +6.4% LfL with wine sales +9.1% (in total). Food sales +4.0% LfL and +6.9% in total
• YNGA H1: Hotels business buoyant with occupancy +1.3% to 78.6% across the group’s 487 rooms.
• YNGA H1: Tenanted LfL EBITDA +3.8%. Net debt down by £2.9m at £127.3m ‘despite high level of investment’
• YNGA recent trading: Managed LfLs +3.0% in last 13wks. Says we were up against the exceptional results we delivered for last Autumn’s Rugby World Cup.’
• YNGA H1: CEO Patrick Dardis reports ‘I am very pleased with this set of results. We have delivered sector-leading like-for-like growth of over 5% for the fifth summer in a row, as well as maintaining our operating margin. We have generated sufficient cash to allow us to invest heavily in our estate and increase the dividend for the 20th consecutive year whilst reducing our net debt.’
• YNGA H1: CEO continues ‘we continue to innovate to attract existing and new customers to our pubs and hotels. We have rolled out our very successful BurgerShack concept to 21 pubs, we are embracing the newfound British love for brunch, and we have just launched “Young’s on Tap”, an app that makes the experience of a Young’s pub even better.’
• YNGA H1: CEO cautions ‘there are challenges ahead: the uncertainty over Brexit and cost pressures such as the National Living Wage, the apprenticeship levy, and on a successful company like us, an exceptionally high increase in business rates. However, we will continue to stick to our winning strategy and grow our premium business by investing in our existing estate, acquiring new pubs and developing our people.’
• YNGA H1: CEO Dardis concludes ‘we have a proven strategy and an outstanding and well-invested estate, we also have the financial and management capacity to grow and there is real energy in our people across the business to take Young’s forward. We therefore feel confident about the future.’
RISING COSTS & MAINTAINING MARGINS…
• Inflation in the offing…It would be surprising if Sterling’s collapse didn’t lead to rising input costs
• Companies must pass rises on or see their margins fall
• Marmite, Walkers & Toblerone have been in the spotlight
• Others must follow – but consumer groups will be vigilant
• Where will the rises stop? Consumers will face higher prices but employers will resist calls for pay rises
• If they are successful in this resistance, consumers will bear the cost & this will be a one-off
• Another economic variable – but the strong still feed off the weak…But companies may try to maintain their % rather than their cash margins
• Take the instance of a £9 (net of VAT) meal that costs £3 to supply
• The cash margin is £6, the % margin is 66.6%
• If costs rise by 50p (to £3.50) then should 1) the company raise its price to £9.50 (and hold its cash margin)? Or 2) should it raise prices to £10.50 to hold its percentage margin?
• Of course, the temptation will be to attempt the latter: This leads to risks – that inflation becomes baked in – but it can lead to higher profits
• For companies with some room to ‘take price’, it can lead to a profit windfall
• Operators with strong customer support and existing low prices may benefit materially
PUB, RESTAURANT & DRINKS PRODUCERS:
• Sainsbury boss Mike Coupe has urged his suppliers to absorb the cost of rising prices rather than pass them on to customers (i.e. J Sainsbury). Mr Coupe said re his suppliers ‘I would encourage them to mitigate their own costs pressures they feel through their supply chain first’.
• M&B has announced that it is putting 75 of its c1,750 units up for sale. The group says ‘we continuously review our estate of around 1,750 restaurant and pub businesses to ensure that we’re always obtaining the best returns from each of our assets, and driving innovation across our brands, to enable us to continue to deliver shareholder value. Following our most recent business review we have asked Savills to explore the market opportunities for approximately 75 businesses which are in town and city locations across the UK.’
• Binge drinking could be prevented by allowing 16 and 17 year olds drink in supervised establishments says Tim Martin, JDW boss. He stated: ‘Most people feel that it is better for people to start drinking in the company of adults in a place which is a supervised environment, like a pub, than to start drinking at teenage parties.’
• Lucozade & Ribena are to reduce their sugar content, the former by as much as 65% for its Energy Orange brand
• NHS says will “practise what we preach” & tax or ban sugary drinks from hospitals
• AB InBev has bought Houston-based Karbach Brewing Company in order to get access to its craft beer portfolio
• The British Beer and Pub Association (BBPA) warns there is ‘no room for complacency’ amid new figures displaying an increase in pub spending. In October, pub spend increased by 12.5% while restaurants rose by 12.2%, according to research published by Barclaycard. Research stated consumer growth reached 5.5%. However, consumer confidence had weakened with 81% of people expecting impending price rises.
• French vineyards experience one of the smallest harvests in 30 years after being devastated by weather conditions such as mildew, spring frosts and hail. The 2016 harvest of 43.2 million hectolitres is down 10% on 2015’s with a Burgundian winemaker describing the effort as not ‘so much a harvest as a hunt for grapes.’
• Carlsberg has reported a 4% decline in Q3 revenue to 17.53bn Danish kroner ($2.65bn) as falling beer sales were exacerbated by a ‘continued tough foreign-exchange environment’. The Danish brewer has managed to lift its full year guidance regardless, thanks to efficiency programmes and a good performance in Eastern Europe. Carlsberg now expects organic operating profit growth of c5% in 2016.
• Chief Executive Cees ‘t Hart commented: ‘Our value management approach, which targets the optimal balance between market share, gross margin and earnings, continues to progress well. In addition, our Eastern European business delivered a good set of results in the quarter, ahead of our expectations. Consequently, we upgrade our 2016 earnings expectations.’
• Boparan-owned Giraffe paid £8.75m for 33 Ed’s Easy Diner sites, with 27 of those sites being shut immediately at a cost of nearly 400 jobs.
• High street wine retailer Oddbins’ turnover rose by 19% to £16.75m in the year to 31 January 2016, thanks in part to its acquisition of 13 branches of Spirited Wines in May 2014. Online sales also helped the wine merchant’s top line, with growth of 17%, although investment costs relating to its online proposition and growing store count means that operating losses grew by 56% to -£935k.
• The ALMR has welcomed Cheshire East Council’s ‘common sense’ decision against introducing either a Late Night Levy or an Early Morning Restrictions Order. ALMR Chief Executive Kate Nicholls said: ‘This is a very welcome decision from a local authority that has seen the benefits of focusing on partnership schemes and giving its local businesses a chance to thrive… The Government’s own guidance on introducing these measures states that they should only be considered as a last resort, when all other measures have been exhausted.’
• Sussex brewer Dark Star has opened a new pub called The Lockhart Tavern, in Haywards Heath, marking its second venture with Heath Ball.
LEISURE TRAVEL & HOTELS:
• Hoseasons, part of Wyndham Vacation Rentals, has told a Birmingham conference that it benefited from ‘spectacular’ growth this year. MD Simon Altham said that the collapse in Sterling had made domestic holidays more attractive. Altham told the conference ‘this year has been a spectacular year of growth for the business, with unprecedented levels of investment. Together we can weather any storm.’
• Santander economist Adam Dent has said that the price of foreign holidays hit a 30yr low in September. He said that ‘domestic holidays increased month-on-month by the most they have ever done in the history of this series.’ He says domestic ‘hoteliers and holiday operators could afford to put their prices up because the pound had naturally pushed people towards them.’
• The Tunisia National Tourist Office has called on the UK government to give it a ‘glimmer of hope’ re lifting its travel ban to the country. Some 38 tourists were murdered on beaches in the country in one incident on 26 June last year. Tunisian tourism manager Sami Tounsi said ‘it is unprecedented to keep a destination out of business for such a long time. We feel we are being penalised and sending a message to the terrorists that they are winning.’
• Gatwick increased long haul business in October. The airport carried 3.9m passengers in the month.
• Google search data, GfK booking figures and Office For National Statistics departure numbers all point to a healthy holiday booking environment. Travel Trade Consultancy director Martin Allcock said booking volumes for summer 2016 will end 4% up with packages outperforming the market up 6%. Both short-haul and long-haul are up, a reflection of the collapse in mid-haul sales with Egypt and Turkey down 70% and 39% respectively. Winter is 17% up, reflecting ‘an appetite for people booking early.’
• Orlando tourism chiefs are ‘cautiously optimistic’ about ongoing growth from the UK, with the number of seats currently allocated for H1 17 up 2% YoY.
• Flybe has blamed ‘challenging market conditions’ for a 16% slump in half-year profits to £7m despite revenue rising 12.8% to £383m.
• Chile aims to build on a 20% rise in UK visitors with a new direct flight from Heathrow.
• Football and horseracing pool betting service Sportech has issued an in-line trading update for the period from 24 August to 9 November 2016. Although the group ‘continues to make good progress’, its proposed £92.75m sale of The Football Pools to Burlywood fell through on 1 November after the latter struggled to complete a financing. Sportech also expects an imminent decision regarding its £97m VAT reclaim from the Supreme Court. HMRC’s appeal follows the unanimous judgment at the Court of Appeal of three judges in favour of Sportech in May 2016.
• Core revenues in Sportech’s Football Pools division remain broadly in line with prior year, driven by an increase in spend per head, whilst both revenues and player numbers continue to grow in the digital channel. Meanwhile, growth in Racing and Digital includes the implementation of its betting systems into the Macau Jockey Club in September, and the expansion of its Bump 50:50 roster, whose systems are now present at US brands including the Dallas Cowboys, San Francisco 49ers, and LA Clippers.
FINANCE & MARKETS:
• B of England reports its Agents’ Summary of Business Conditions. Says ‘business sentiment had recovered further from its post-referendum fall, but remained relatively fragile alongside significant uncertainty around the longer-term outlook. Activity growth had remained resilient.’ The survey is looking at the period from mid-August to mid-October
• Bank of England expects ‘broadly stable or slightly lower investment spending over the coming 12mths’. It says ‘uncertainty concerning future demand and trading arrangements [is] expected to drag on spending.’
• IEA says that, despite rhetoric, cuts to government spending will not come about. It says ‘the level of government spending, as a proportion of GDP, still being greater in some UK regions than it was in the old Soviet Union.’
• UK trade deficit rose to £5.2bn in Sept from £3.8bn in Aug per ONS. Exports fell by £0.2bn and imports rose by £1.2bn
• ONS says there is little direct evidence so far of currency effects on trade.
• Pfizer is to cut 370 UK jobs as it shuts 2 UK sites. It says the decision is not Brexit-related
• World markets: UK, European & US markets all higher yesterday. Far East up in Thursday trade
• Brent crude up a little at arouind $46.30 per barrel.
• Sterling around 124c to the US$.
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Punch gets reasonable press. Points out group is winning ‘gruelling 3yr [actually longer than that] battle with debt’.
• Simple question. Department stores; if they didn’t invest, would you build 000s of them now? Thought not.
• Ed’s Easy Dining’s administration is expected to leave its creditors £27.9m out of pocket.
• Can you have your cake & eat it post Brexit? Toblerone says not as Mondelez cuts size of bars.
• Latest Markit/CIPS services sector PMI says ‘the dominant UK service sector moved up a gear at the start of Q4 2016.’
• Markit Oct PMI says ‘latest data also revealed a marked build-up of inflationary pressures in the sector, linked to the weak pound’
• Hotel transaction volumes have fallen sharply reports the latest Hotel Bulletin from HVS, AlixPartners & AM:PM.
• Later Tweets: Trump wins, markets rise. Go figure. Will he sack Yellen? Will he jail Clinton, put his head in middle of US flag? Who knows…
• Sterling rises a tidgy bit on Trump win. Doesn’t move against the Euro. Gold up a tad but markets, overall, very sanguine
• J Lewis: Good numbers show Dept. Store market not dead. Just most of the other players in a deep coma, few signs of life
• Air leaking from Dept. Store boat, Bloomberg says ‘these are not just store closures, these are M&S store closures’
• J Lewis says electrical sales are ‘storming’ w. iPhone sales helping do drive a 17.6% increase y-o-y last week.
• Price rises coming. Wheat, sugar, oil, labour prices all up now and more so in the N Year. Question will be to maintain %% or cash margin??
• Failure, though cheap, is always overpriced. If business model is holed below waterline, half & half again is still too little
• Growth, unfortunately, is often (read nearly always) overpriced. Still, seems right to buy clicks, sell bricks…
RETAIL NEWS WITH NICK BUBB:
• Sainsbury: On the back of yesterday’s interims, we flagged that Sainsbury said that it expected “second half underlying profit (excluding the impact of Argos) to be lower than that achieved in the first half, as a result of continued price investment and a step up in cost inflation in the second half” and that caution spooked the City: hence the tumble in the share price. The City may also have spooked by the announcement that the company won’t split out Argos sales and profit next year, “as that is not how we run the business”, even though the highly regarded former FD John Rogers has been put in charge of the Argos P&L account…On a happier note, Sainsbury flagged that the first 10 Argos inserts in Sainsbury stores are delivering c20/30% LFL sales growth, after the anniversary of their opening last year. Given the hype about the new Nine Elms store and the big property
• Marks & Spencer: It was instructive to compare the length of the Sainsbury presentation/Q&A with analysts yesterday with the M&S one on Tuesday. Basically, Sainsbury management spent 75 minutes on presenting the interim results and the Argos deal, followed by 30 mins of Q&A, whereas M&S spent only 45 mins on presenting the interim results and Strategic Update and then spent nearly an hour on “Q&A” (alternating between bunches of journalists and analysts). M&S didn’t exactly give much away and refused to disclose which UK stores are to be closed, although they were quick to trumpet that the space rebalancing would shift the Clothing and Home participation in overall selling space from two-thirds to nearer 50% over the next 5 years. Otherwise, the M&S presentation was notable for the claim that the flat Online Non-Food sales in H1 were really +7%, if
• News Flow This Week: This morning will see the much-awaited new John Lewis Christmas TV ad released on social media, ahead of the first showing on ITV tonight, and, according to the journalist Harry Wallop, “they are going for smiles rather than tears”.