Langton Capital – 2016-11-15 – Enterprise Inns FY numbers, drink consumption & other:
Enterprise Inns FY numbers, drink consumption & other:
A DAY IN THE LIFE:
Whoever thought that EMH (the Efficient Markets Hypothesis) was a reasonable idea wants their bumps feeling because people just aren’t rational, are they? I mean take getting to work in the morning.
The rational thing to do would be to max out the time in bed, to rush around like a nutter and to make the best of it when you’re on the Tube, bus or whatever.
You could then semi-sprint the rest of the way like some North Korean lackey fetching Kim Jong Un a peeled grape but that’s not what happens as people dawdle on the pavement, walk at 2mph, send texts, make phone calls and stumble around like idiots when I want to get past them. And this is partly, I’ve got to believe, because although they’re on their way to work and they’re making what looks like an effort to get there, they simple don’t really want to arrive.
In fact, I’m sure some people are so un-keen that they have half a dozen or more rotations in the revolving doors at their office, change the song playing through their phone etc. or walk around the building a couple of times – particularly when I’m in a rush.
So, after all that, Langton feels able to conclude that share prices simply aren’t going to be perfect, are they? On to the news:
ENTERPRISE INNS – FULL YEAR NUMBERS:
• Enterprise has today reported full year numbers for the year to the end of September and our comments are set out below:
• Key Numbers:
• Revenue is £632m versus £629m last year
• Group EBITDA before exceptional items is £292m (2015: £296m). This is ‘in line with expectations and reflecting the impact of planned disposals’
• Group PBT is £122m (2015: £122m) ‘as interest savings from reduced debt offset reduction in EBITDA’. Adjusted EPS is 19.6p (2015: 19.4p).
• The group is reporting a profit after tax of £71m against a loss (after write-offs) of £65m last year. The group says this is ‘primarily due to lower exceptional refinancing costs and lower property charges arising from the annual estate valuation.’
• LfL income is up by 2.1% y-o-y in the group’s ‘Publican Partnership’ and it is +3.8% in the commercial property estate
• As it has changed its reporting structure, the group has changed the way in which it reports LfL numbers
• Operational & Strategic Highlights:
• The group says it is seeing ‘continued momentum with leased and tenanted like-for-like net income up 2.1% (2015: up 0.8%) with growth achieved across all geographic regions
• It says that ‘improved trading and enhanced operational support have helped to further reduce unplanned business failures, down 14% compared to the prior year’
• In Commercial Properties, like-for-like net income is up 3.8%
• Enterprise says this is a ‘rapidly expanding portfolio with 291 commercial properties at 15 November 2016 at an improved average annualised rental income of £62,000 (2015: £56,000)’
• The group now manages some of its own pubs. It says ‘the total number of pubs trading within our 100% owned Managed Operations business at 15 November 2016 has grown to 105 with 30 trading under our Bermondsey operation and 75 under our Craft Union operation’
• Balance sheet, cash flow & other:
• Enterprise reports that the valuation of the group’s estate has risen by 0.1% during the year (2015: down 2.7%)
• Group has ‘strong cash generation’. This has enabled further net debt reduction, to £2.2bn from £2.3bn last year
• ETI says it has a ‘smoother and extended debt maturity profile achieved through the partial refinancing of the 2018 corporate bonds, completed on 4 November, and a new revolving bank facility in place to 2020’
• Group has achieved net proceeds from disposals of £98m (2015: £75m)
• The group has commenced a share buyback programme of up to £25m. it has purchased 14m shares to date for cancellation
• Company comments on performance:
• CEO Simon Townsend reports ‘we are pleased to have delivered our financial objectives for the year, maintaining the growth momentum in our leased and tenanted business, while making significant progress in building our commercial property portfolio and managed operations and investments businesses.’
• He says ‘our plan to transform the Group to best serve our publicans and their communities whilst maximising returns from each of our assets remains on track.’
• Mr Townsend goes on to say ‘whilst there is the potential for some economic uncertainty in the months ahead, trading in the first six weeks of the new financial year has been in line with our expectations’
• He says ‘we are confident that the actions we are taking to execute our strategic plans are the most appropriate response to changes in the regulatory and economic environment.’
• The group concludes ‘our proactive management of debt refinancing and our returns-driven approach to allocating excess cash will deliver both near and long-term benefits to all our stakeholders.’
• Langton Comment: Enterprise has reassured that its strategy is being implanted and it has been able to advise that early results have been good.
• The plan appears solid. Execution remains a challenge but trading is in line with expectations across the group’s businesses.
• Re the outlook, Enterprise says trading in the first 6wks of FY17 is in line with expectations.
• The challenge for Enterprise remains 1) executing on plan and 2) persuading analysts and would-be shareholders that it should be valued on a ‘normal’ basis.
• Should number 1) work out according to expectations then number 2) will follow and, on this basis, the share look to be far too cheap.
• The above will not be achieved without effort but, as the company itself is buying back shares and trading continues to be in line with expectations, there are increasing grounds for optimism.
PUB, RESTAURANT & DRINKS PRODUCERS:
• Alcohol consumption in the UK has declined by almost a fifth over the last decade and is now at similar levels to 1979. Overall, around 40 million adults in the UK choose to drink, with 10 million adults teetotal. The UK now drinks less than 16 other European countries: Germany, France, Portugal, Ireland, Poland, Slovenia, Luxembourg, Croatia, Finland, Latvia, Serbia, Slovakia, Czech Republic, Hungary, Romania and Lithuania.
• Spirits must expect to be more affected by the Scottish government’s plans to introduce minimum alcohol pricing than other drinks. Some 69% of the most popular spirits brands sold in Scotland come in below the 50p per unit threshold set to be enforced by the government to reduce alcohol-related illnesses and diseases. Beer is the next most impacted category, with 67% of brands not meeting the regulations, followed by cider at 51%, while just 3.5% of wine sales will be hit.
• Daniel Thwaites has reported a pre-tax loss of £300,000 for the six months to 30 September, down from profit of £5.7m last year, after struggling with the costs of the National Living Wage. The brewer and retailer added that the UK’s decision to leave the EU and the decision to cut the base rate to 0.25% has had an adverse impact on the fair value of its interest rate swaps, ‘requiring a further provision of GBP5.7m at the half year’. Daniel Thwaites says the adverse results will not affect its investment plans, and it intends to continue its strategy of disposing of poorer quality pubs and improving its food and accommodation sales.
• Markit has reported that global optimism has slipped to a joint post-2008-crisis low ‘amid rising political uncertainty’
• Markit says the ‘global business outlook darkened by reduced optimism among US and UK companies amid political change’
• Markit reports ‘global investment and employment intentions remain close to survey lows’. It says ‘global profits [are] under pressure as firms lack ability to pass expected higher costs on to customers’
• Markit says pessimism pre-dates June Brexit vote, says ‘optimism has now dimmed continuously since peaking in February 2014, with the exception of an improvement in the June 2015 survey following the General Election.’
• Markit says manufacturers are currently the most positive sector in terms of outlook. It adds this group has ‘seen the biggest drop in sentiment since the summer’.
• Markit says companies in UK are expected to raise prices over the next 12mths. It says, however, that ‘greater cost pressures and the weaker outlook for activity are set to weigh on profitability.’
• Aldi & Lidl are repored to have put up the price of their 4pt milk cartons to 99p. The four majors are selling it for £1
LEISURE TRAVEL & HOTELS:
• European ski resorts are looking forward to a bumper season after opening a month early on Friday due to the best November snowfall for 20 years.
• Paris tourism bookings have fallen 65% since last November’s terrorist attacks, reports icelolly.com. The study goes on to state that the data displays a ‘turbulent picture’ for the recovery of the city’s tourism.
• EasyJet has delivered a ‘resilient’ performance for the year ending 30 September 2016, although profit before tax fell by some 27.9% to £495m from £686m. Basic EPS fell by 21.9% to 108.7, while the proposed dividend was trimmed by 2.5% to 53.8p per share. A record 73.1 million passengers (+6.6%) and a record load factor of 91.6% (+0.1%) was achieved even after expanding capacity by 6.5% to 80 million seats as easyJet ‘strengthened its leadership positions in selected markets’.
• The short haul airline comments that, while the market is ‘highly competitive’, it is well-placed to ride out difficulties and focus on winning number one and number two market share positions in select destinations thanks to its net cash position and ‘sector-leading’ balance sheet. Commenting on the group’s outlook, Carolyn McCall, easyJet Chief Executive said: ‘Looking ahead, the easyJet model remains strong as does the demand environment and we continue to see opportunities in the medium term to grow revenue, profit and shareholder returns. In a tougher operating environment strong airlines like easyJet will get stronger and we will build on our already well-established network.
• ‘Almost half of our growth next year will be in the UK, with significant growth also in Switzerland, France and Italy. Our strategy of strengthening our positions at our key airports will see double digit growth in key bases in London, Manchester, Venice, Berlin and Amsterdam.’
• Tube driver sick days hit a five-year high during 2015, totalling 52,000 for the year. This equates to 14 days per driver in 2015.
• First Group PLC sees 5.1% increase in revenue in HF report. Chief Executive, Tim O’Toole, stated ‘encouraging performances by our North American business partially offset by tough trading conditions for our UK bus and rail operations’
• Merlin Entertainments is set reduce staff at Alton Towers — almost a tenth of the park’s current 800-strong workforce — which follows a previous round of 98 redundancies. The leisure company said in a Q3 trading update in September that while trading at Alton Towers had ‘started to recover’ during the summer, ‘the absolute visitor volumes still remain some way below the 2014 level.’
• Cineworld updates on trading for first 45wks, says total revenues +10.8%. Says has ‘achieved strong revenue growth’
• Cineworld: Says ‘the Group remain confident of delivering results for the year in line with current market expectations.’
FINANCE & MARKETS:
• UK commercial property values inched ahead in October for the first time since the Brexit poll on 23 June
• Global bond markets sold off again yesterday as markets signalled that they expected interest rates to rise.
• UK 10yr gilts now trading at a yield of around 1.41% with US 10yr Treasuries at 2.27%. The UK instrument was yielding little more than 0.5% in the summer. Yields on 30yr US money are now above 3% for the first time since January.
• Global markets: UK & Europe up yesterday but US markets lower. Far East mostly down in Tuesday trade
• Brent rises over last 24hrs. Now selling at around $45.15 per barrel
• Sterling down a little vs stronger US$. Trading at around $1.2485 and 116c versus the Euro
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• London hotel stats poor for October. See email. Increased supply meets lower demand. All three measures fall, REVPAR down 11.4%
• London hotel Oct comps tough due to Rugby but numbers nonetheless poor. Those putting on capacity may have cause for concern
• Visa’s UK Consumer Spending Index shows spending +2.4% in October versus the same month a year ago.
• Visa says UK hotels, restaurants & bars see strongest y-o-y spending growth vs all other sectors at +9%.
• Sunday Times has beer prices rising by up to 30p per pint on the back of NLW, input and business rates cost increases
• William Hill updates on Q3 trading saying it has seen an improved mobile Sportsbook and that Online has returned to growth
• UK construction sector, a major bellwether re employment trends, recorded its weakest growth in 4yrs in Sept quarter per ONS. Construction volumes fell by 1.1% in the quarter.
• Later tweets: Global bond markets continue to weaken, yields rise. Probability of a US rate rise in Dec now put at >80%. Further UK falls unlikely
• Yield curves steepening as pricing becomes a little more realistic. Rate rises expected now arguably sooner rather than later
• Number of retail units closing rapidly rising. Will leave High St looking a little gap-toothed. Late night economy more important than ever
• UK & US electorates still jockeying for ‘Biggest Fool of 2016’ award. Words ‘protest’ & ‘mistake’ somehow mixed up.
• Build Wall, Hillary in Prison, Obamacare scrapped, Muslims Refused Access, Yellen Sacked. What odds none will happen?
• Price of electrical goods ‘set to rocket’ in January. Apple, as so often, is first off the mark. What, with Marmite, when will it stop?
• Aldi & Lidl expansion ‘grinding to a halt’. That might be a bit much. Still growing well ahead of the market
RETAIL NEWS WITH NICK BUBB:
• B&M: Despite flat LFL sales, B&M was expected to deliver c12% growth today in interim PBT to £74m and flag that progress is likely to accelerate in H2 as the burden of higher central/warehouse costs unwinds. Well, B&M has done a bit better than that, with adjusted PBT up 17% to c£78m, on the back of 19% sales growth, and the Chairman Terry Leahy trumpets “With our strong value proposition, unique sourcing model, financial strength and well-invested store network and infrastructure, B&M is equipped to prosper in a challenging and uncertain retail environment”, whilst CEO Simon Arora says “…with the full benefits now flowing from the step change investments we made last year in our store opening programme and new supply chain capacity, we are confident of meeting expectations during the remainder of this year”. Nevertheless, the B&M share price has been trailing
• Card Factory: The Card Factory share price has also been weak of late, so some bad news about High Street footfall trends has been priced in, but today’s Q3 update raises some hopes by saying that “…we have seen some improvement in sales of everyday ranges in Card Factory stores since the start of October”. Despite a better October, however, overall Q3 sales growth was still subdued, as the 9 month cumulative sales growth of 4.4% is less than the 4.8% seen in the first half, so LFL sales are still down a tad and the City may remain sceptical.
• News Flow This Week: This morning’s latest Kantar/Nielsen grocery market share figures (for the 4/12 weeks to Nov 5th) will reveal that Asda has had another dreadful month of LFL sales declines, and on Thursday Asda will have to defend its poor Q3 sales performance, on the back of the Wal-Mart Q3 in the US. Thursday also brings the ONS Retail Sales figures for October, the Majestic Wine interims, the Ted Baker Q3 update and the Boohoo Spring/Summer range preview. Tomorrow brings the British Land interims and a “Capital Markets Day” for Tesco.