Langton Capital – 2016-11-24 – Marston’s FY numbers, Autumn statement, costs & other:
Marston’s FY numbers, Autumn statement, costs & other:
A DAY IN THE LIFE:
Got to dash, early meetings. On to the news:
MARSTON’S – FULL YEAR NUMBERS:
• Marston’s has this morning reported results for its full year to 1 Oct 2016 and our comments are set out below:
• Marston’s has reported sales for the year +7% at £905.8m. Operating profits are +4% at £172.7m with PBT of £98.0m, in line with expectations
• EPS is 14.0p (up 9%) and the final dividend is +4.4% at 4.7p to make 7.3p for the year as a whole
• As previously reported, 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%. Margins are in line with last year.
• Taverns’ LfL sales are up by 2.7% on the year. 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).
• Balance Sheet, Cash Flow & Debt:
• Debt to EBITDA has fallen by 0.3x to 4.8x
• Net debt at year end was £1,269m. The group says ‘net debt includes £1,074m of long-term, structured finance with a stable repayment profile and no exposure to increases in interest rates, underpinned by an estate which is 97% freehold.’
• Marston’s reports that its debt to EBITDA ratio ‘is expected to reduce further over time.’
• Marston’s has opened some 22 new pubs during the financial year just ended in addition to 6 lodges, taking the estate to over 950 rooms
• Marston’s reports ‘the new-build programme remains our key growth driver.’
• Since 2009, the group has opened over 150 new pub-restaurants ‘generating consistently high levels of profitability and strong returns, thereby creating significant shareholder value.’
• The group says ‘where possible, accommodation is added alongside a new pub-restaurant to generate additional income and enhance returns.’ This is to remain a feature of the group’s expansion going forward.
• It expects to open at least 20 more pubs in the current year with 5 to 10 lodges.
• Openings will be weighted to H2 of the year.
• More on Trading, Conclusion:
• Marston’s says that it has made an ‘encouraging start to [the] new financial year’
• The group says ‘trading in the current financial year is in line with our plans, our new site development is on track, and there have been no material changes to market conditions that would impact upon our expectations for the full year.’
• Re Brexit, the group says ‘to date there has been no discernible change in the spending habits of our customers, and we have forward contracts in place for 2017 and much of 2018 which will mitigate the risk of higher input costs due to exchange rate fluctuation.’
• Marston’s adds ‘we have planned for modest increases in business rates in 2017, but are protected from more significant increases by our low exposure on the high street and in city centres.’
• Overall, the group concludes ‘we are well placed to continue our track record of growth and to make further progress against our key financial objectives.’
• CEO Ralph Findlay reports ‘we have delivered another year of good growth across the business, with the outstanding performance of our beer company particularly encouraging.’
• He adds ‘trading has been solid in the first few weeks of the new financial year and we have seen no discernible change to the trends experienced in 2016.’
• Mr Findlay adds re costs ‘the majority of our major product cost lines are contracted for 2017 and well into 2018.’
• Marston’s concludes ‘we have a high quality pub and beer business which is displaying positive momentum and is consistently outperforming the market.’ CEO Findlay adds ‘we believe that, despite some continuing market headwinds, our expansion plans for new pub-restaurants, lodges and Revere bars will further enhance our ability to deliver attractive returns.’
• Langton Comment: Marston’s had previously reported that FY16 has closed out as expected. Summer weather was helpful but comps overall were tough. The group has now added that FY17 has been encouraging to date and results are in line with expectations.
• We have suggested before that the winners and losers in respect of sales (JDW & MARS vs RTN and perhaps MAB, arguably GNK now) are beginning to make themselves plain with the former comfortably beating the Peach Tracker on a regular basis and the latter underperforming – at least until recently in the case of MAB.
• 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 several 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 >150 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 5.6% yield.
PUB, RESTAURANT & DRINKS PRODUCERS:
• MEATliquor won Best Restaurant Drinks Offer at the 2016 R200 Awards on Tuesday, while Franco Manca won Best Value Restaurant Operator with over 20 sites. Meanwhile, Ian Edward and Mark Derry’s The White Brasserie Company was awarded Pub Company of the Year. Flat Iron won two awards: Most Effective Restaurant Design and Best Value Restaurant Operator with fewer than 20 sites. The Best Restaurant Operator awards went to Honest Burgers for fewer than 20 sites and Wagamama for over 20 sites.
• JD Wetherspoon chairman Tim Martin has criticised business rates and VAT as the most harmful taxes on pubs.
• PepsiCo has acquired probiotics drink company KeVita.
• Camerons, the brewer and pub operator based in Hartlepool, plans to acquire six managed pubs a year for the next five years in addition to 10 to 15 tenanted pubs, per MCA.
• BBPA chief Brigid Simmonds has welcomed the government’s move to double Rural Rate Relief but says more must be done to help those pubs hit hardest by the rates revaluation. Simmonds commented: ‘There have been no increases in beer duty rates, which is welcome, but duty accounts for up to 50 per cent of the costs of a UK brewer and remains a concern for the industry. Our rate of beer duty in Britain is considerably higher than all other major European brewing nations, and we are now calling on the Chancellor to cut beer duty in the 2017 Spring Budget, and tackle the unfair burden it places on Britain’s beer drinkers, publicans and brewers.’
• The ALMR has ‘cautiously’ welcomed new business rates reliefs but continues to call for ‘wholesale changes to business rates’. ALMR Chief Executive Kate Nicholls said: ‘The lowering of transitional relief caps and the increase in rural relief is welcome, but this still falls far short of the wholesale change that many businesses are looking for and that some will need in order to invest and grow,’ while wage increases should not be set by the government but should be ‘independently set by the Low Pay Commission reflecting the economic landscape.’
• A survey of 2,000 consumers by Retail Economics found that 82% of shoppers do not feel the vote to leave the EU has affected their spending habits. However, 50% of respondents expected the economy to weaken over the next three months.
• Waitrose is releasing a selection of £10 wine parcels in a move that is likely to draw parallels with Lidl’s Wine Cellar events.
• This year, Americans are planning to participate in more shopping events than ever before. Thirty-nine percent of consumers say they’ll start their holiday weekend shopping on Thanksgiving evening, up slightly from 34% in 2015. Black Friday will see more than half of Americans (54%) fighting the crowds for the best deals, while even more (63%) will be taking advantage of sales from the comfort of their homes on Cyber Monday, compared to 50% and 60% respectively in 2015.
• On Black Friday, apparel (61%), electronics (56%) and video games (43%) lead the way for top items consumers are planning to purchase.
• Chancellor Philip Hammond has cancelled next year’s planned rise in fuel duty, freezing it for the seventh year in a row at 57.95p per litre.
• UK supermarket prices will rise by at least 5% over the next six months according to former Sainsbury’s boss Justin King. Speaking on Newsnight, King said the drop in the value of the pound would cause ‘a profound change’ for supermarkets and added that some companies may not survive.
LEISURE TRAVEL & HOTELS:
• The chancellor has ignored calls for cuts to the air passenger tax despite airline executives urging the government to rethink its stance. ‘APD harms our global competitiveness, which should be the highest priority on the political agenda at this crucial point in time, after the vote to leave the European Union,’ said Airline lobby group A Fair Tax on Flying in a statement.
• ‘This comes as Austria announces a 50% cut in aviation tax by January 2018, which will place the UK at a further competitive disadvantage. APD in the UK is amongst the highest in the world, and double that of Germany which is the next highest in Europe.’
• The US hotel industry posted positive results in the week to 19 November as occupancy grew 4.5% to 65.8% and average daily rate rose 4.6% to $122.02. This meant revenue per available room jumped by 9.2% to $80.25. Among the Top 25 Markets, New Orleans, Louisiana, posted the largest year-over-year increases in ADR (+15.9% to US$163.82) and RevPAR (+28.9% to US$123.41). Occupancy in the market grew 11.3% to 75.3%. Three additional markets saw a RevPAR increase of 20.0% or more: San Diego, California (+23.0% to US$114.34); St. Louis, Missouri (+20.3% to US$68.90); and Los Angeles/Long Beach, California (+20.0% to US$143.37).
• American travellers have been told to ‘exercise caution’ when travelling to Europe this Christmas due to the heightened risk of terrorist attacks. It came as research by Allianz Global Assistance found a ‘significant decline’ in the number of US travellers planning to visit European cities affected by terrorism, such as Paris, Istanbul and Brussels.
• Hotels in Europe reported negative results in October, with occupancy down 0.4% to 75.3%, average daily rate down 1.6% to €113.51 and RevPAR down 2% to €85.47.
• Marriott will trial voice-activated room assistants with two tech start-ups, called Dazzle and Jumbo.
FINANCE & MARKETS:
• NIESR says the immediate fiscal impact of Brexit is now clearer, the OBR thinks borrowing will rise by around £100bn. BBC says £122bn.
• NIESR says Brexit, cyclical slowdown, lower productivity and lower migration will cost UK around £100bn in next c5yrs. The NIESR says ‘Brexit has had a very substantial impact on the OBR’s fiscal forecasts, as NIESR’s estimated. We welcome the Chancellor’s more accommodating fiscal stance and pragmatism in re-introducing policy flexibility. We had hoped for much more in terms of industrial strategy and to address the skills and output gap across the regions at the heart of long term prosperity.’
• NIESR says ‘the OBR’s latest forecasts make for sobering reading. They expect the economy to slow significantly over the course of the next year. Similar to NIESR’s projections published earlier this month, they expect per capita real disposable incomes to fall by ½ per cent in 2017, as wage growth fails to track the pick-up currency depreciation induced increase in consumer prices.’
• UK car manufacturing fell in Oct for 1st time in 14mths as demand fell. The SMMT said production was down 1%. The SMMT’s Mike Hawes reports ‘October’s figures underline the export-led nature of the industry, with eight out of 10 cars built for overseas customers.’ He continues ‘despite model changes which have ended the consistent growth pattern of the past year or so, we are still on track for a record number of exports.’
• B of England’s Kristen Forbes comments on uncertainty, says it is the modern equivalent of a “whipping boy” for economics. She concedes, however, that it has risen since the Brexit vote & that it is impacting the real economy.
• US new machinery orders rebounded in October.
• CBI says that UK manufacturers had a good month for orders last month, highest level of expectations since Feb 15
• The (often opinionated) IEA says ‘the [economic] reality of immigration is generally positive’.
• World markets: UK & Europe down yesterday. US up but Far East mostly lower in Thursday trade
• Brent down a bit at around $49 per barrel
• Sterling little changed at around $1.243
• US rates a shade higher with 30yr Treasuries at 3.02%
• For comment on the Autumn Statement, see Later Tweets below.
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Cheap cash & crowd-funding have ‘supply-pushed’ capacity: Arguably we’ve seen some growth for growth’s sake. Saturation is an issue.
• You can’t go from 0 to 50 units in a short time without picking up a few clunkers…Ed’s led the way. We know how that ended
• Greene King Tracker has UK households spending £212 on out of home leisure last month, up 3% on last year
• GNK Tracker: Says spend on eating out in Oct was +8% on same month last year. Other Leisure spend was down 2%.
• TCG FY: Numbers better than feared but flattered by currency translation post Sterling’s collapse. Dividend resumed at 0.5p
• TCG reports FY numbers, says it has ‘proactively managed through tough market’. It has resumed dividend payments at 0.5p
• TCG FY: Revenue £7.8bn (down £22m) with margin at 23.4% vs 22.6% last year. Underlying profit £308m vs £310m
• TCG FY: Basic EPS 0.8p vs 1.6p. Says underlying EPS is 8.5p vs 8.9p last year. Dividend is 0.5p per share
• TCG FY: Says performance ‘in line with Q3 expectations’ with ‘Turkey impact offset by shift to alternative destinations’
• Later tweets: Prices they are a rising (so say Compass Group, M&B etc.) And that was a 1dy sample. MARS likely to say so tomorrow, GNK on 30th
• Thanksgiving Thurs, Black Friday on, well, Friday. Remember not to spend anything. Scrooge alive, well & living in London E1 (weekdays only)
• Dow >19k for the first time. Trump deemed less of a disaster than first imagined. What a year!
• Markit’s Household Finance Index shows consumers beginning to worry re 2017. GNK Tracker says same thing.
• ScS (furniture) suggests big ticket sales holding up well. Game Digital hits new lows. Perhaps not the last time we’ll say that
• Langton maintains ‘supply push©’ is leading to too much capacity. Cheap money, dozy PE houses meet greedy landlords & rising interest rates
• TCG looks OK to us. Sales holding up well, no fund raise, no warning & reinstated (miserly) dividend of 0.5p. Shares +11%
• What demand for a ‘George Osborne Appreciation Society’? All welcome, cheap booze, no tie but high viz jackets mandatory
• Autumn Statement: Brexit will cost 2.4ppts of GDP or £50bn. Ernst & Young Item Club maintains will cost about 4% or £85bn.
• Autumn s/ment. Mentions Brexit GDP loss but still no guidance as to what Brexit is, how long it will take etc. Bold (aka blind) assumptions
• Autumn s/m. Budget won’t be in balance by 2019/20. Will balance ‘asap’. Cue jeers etc.
• Autumn s/m: HMRC to go after Johnny Foreigner companies for c£5bn in tax. Very a la mode. Sorry, alien word alert. Try ‘touches zeitgeist.’
RETAIL NEWS WITH NICK BUBB:
• Mothercare: Ahead of today’s interims from Mothercare, the City has been fretting that the much-vaunted International business was running into problems, even though the loss-making UK business was recovering slowly, but today’s news is the other way around…Overall group PBT was down from £7.0m to £5.9m, before further heavy exceptional costs of £6.7m. CEO Mark Newton-Jones says of the UK that “The last 6 months have been challenging and, not withstanding our progress with our strategic pillars, our sales and margin stalled in the period. There are two factors at play here – firstly the widely reported slowdown in sales across the high street due to unseasonal weather through the spring/summer season, resulting in higher markdown. Secondly, whilst our planned warehouse infrastructure change has been successfully completed, it did mean a reduced flow of product for 8 weeks
• Pets at Home: The interims today from Pets at Home cover the 28 weeks to 13th October, so they are pretty up to date and the City will therefore be disturbed to hear the company say that “recent trading has been softer than in the first half”, even though Pets immediately go on to say that “our profit outlook for FY17 remains in line with market expectations, as we maintain a focus on both margins and costs”. As it is, H1 trading was a bit sluggish, with LFL sales up by only 2.5% (despite strong Services growth) and pre-exceptional PBT up by only 4% to £47m, although shareholders got a chunky 25% increase in the interim dividend. The analyst’s meeting is at 8.30am.
• Arcadia: This time last year the embattled Philip Green released the final results for his mid-market fashion empire Arcadia (y/e August) on the same day as the Chancellor’s Autumn Statement, but, perhaps not surprisingly, he was lying low yesterday, given the renewed focus by the press on his failure to “sort” the BHS Pensions deficit. He has, of course, been quick in the past to trumpet about Arcadia’s results when it suited him (when Top Shop was doing well), so any significant delay in releasing the results will only add to the suspicion that Arcadia is struggling and we can be sure that Oliver Shah of the Sunday Times will be on the case…
• Retail Sales Watch: We noted last Friday that the ONS Retail Sales figures for October were much stronger than the City had expected, but, as per usual, what with one thing and another, we haven’t had time to go back and look at the ONS figures in detail. There is, however, an excellent new consultancy group to do that for us, namely Retail Economics, which is run by Richard Lim, who used to be in charge of the highly regarded monthly BRC-KPMG Retail sales survey. And the Retail Economics (RE) overview is that gross Retail sales rose by 3.2% last month, year-on-year (non-seasonally adjusted, ex-petrol), which is basically much more in line with the BRC-KPMG measure of the October outcome than the ONS reported outcome of +6.1%, so the ONS (aka the “Planet ONS”) clearly over-egged things again, thanks to improbably high estimates for the growth of “Small Retailers”. RE estimate that
• News Flow This Week: Today is Thanksgiving in the US and so tomorrow is…the much-dreaded “Black Friday” Sale promotion (although many UK retailers have been running discount deals all week, which will almost certainly make this an even bigger week for High Street spending than the last week before Christmas…).