Langton Capital – 2017-03-02 – Merlin, Sportech, Nichols, AB InBev, costs, Brexit & other:
Merlin, Sportech, Nichols, AB InBev, costs, Brexit & other:
A DAY IN THE LIFE:
With spring in the air, I’ve been wondering; just who brings salad to a BBQ?
In fact, despite acknowledging that it’s right to eat healthily, who eats salad at all because, unless you can take it intravenously and make it a painless one, two or three of your five a day, it’s simply rather a chore to eat it and doesn’t sprinkling sesame seeds or mustard seeds or whatever on it just make a boring food gritty?
Perhaps it’s not the best course of action at an outdoor feast to simply drink briskly and play with fire but there’s something of a tradition to it and, when the BBQ lighter fluid comes into play, who needs two eyebrows in any case. On to the news:
PUB, RESTAURANT & DRINK MANUFACTURERS:
• Burger company MeatLiquor launched a delivery-only restaurant in Canary Wharf on Monday reports the MCA. It reports ‘diners have a choice of just eight beef, chicken and veggie burgers, five sides, and several soft drinks.’ This represents the group’s first ‘virtual site’. Co-founder Scott Collins comments ‘our busiest site is in East Dulwich, which is really residential, and we do in excess of £10k just on delivery.’ Collins adds ‘Canary Wharf has the same radius of one and a half miles, but think about how high it is with all the tower blocks. Deliveroo are quite clever by choosing the areas that are under-served by restaurants, which is where they are putting all these kitchens.’
• Nichols reports full year end-Dec numbers saying revenues rose by 7.4% to £117.3m with operating profit 9% higher at £30.3m
• Nichols FY: Group reports adj. PBT of £30.4m (+8.6%) with EPS of 66.2p (2015: 60.3p) and a final dividend +15.3% at 20.3p. Chairman John Nichols reports ‘2016 has been another very good year for Nichols plc with the Group delivering continued progress against our growth strategy. This has resulted in a 9.7% increase in basic earnings per share* and a 15.3% rise in the final dividend.’ Nichols concludes ‘the Group has a clear strategy for growth and whilst the soft drinks market is likely to remain challenging in 2017, the Board remains confident of delivering continued success underpinned by our strong brands, diversification and successful track record of profitable growth.’
• Seventy-One Members of Parliament have now signed a pledge card supporting the brewing and pubs sector ahead of the Budget.
• A report from commercial insurers NFU Mutual suggests that a reduction in VAT could boost consumer spend across tourism and hospitality by as much as 53%. Clothing, electrical goods and home and DIY products could similarly benefit from a spend hike of 58%. The insurer’s retail sector specialist, Frank Woods, commented: ‘There is of course no guarantee that the spending power of consumers will be ploughed back into UK businesses …[but] the encouraging sign is that there is clearly huge appetite for increased spending in UK retail and tourism sectors, and that many people see VAT relief as an effective means to inspire it.’ A Leisure sector VAT group headed by the BBPA and ALMR is currently campaigning for cuts to the tax.
• Shake Shack shares fell as much as 10% in extended trading after the highly rated chain saw a fifth straight quarter of declining like-for-like sales growth. Shake Shack’s LfLs rose by 1.6% in its fourth quarter, down from a 2.9% increase in the third quarter, while average weekly sales for domestic company-operated ‘Shacks’ slid to $90,000 from $103,000.
• Papa John’s International is currently experimenting with a ‘priority fee’, which enables guests to jump to the front of the queue. Costing $2.99 the fee will allow customers to get their pizzas made and delivered faster.
• Jose Cuervo’s parent company, Becle, has reported a near 50% slump in fourth quarter profits compared with last year just one month after its $934m listing on the Mexico stock market. Fourth quarter profits were $30.5m compared with $59.2m in 2016, despite sales revenues soaring by 52%, as the company grappled with the soaring cost of agave.
• Canadian coffee chain Tim Horton’s will make its UK debut in partnership with Domino’s Pizza franchisee Surinder Kandola with a site in Glasgow, per MCA.
• Starbucks is struggling to keep up with demand from its now more than 8 million mobile paying customers.
• Daniel Thwaites has added York’s 56-bedroom Middletons Hotel to its growing hotels and inns business. Chief Executive Officer at Thwaites, Rick Bailey, said: ‘Middletons is an outstanding property in a stunning location and has a fascinating history. It is a well-run business and York is a strong market. We are delighted to have been able to acquire it and look forward to continuing to develop it over time.’
• Nine of the Budgens stores belonging to the collapsed Food Retailer Operations Limited (FROL) group have closed, resulting in 179 redundancies.
• AB InBev story somewhat spoiled by poor Brazil trading.
• AB InBev reports Q4 & FY numbers. Group says revenue +2.4% in FY16 & +0.2% in Q4. Says growth was ‘driven by premiumization and revenue management initiatives, offset in part by the weak net revenues per hl in Brazil, as anticipated due to cycling a tough prior year comparable.’
• AB InBev FY: Group says ‘total volumes declined by 2.0% in FY16, with own beer volumes down 1.4% and non-beer volumes down 6.2%.’ for Q4 total volumes declined by 3.3%, with own beer volumes down 3.0% and non-beer volumes down 4.4%. Group says ‘in the majority of our key markets, we saw improving market share trends.’
• AB InBev FY: Group reports EBITDA down 0.1% in FY16 and down 3.6% in Q4. Brazil was the drag. Excluding the Latin American BRIC, EBITDA grew by 6.3% in FY16 and 6.4% in 4Q16. EPS was $2.83 for FY16 (2015: $5.20).
• AB InBev FY: Re SAB Miller, AB InBev says ‘between 1 April 2016 and 31 December 2016, 282 million USD of synergies and cost savings were realized in connection with the combination with SABMiller, in addition to the 547 million reported by SABMiller as of 31 March 2016.’
MCDONALD’S ANNOUNCES STRATEGY FOR GROWTH:
• McDonald’s has updated on strategy saying that it plans to add curb-side service and mobile ordering & payment at its 14,000 U.S. restaurants by the end of the year.
• McDonald’s CEO Steve Easterbrook says ‘we have fundamentally changed the trajectory of our business over the past two years. Now, we are fit for purpose, ready to build on our momentum and transition to focus our efforts on profitable, long-term growth.’ Easterbrook continues ‘we are building a better McDonald’s, one that makes delicious feel good moments easy for everyone, and I believe the moves we are making will reassert McDonald’s as the global leader in the informal eating out category.’
• McDonald’s reports ‘to deliver sustained growth, we have to attract more customers, more often.’ Group says ‘inside the restaurants, McDonald’s is bringing greater control, convenience and personalization to our customers through the use of kiosks to place orders, staffed with guest experience leaders to assist in the process. Customers can place their order and skip the front counter entirely, with their food brought right to their table. Additionally, customers will be able to place orders directly on the mobile app for pickup or have a kiosk recognize their app profile, which holds customized favorites and preferred payment methods. The result is a more stress-free, personalized experience, enhanced by technology and world-class hospitality that puts customers in control.’
• CFO Kevin Ozan reports systemwide sales growth should hit 3% to 5% over the next 2yrs. He says EPS should grow in the high single digits.
• A Retail Economics survey of 2,000 consumers suggests that food prices are rising at the fastest rate in more than two and a half years. More than six in 10 consumers (62%) say the price of their average weekly food shop has increased in the past six months, as food prices increased by 0.4% in February, and two-thirds of respondents expect further price hikes over the next half year. Meanwhile, the latest BRC – Nielsen shop price index reported food price inflation of 0.4% in January, in contrast to a 0.8% fall in January.
• The average family holiday abroad to Europe will cost almost a fifth more this year than it did in 2016, according to foreign exchange firm Travelex. The 18.2% price hike equates to £518 based on an average holiday cost of £2,333 in 2016.
HOLIDAYS & LEISURE TRAVEL:
• Melia Hotels has reported net profits for 2016 up by 180% to €100.7 million on the back of a 9.75% increase in REVPAR. CEO Gabriel Escarrer Jaume comments ‘together with a significantly healthier balance sheet, and a business model increasingly based on international growth and management agreements, this places us in an unbeatable position to face the significant geopolitical, economic, social and technological challenges that affect the industry on a global level.’
• Hotel transaction volume across Europe reached €17.8bn in 2016, down 25% on the previous year’s record volume, according to HVS’ annual European Hotel Transactions report. Germany’s hotels were the star performers during 2016 with transaction volumes reaching €4.4bn, including €2.45bn-worth of portfolio assets, a 30% rise on 2015. Despite a 70% fall in transaction levels the UK was still the second best performer in Europe and London maintained its position as the leading European hotel transaction market, with a total volume of €1.8bn.
• Eurotunnel saw pre-tax profits almost double from €80m in 2015 to €154m last year as revenue rose by 4% to more than €1bn.
MERLIN REPORTS FULL YEAR NUMBERS:
• MERL: Profits down due to challenging trading. Co well-positioned but somewhat cautious re future.
• MERL FY numbers: Revenue +11.7% over 52wk comps & +3.6% in constant currency. Revenue +1.4% LfL
• MERL FY: EBITDA of £451m (+7.7%). LfL EBITDA (52wk) down 3.6%
• MERL FY: PBT £277m (+3.4%) with EPS of 20.8p vs 19.5p last year. Dividend unchanged at 7.1p
• MERL FY says ‘profit decline at constant currency due to challenging trading in a number of key markets not fully offset by cost mitigation actions taken throughout the year.’ It says ‘recovery [is] well underway at Alton Towers, with strong performances from the wider RTP estate.’
• LEGOLAND done well with LfL revenue growth of 1.6%. Midway down 0.2% ‘due to difficult trading conditions in certain key markets.’
• MERL FY: Says is making ‘good progress towards 2020 milestones’. Opened 5 new Midways in 2016 with 210 rooms opened.
• MERL FY: CEO Nick Varney reports ‘our performance in 2016 is testament to the benefits of our strategy of portfolio and geographic diversification, with over 70% of our profits coming from outside of the UK. We have seen the continuation of a recovery in Resort Theme Parks, steady growth in LEGOLAND Parks and a strong contribution from New Business Development. The external environment continued to present challenges in a number of our key markets although the impact of this was offset to some degree by cost control measures taken during the year.’
• MERL concludes ‘we made good progress against our 2020 milestones in 2016.’ CEO Varney says ‘as we move into 2017, with ongoing volatility in a number of our markets and continued cost pressures, we will increase our focus on cost efficiency and productivity, while continuing to invest in our product, marketing, and people to deliver safe and memorable experiences to our guests.’
• MERL says ‘as we enter 2017, Merlin is in a strong position and we remain confident in the prospects for the business.’ It adds ‘ahead of entering our peak trading periods, we remain alert to geo-political uncertainties, in particular from international terrorism, which has been shown to have a significant and immediate impact on our business. However, with strong underlying growth prospects, a diverse portfolio of global brands, and actions already taken to mitigate cost pressures, we remain confident of a good performance in the year ahead.’
• Sportech has announced full year numbers & its intention to dispose of its Pools division. PBT for the year to end-Dec increased to £30.7m (2015: £9.7m). The group has had a ‘successful outcome to our eight year £97m VAT refund appeal after rulings at the Supreme Court and the Court of Appeal’ and it has ‘announced today an intention to return capital to shareholders by way of a tender offer for approximately £20m of Sportech ordinary shares, representing a buyback of around 10% of the issued share capital’.
• Sportech CEO Ian Penrose reports ‘this has been a transformational year. We have moved into a strong net cash position and have today announced details of a return of capital to shareholders.’ He adds ‘we have also announced the sale of our Football Pools business for £83m, following a highly successful modernisation programme.’ Penrose concludes ‘the Group is now in a strong position and more focused to take advantage of the strategic positioning of its predominantly US based businesses. We look forward to delivering further progress in 2017.’
• Snap, parent company of Snapchat, has priced its shares at $17 for the listing due to take place on Thursday. The flotation values the company at $24bn, despite the company never having made a profit.
• Twenty-First Century Fox will seek approval from the European Commission for its $14.4bn bid for Sky, per Reuters.
FINANCE & MARKETS:
• Dallas Fed President Robert Kaplan has said that US rates should rise sooner rather than later so that rate hikes can be gradual. He comments ‘we should begin the process sooner so we can ensure that it is gradual and patient’. Kaplan adds ‘my fear is if you get a situation where inflation starts to heat up and you overshoot employment, we might be in a position at the Fed where we have to raise very dramatically which history has shown tends to create recessions and cause job growth to be weaker.’
• Nationwide has reported a pickup in house price inflation saying that prices rose by 4.5% in the year to February. It sees prices rising by 2% over 2017 as a whole. It says it expects to see ‘heightened uncertainty’ holding back investment and job creation. It says ‘consumer spending, a key engine of growth in recent quarters, is also likely to be impacted by rising inflation in the months ahead as a result of the weaker pound.’
• UK manufacturing PMI slipped in February to 54.6 from 55.7 in January. Estimates had been for c55.8
• Brent $56.15 (down from $56.74)
• UK 10yr gilt yield further up at 1.2% (was 1.15%)
• Sterling down to 122.77c vs US$ (was 123.74) and 116.56 vs Euro (was 117.19)
• World markets: UK hit new records yesterday with Europe also higher. US also hit records, breaking 21k on the Dow. Asian markets mostly up in Weds trade
o Coldplay. Nobody said it was easy [but] no-one ever said it would be this haa-aa-aa-aard…
o The government was defeated in the H of Lords last night with the Lords saying that the rights of EU nationals currently in the UK to stay here post Brexit must be guaranteed.
o MPs in the H of Commons passed the proposed legislation without amendment
o Scottish leader Nicola Sturgeon is reported to be considering calling a second independence referendum before the end of March
o PM Theresa May insists that she will file EU divorce papers this month.
o The remaining 27 EU members meet in April to discuss potential issues that must be settled before trade & other negotiations can begin.
o An exit charge of tens of billions of Euro may be high up the list. The UK may be required to pay for actions agreed upon whilst it was/is a member of the EU, however far into the future these commitments stretch.
o PM Theresa May contends that no deal is better than a bad one. She says the UK is prepared to crash out if no deal can be struck in the next 2yrs.
• Trump apparently conciliatory to Congress. Trump? Donald Trump? Surely some mistake…
• US betting swings to possible March rate hike. Dollar acts accordingly. Global rates on long march upwards?
• Sheps H1 numbers & keep an eye on the comps. They’re very strong numbers on the back of very strong numbers. London on fire still?
• Asset pricing. Flat Iron could be £20m for 4 (leasehold) sites. Sure, they’re London, sure they’re successful. But isn’t that too much?
• Flat Iron pricing. Too much money chasing assets. And why wouldn’t it be w. 0.25% rates? Sensible? Or crazy, brainless search for ‘yield’?
• TUI & Tunisian terrorism. Tragic for all concerned but is it legally actionable? FCO was still okaying travel at the time
RETAIL NEWS WITH NICK BUBB:
• FTSE Index Watch: The results of the latest quarterly FTSE index review were announced yesterday evening and, as expected, Dixons Carphone was relegated from the FTSE 100 index (even though its market cap is a hefty £3.5bn). More of a surprise was the ejection of N Brown from the FTSE 350 index, as its market cap is as high as £570m.
• Travis Perkins: Today’s finals from the builder’s merchant and DIY chain Travis Perkins are well worth a look, not just as a benchmark for Kingfisher and Howden, but for their view of the general economic outlook, given their good record on forecasting the economy. And their view is cautious: “The sharp decline in the value of Sterling since June 2016 has created cost pressures on imported goods and materials, and the expectations for secondary housing market transactions and growth in the RMI market have weakened”. They go on to say that “…pressure on consumer discretionary spending from rising inflation could impact secondary housing transactions in the second half of 2017. Fewer housing transactions will have a direct impact on merchant sales volume, albeit with a lag. Any significant reduction in consumer confidence may have a more pronounced impact on big-ticket purchases such
• Jimmy Choo: The luxury shoe business Jimmy Choo is in more upbeat mood, on the back of its finals today, highlighting “Accelerating Retail Growth and Margin Expansion” and saying “We see improving retail trends across all regions and are well positioned to take advantage of a stronger marketplace. This, combined with our sustained investment plan, gives us confidence that we will deliver on the current strong growth expectations for 2017”.
• Headline Watch: We liked this headline on the Retail Week website yesterday about the news that Boots plans to cut 400 jobs in its in-store photo processing labs: “Boots’ photo division fails to develop”.