Langton Capital – 2017-04-25 – Whitbread, EasyHotel, crowd-funding, capacity & other:
Whitbread, EasyHotel, crowd-funding, capacity & other:
A DAY IN THE LIFE:
Bit of a rush this morning what with the Whitbread results and all but just thought a mention for the UK’s hard-working chartists was called for.
Because, whilst staring at their tea leaves & charts and assuring themselves that they have perfect vision (albeit through the rear-view mirror only) they’ve come up with another chart indicator, the Spinning Top Doji Candle.
Now don’t ask me what it is.
And I’m none the wiser having watched a couple of them frothing over its discovery as to whether it’s good thing or a bad thing but it seems to be a feature of today’s equity market (or was it Japanese interest rates, Sterling Dollar or the US long bond?) and you should only ignore it’s chart implications at your peril.
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WHITBREAD FULL YEAR RESULTS:
• Full Year Results: 52wks to 2 March 2017:
• Whitbread has this morning reported full year numbers for the 52wk period to 2 March 2017 and our comments are set out below:
• Whitbread reports ‘group total sales growth of 8.2% and underlying profit before tax up 6.2% to £565.2 million’
• Underlying PBT is £565m (ahead of forecasts of c£555m) vs £532m with underlying EPS of 246.5p (2016 restated: 232.5p)
• The company reports Premier Inn total sales growth of 9.0%, and like for like sales up 2.3%
• Costa total sales growth was 10.7% (system sales up 12.7%) and UK equity like for like sales up 2.0%
• The company says its group return on capital was 15.2% (2015/16: 15.3%)
• Whitbread reports ‘c’ash generated from operations of £860.1m, which funded cash capital investment of £609.8m and a proposed full year dividend up 6.0% to 95.80p
• Recent sales trends show an acceleration in Q4 at Premier Inn but a slowdown in restaurants and a relatively sharp deceleration at Costa
• Premier Inn & Restaurants: :
• In hotels & restaurants, WTB reports ‘as the UK’s number one hotel company our business model is clearly well placed to capture the shift to value brands with our compelling proposition, loyal guests, direct distribution model and focus on operational excellence.’
• The group says it is ‘well on track to achieve our 2020 milestone of c.85,000 UK rooms, with line of sight to 100,000 rooms.
• WTB comments ‘in 2016/17, we opened 25 net new hotels taking our total number of hotels in the UK to 762, over 200 more than our nearest competitor.’
• The group comments ‘our share of the London hotel market remains relatively low at c.8% providing a substantial growth opportunity.’
• WTB now has four hub hotels open in London and one in Edinburgh ‘with a committed pipeline of 11 hotels over the next three years.’
• The group says ‘our new hotels continue to perform well, maturing fast and becoming profitable with occupancy of c.75% in the first year, reaching full maturity in 3-4 years.’
• At restaurants, WTB comments ‘our Joint Site Restaurants continue to play an important role in serving Premier Inn guests’
• WTB says ‘we continue to make good progress in rejuvenating our restaurant brands, converting a further 53 restaurants to our modern ‘Orange Cow’ Beefeater concept and are on track to complete the remaining conversions in the first half of 2017/18.’
• Costa Coffee:
• Whitbread reports ‘in Costa we offer the largest network of coffee shops in the UK and, with our strong brand, we are in a great position to capitalise on future market growth opportunities, growing from 2,218 stores today to over 3,000 stores in the medium-term.’
• WTB reports in the UK, ‘Costa UK Retail continues its track record of delivery, with UK retail system sales growing by 10.5%, 169 net new stores and like for like sales in UK equity stores increasing by 2.0%.’
• Re competition, WTB says ‘the market and competitive landscape continue to evolve with more food-led operators now offering coffee and, while convenience and coffee quality remain the top decision criteria, customers are becoming more demanding in the way their priorities are met.’
• It says ‘at Costa we are focused on meeting this challenge’. The group is to invest in further Pay & Collect trials
• WTB comments ‘Costa Express is an exciting global growth engine for Costa and we see potential to double the size of this part of the business.’
• Debt, balance sheet & cash-flow:
• Whitbread reports debt of £890m vs £910m last year
• It says cash generated from operations ‘was strong at £860m’
• Overall & current trading:
• Whitbread reports Costa sales were down 0.8% in LfL terms in Q4. This against rising inflation during the period
• Premier Inn sales in Q4 were ‘very good’
• CEO Alison Brittain reports ‘Whitbread has had another year of strong growth and continued investment’
• She adds ‘in 2016/17 we made good progress in delivering on our three strategic priorities: to grow and innovate in our core UK businesses; to focus on our strengths to grow internationally; and to build the capability and infrastructure to support long-term growth.’
• Ms Brittain says ‘in the year ahead we will continue to focus on organic growth and investing in our customer proposition. This, together with our efficiency programme and disciplined capital management gives us confidence in delivering another year of good progress, in line with overall expectations.’
• Re current trading, WTB says ‘whilst we are only seven weeks into our new financial year Premier Inn has had a good start to the year and Costa has also seen positive like for like sales growth, although we remain cautious and expect a tougher consumer environment than last year.’
• CEO Alison Brittain concludes ‘in the longer term we remain confident that, with our significant structural growth opportunities, the power of our brands and the investments we are making, we will continue to deliver strong returns and sustainable long-term growth for our shareholders’
• Langton Comment: Whitbread has reported adjusted numbers in line with estimates.
• Q4 has seen Costa LfLs move negative but the co reports that, in the first 7wks of the current year, they are back in positive territory.
• Whitbread’s shares have risen sharply in recent weeks. They now trade on around 17x this year’s numbers and offer a yield of c2.3%.
• Overall, we believe that Whitbread has an attractive freehold base and international brands. This is something of a rarity across the leisure sector. The shares are not cheap per se but they are not as expensive as they have been in recent years. They represent solid value.
PUB, RESTAURANT & DRINK PRODUCERS:
• Derby Brewing has reported that its Crowdcube fund raising project is progressing well. it reports ‘we are delighted to announce after the strong start to our crowd funding, with investment approaching £150,000 in less than 7 days and on the back of increasing the equity on offer for the target £500,000 to 6.5% last week, we are adding further rewards for all investors of £500 and above.’ The group will offer larger investors a 5% discount card amongst other goodies. Derby says ‘in addition to the outlined rewards all shareholders will be eligible for dividends every 6 months and based on forecast we will double the value of shareholders shares within three years.’ That’s if everything goes according to plan.
• The Tories are to cap domestic energy prices if/when they win the current General Election. This will help keep a little cash in consumers’ pockets.
• Paul Newby, pubs code adjudicator has made 25 arbitrations since the pubs code came into force last year. The number of judgments increased fives times in the last month, with Newby stating that ‘good progress’ was being made as cases moved through the arbitration process.
• The brewer and pub operator Brakspear has opened nine new bedrooms at its Chequers managed pub in Marlow, taking the units total number of letting rooms across the estate to 77.
• While attending a tasting of England’s most expensive sparkling wine – the £99.99 Kit’s Coty Coeur de Cuvée 2013 – James McLean, brand ambassador to Chapel Down, stated ‘England has proved that it can now produce world class wines. The industry has reached a fantastic stage and we’re keen to raise the bar again. Can England’s top wines compete with the best in the world? Yes they can.’
• UK consumers’ confidence in their disposable income has declined to -7% in the first quarter of 2017, the lowest level for more than two years. The chief economist at Deloitte, Ian Stewart, said ‘Since last summer’s EU referendum consumer spending has held up well, but with inflation rising and nominal wage growth starting to slow, consumers are beginning to feel a squeeze on their disposable income.’
• The most socially deprived areas have felt the loss in pubs most starkly in recent years, while supermarkets have flourished, according to a University of Sheffield study. The study, which used data from between 2003 and 2013 from CGA Strategy and Nielsen, found that there was a 30% reduction in pubs, bars and clubs located within 1km of England’s most socially deprived postcodes over the 10-year period. These included areas within Tower Hamlets, Oldham and West Bromwich. The same group of postcodes saw a 23% rise in off-trade outlets within 1km.
• Tim Hortons, the Canadian based cafe chain, is to open its first UK coffee shop in May, with the group promising to deliver ‘signature coffee, delicious food and Canadian charm.’ The site will be in central glasgow, with further outlets planned in other city center locations.
• More than half of small firms with workers from the EU are concerned that Brexit will stop them recruiting sufficiently skilled staff, according to a report from the Federation of Small Businesses (FSB), who says that securing the right of EU staff to remain in the UK is vital.
• Subway’s decline in same-store sales from $480,000 in 2012 to $420,000 in 2016 has been a key driver of the shrinkage of the sandwich store. In 2014 Subway had a reported 27,103 locations which had decreased to 26,744 sites by 2016. NRN magazine says that Subway’s offer is uncompetitive as it offers discounted sandwiches in an improved economy where customers are gravitating towards quality.
HOLIDAYS, LEISURE TRAVEL & HOTEL
• easyHotel has announced it has signed a Master Development Partnership with IGC Group to develop easyHotels in Nepal. The group reports ‘recognising the strength of the easyHotel brand, IGC approached the Company and expressed its interest in a franchise agreement to develop easyHotels in Nepal and North India, a region which attracts 729,550 international and domestic visitors to Nepal alone each year’.
• easyHotel CEO Guy Parsons reports ‘we are delighted to enter into this new partnership with IGC Nepal which is testament to easyHotel’s strong brand recognition.’ He continues ‘IGC has established a significant geographical foothold in the region in a number of business areas, many of which are targeted towards value conscious consumers, which makes them a great cultural fit for easyHotel.’ Mr Parsons concludes ‘this relationship provides us with the opportunity to extend our network into this attractive market without direct capital investment.’
• HRS data indicate major UK cities have experienced a fall in hotel rates for the first quarter of 2017, with Liverpool (-14.3%), Bristol (-11.7%), and Leeds (-10.7%) registering the biggest declines.
• Driverless cars are to be tested on UK roads and motorways in 2019 according to plans unveiled by the Driven group, a consortium of British companies. The autonomous vehicles will have humans onboard and will travel between London and Oxford.
• The US toy-maker Hasbro revealed a Q1 revenue increase of 2% to $850m (2016Q1: $831m). Shares in the company rose by 5% on Monday with the company showing strong performance in its Monopoly, Nerf and Transformer product ranges.
FINANCE & MARKETS:
• German business confidence is at its highest level in nearly 6yrs. ‘The German economy is growing strongly’ reported Ifo chief Clemens Fuest.
• Business optimism in London is ‘precarious’ warns The London Assembly. The Assembly reports ‘businesses in London continue to experience a great deal of uncertainty and despite the triggering of Article 50 last week, we are no closer to knowing what the future will be for them. It is essential for the UK as a whole that the capital’s economy continues to thrive. The Mayor must ensure the voice of London business is clearly heard.’
• The Commons education committee has urged the government to act swiftly to halt a post-Brexit brain drain from UK universities
• Oil down around 40c at $51.81
• Sterling a shade lower vs US$ at 1.2784
• Pound down a bit vs Euro at 1.1767
• UK 10yr gilt yield up 1bp at 1.05%
• World markets: UK & Europe up sharply on French election relief. US markets up With Far East markets higher in Tuesday trade
YESTERDAY’S LATER TWEETS:
• Later tweets: Restaurant Group. Is the offer right? What about pricing, location, service? Why hold the dividend? How will earnings grow in 2018?
• Casual Dining Group loses thick end of £70m in year to June 2016. Mostly one-offs and interest. Underlying EBITDA c£33m
• Retail sales ‘plunge’ deemed by some to be meaningful. Telegraph reports ‘significant forces’ are putting a brake on spending.
• Landlords of empty BHS stores to be hit with £100m rates bill per Mail on Sunday. Ouch! Property owners join list of victims
RETAIL NEWS WITH NICK BUBB:
• Carpetright: Remarkably, Carpetright has been one of the best performers in the sector so far this year, with the shares closing last night at 246p, albeit from very oversold levels at the turn of the year. But today’s pre-close update will test investor enthusiasm for the recovery story, as Carpetright have warned that, after sluggish sales in Q4, “full year profits will be towards the lower end of the current range” (with the range said to be for PBT of between £13.9m and £16.2m). In the UK, LFL sales have still been up, by 1.4%, thanks to the accelerating store refurb programme (now up to 188 stores or 40% of the estate), but it sounds like Carpetright expected more than that and have been pulled back by economic headwinds. In January the LFL sales growth was 6.8%. Wilf Walsh, the horseracing-loving CEO, says: “In common with other retailers in the home improvement sector in the
• Retail Sales Watch: We flagged yesterday that the ONS Retail Sales figures for March were, thankfully, not boosted for once by improbably strong growth for “Small Retailers”, but the Office of National Statistics (the ONS, aka the “Planet ONS”) still reported total sales by value up by as much 3.3% last month (ex-petrol), despite the absence of Easter, whereas the BRC-KPMG measure of gross sales (which focuses on Large Retailers) was down by 0.2% (down 1.0% “LFL”)…So, who was right? Well, the new consultancy group, Retail Economics (RE), which is run by Richard Lim (who used to be in charge of the monthly BRC-KPMG Retail Sales survey), has just come out with its own overview and their estimate is that gross Retail sales rose in value by only 0.7% last month, year-on-year (non-seasonally adjusted, ex-petrol), which is clearly much closer to the BRC figure than the ONS. RE estimate
• Marks & Spencer Store Watch: Far be it from us to say that M&S chose to “bury bad news” last Thursday by announcing details of its store closure programme on the same day as the scheduled Debenhams’ strategic review, which was always bound to capture the attention of the media…although we suspect that the timing wasn’t a coincidence. In fact, the news got plenty of coverage in the press, such is the sensitivity of many local communities to the fate of their local M&S. To be fair, M&S only confirmed the proposed closure of six stores: in Monks Cross, near York (a Simply Food store), Portsmouth, Slough, Warrington, Wokingham and Worksop (another Simply Food store). It was odd that 2 of the closures involved the much-vaunted Simply Food format, but store location mistakes can be made…Interestingly, no less than 34 new Food stores, as well as two new mainline stores (in