Langton Capital – 2017-05-04 – Punch H1, JDW, Ladbrokes, YUM, AB InBev, Brexit & other:
Punch H1, JDW, Ladbrokes, YUM, AB InBev, Brexit & other:A DAY IN THE LIFE: So where is Boris when he’s needed? Shouldn’t he be telling us that the €100bn is a fabrication & that, on the contrary, we’ll have £350m a week extra to pay for more nurses? Shouldn’t he be keeping David Davis on his meds and be promising us tax cuts and blue sky. And shouldn’t he put a timeline on it, give us some promises that we can take to the bank. In fact, shouldn’t he be staking his political future on making a success of Brexit and, in the short term, of the Brexit negotiations? Or perhaps he should hover in the background, as Theresa May did in June last year and hope to be seen as instrumental in putting together the pieces of a broken Britain 5yrs or 10yrs from now? The future history books in his head will be telling him that’s what he should do so perhaps he should tut-tut occasionally and shake his head. He should position himself such that he can criticise flag-waving and jingoism as low politics and he should be hunting down and destroying all those embarrassing zip-wire photographs. And, if he’s going to make a big push for the recession-election of 2022 (or 2027) then he should get his hair cut. Yes, that’ll be a lead indicator; he’ll get his hair cut. But no, it’s rather a mess. Mr Corbyn is in a bubble where he believes that everyone trusts him & Ms May believes that we’re all pulling together to bash Johnny Foreigner. Sadly, that’s not the case. On to the news: PUNCH TAVERNS H1 NUMBERS: • Punch Taverns reports H1 numbers for 28wks to 4 March saying the sale of its business to Vine Acquisitions should complete pre-end-August • Punch H1: Group says LfL sales fell by 1.2% in the leased & tenanted estate. It says this would have been flat ‘after adjusting for the impact of the previously flagged temporary slow-down in letting activity’ • Punch H1: Group reports underlying EBITDA of £88m (2016: £94m) ‘reflecting the impact of £53 million of disposals completed over the last 12 months’ • Punch H1: Says has cut interest costs & seen strong liquidity. Group has £131m of cash on the balance sheet & no large upcoming repayments • Punch H1: Group reports a H1 statutory loss before tax of £174m vs 2016 profit of £55m. This ‘includes £198 million of non-underlying charges, principally due to the write-down in goodwill and assets following shareholder approval on 10 February 2017 for the sale of the Group.’ • Punch H1: Co has ‘doubled the size of the Retail pub division since the August 2016 year end, with 171 pubs open and trading as at April 2017 (August 2016: 85 pubs)’. • Punch reports ‘recent market uncertainty resulting from the sale of the Group has impacted letting activity, together with the previously reported impact of the new Pubs Code Regulations.’ The group says ‘consequently, we now expect it to take up to 12 months to return to our long-term target of having a core estate of 93%-95% let on substantive agreements.’ • Punch H1: CEO Duncan Garrood reports ‘during the period, we have doubled the size of our Retail estate and continue to innovate our operating agreements. This has been achieved whilst managing through a period of significant change, ahead of the sale of the Group which is now expected to complete before the end of August 2017.’ JD WETHERSPOON – Q3 CONFERENCE CALL: • Following the release of its Q3 IMS, JD Wetherspoon hosted a conference call for analysts and our comments thereon are set out below: • Current Trading & Outlook: • Why were March & April ‘so good’? Group has been ‘pleasantly surprised’ by the strength. Has been no single issue. More ‘a recognition of consistency’. • Is your guidance on the 3-4% needed to hold margins too conservative? Possibly, but there are cost increases on the way. Group mentions sugar tax • The group reports ‘it’s too early to comment on next year [FY18] but we will release updates in due course’ • LfL sales ‘will track closer to inflation going forward’ • How is the App doing? Numbers are still relatively small in absolute terms. It has been in the top 10 downloads for the last few weeks • No comment on pricing. Competition ‘remains tough & we will keep our prices ‘reasonable’’ • Margin for FY? Say 7.25% to 7.5%. • Competitor action? Competition ‘remains strong’. Nothing new. • Any impact from the updated food menu? There are two new menus a year but there are few radical changes. • Costs next year? Labour c4%. Energy levy costs c£2m. Sugar tax. No real view on duty. • Any mix changes to sales? This has ‘weighed a little on margin’ (shift to breakfasts) but it is ‘gradual & nothing material’ • Any further upward pressure on food prices? Nothing dramatic, is around the level of inflation. Most drinks contracts are CPI-linked. • Competitor pricing? Not seen much change. • Impact of pub disposals on LfLs etc.? Sold pubs generally at less than book value (but not much). Pubs sold ‘were profitable’. Proceeds will be £15m to £20m. • Balance Sheet: • Will there be a net increase in pub units next year? Could be flat. Say ten in and ten out. • Are there more freehold reversions coming available? This is what’s driving the increase in net debt. Numbers ‘have gone up a bit since H1 results’. Say £70m to £80m for the year. • Langton View: JDW has reassured that current trading is somewhat improved but it would not be shaken from its view that LfL sales were set to moderate and that the remainder of H2 will be challenging. • Nonetheless, the group has been ‘pleasantly surprised’ by continued strong LfL sales & margins will be between 7.25% and 7.5% for the full year. • The group’s shares are not cheap in absolute terms but JDW continues to deliver. They are currently at all-time highs & some holders may wish to take a portion of their recent profits. PUB, RESTAURANT & DRINK PRODUCERS: • ABInBev reports Q1 numbers saying ‘revenue grew by 3.7% in the quarter, with revenue per hl growth of 4.3%’ • ABInBev says growth was ‘driven by revenue management initiatives as well as strong premium brand performance.’ It adds ‘on a constant geographic basis, revenue per hl grew by 4.5%.’ • ABInBev concedes ‘total volumes declined by 0.5%, while own beer volumes were down by 0.2%.’ It says ‘good growth in own beer volumes was achieved in China, Brazil and Mexico, while declines were recorded in the US, Colombia and South Africa.’ • ABInBev reports growth powered by global brands saying ‘combined revenues of our three global brands, Budweiser, Stella Artois and Corona, grew by 12.1%. Budweiser revenues grew by 7.3%, with 16.4% growth in revenues outside of the US. Stella Artois revenues grew by 21.1%, driven mainly by growth in the US and Argentina. Corona had a solid quarter as well, with revenues growing 18.2%, with 48.2% growth in revenues outside of Mexico, as a result of strong growth in Western Europe and China.’ • ABInBev reports Q1 EBITDA +5.8% with EBITDA margin +76 bps to 37.2%. Profit rose from $844m last year to $1.46bn this. EPS was 74c compared with 51c in the same quarter last year. • Re SAB Miller, ABInBev says ‘the business integration is progressing well, with synergies of $252m captured during 1Q17.’ • YUM Brands reports Q1 saying EPS came in +43% at 77c. Excluding one-offs, EPS was 65c, up some 17% on last year • YUM Q1: CEO Greg Creed comments ‘our strategic transformation of Yum! Brands is already well underway, helping us deliver a solid start to 2017’. He says ‘this growth was led by Taco Bell’s impressive same-store sales growth of 8% and double-digit core operating profit growth at KFC, partially offset by weakness at Pizza Hut U.S.’ • YUM reports ‘we remain confident that our multi-year strategy to be more focused, more franchised and more efficient will further strengthen our brands, accelerate growth, increase consistency in our results and increase capital returns.’ • YUM worldwide sales +5% with 2% LfL growth. Taco Bell LfLs +8% with KFC +2% and Pizza Hut down by 3%. • YUM now has 20,716 KFC restaurants worldwide. System sales growth in Q1 in UK was 6%. Group has 16,454 Pizza Hut units & 6,648 Taco Bells. • YUM! Brands Inc. has announced it will invest $130m into Pizza Hut US, in a bid to reverse the struggling chain’s decline. The reinvestment comes after Pizza Hut reported a 7% fall in LfL sales in Q1 2017. The agreement will see $25m spent on media this year with another $12.5m being spent next year. • SA Brain-owned Coffee #1 has reported number for the 53wks to 1 Oct saying ‘total sales grew by 27.25% driven by new store openings.’ Coffee #1 reports ‘we opened 14 new stores and closed two stores taking the total to 70 at the year-end.’ • Coffee #1 reports last year LfL sales growth of ‘just 0.4%, which was significantly lower than the previous year and a little below the performance of the coffee market as a whole. This was mainly as a result of the softer market, but also an increase in competition affecting a number of our key stores and the team’s focus on the higher number of new store openings during the year.’ The chain reported gross profit margin +0.3%. Sales for the year were £22.7m (2015: £17.9m) with pre-exceptional operating profits of £2.3m (2015: £1.9m). • J Sainsbury boss Mike Coupe yesterday said that ‘this year has been one of the most challenging and volatile years that I have experienced in my working lifetime.’ • Shopping centre operator Intu yesterday warned of a “challenging” year as Brexit and BHS closures hit growth • PizzaExpress LfL sales have declined 0.9% across their UK and Ireland estate for the 52 week period ending 1 January 2017. Chief executive of PizzaExpress, Richard Hodgson said the group had made a solid start to 2017 with LfL back in growth, however, he went on to say ‘looking ahead, we anticipate the UK market to remain challenging throughout 2017 and expect the unprecedented cost inflation impacting our sector to continue.’ • The MCA has reported that Andy Manders is to step down as chief executive of Byron Burgers. A Byron spokesperson has said ‘Andy Manders has decided to step down from the role of chief executive for personal reasons. A search for a new chief executive is already underway and in the meantime Dalton Philips, Byron’s chairman, will act in the role of executive chairman until a new chief executive is in place.’ • The TPG Capital backed restaurant chain, Prezzo, has reached over 300 sites in operation after multiple new openings this year, reports the MCA. • English wine producers take a severe knock after frosts gripped much of southern England last week, resulting in more than half of some producers’ crops being wiped out. Temperatures fell to -6C in some areas of southern England last week, with developing buds only able to survive temperatures as low as -1C. • YO! Sushi is to open a new pop up concept at Boxpark Croydon, with the new site offering traditional Japanese recipes with modern revamps to fit the Boxpark environment. • The ALMR has announced that, Patisserie Valerie, Prezzo and Marston’s, will all be joining as the newest members to the association. The addition of these companies aid the association’s status as the voice for UK’s eating-out and drinking-out industry. • Garden retailer, Dobbies, has announced a deal with Ocado to refresh its online offer and introduce nationwide delivery. • Carlsberg UK has introduced a new dispense system, that will aid pint consistency and save time for publicans. Carlsberg VP On-Trade, Per Svendsen, has said that the new system will ‘help to ensure that our customers are able to serve the perfect pint every time, through enhanced product quality at the point of sale, as well as reducing their own costs.’ HOLIDAYS, LEISURE TRAVEL & HOTEL • According to Cardlytics, consumer spending increased on flights (up 58.4%), travel (up 37.5%), hotels (up 10%) and car hire (up 7%) since last quarter. Cardlytics also reported yoy figures that showed spending on flights was up 8.3%, travel up 3.8%, hotels up 9.1% but car hire down -2%. Overall consumer spending was up 2.7% yoy. • Airlines UK is calling for a ban on duty free alcohol consumption onboard flights, in order to reduce the number of incidents of disruptive passengers. The Civil Aviation Authority reported 421 incidences in 2016 with most thought to be attributable to alcohol. • CEO of Hilton, Chris Nassetta, announced the firm’s plans to further drive worldwide growth with an increased pipeline of 27,000 rooms for a total of 325,000 for Q1, a 16% increase yoy. OTHER LEISURE: • Ladbrokes updates on Q1, reports ‘trading in-line with expectations despite mixed sports results’. Says UK retail revenue down 2% but digital net revenue +22%. CEO Jim Mullen comments ‘trading in the period was in-line with our expectations. We see encouraging trends in Digital sportsbook and gaming with continued enthusiasm for our multi-channel products in all our major markets and over a million customers now signed up in the UK alone.’ • Ladbrokes comments ‘sporting results in the UK gave with one hand and took with the other but we are probably marginally ahead overall.’ The group concludes ‘we remain confident in the opportunities ahead for the business and in our ability to deliver the year in-line with our expectations.’ • Hollywood Bowl Derby has officially opened and the £2.4m bowling centre is being described as one of the most high tech in the UK. The 22,000 sq ft site offers 18 lanes including 4 digital VIP lanes, a cashless amusement area, a diner and a bar. • Profits at Time Warner rose by 17% to $1.4bn in the first quarter of the year, thanks in part to the box office success of Lego Batman and Kong: Skull Island. Its movie business, Warner Bros, drove revenue gains, with an 8% year-on-year rise, while the CNN news channel reported its most watched first quarter in 14 years. • Facebook has reported surging quarterly profit and revenue, helped by its rapidly growing mobile ad business, although shares fell by 2.4% after-hours amid some concern about future earnings. Facebook said quarterly profit in the first three months of 2017 rose 76.6% year-over year to $3.06bn and total revenue went up 49% to $8.03bn. However, Chief Financial Officer David Wehner warned on a conference call: ‘As we look into 2017 and beyond, there are going to be a number of initiatives we believe are valuable to the community and to the company in the long term that are going to be net negative on our operating margin.’ FINANCE & MARKETS: • Brexit: o Where is Boris? He’ll reassure us that everything is OK. o And where’s the Red, White & Blue Brexit got to? o Wall St bank JP Morgan is reported set to move ‘hundreds’ of bank jobs to Europe in the near future. Pre Brexit vote, the co said it would ultimately move up to 4,000 jobs. o HMG has said it will not raise VAT. Arguably an idiot thing to do. Could be a bad outlook for income tax if the €100bn or even €60bn bill becomes a reality in the next parliament • Construction PMI in UK up to 53.1 in April • US Fed says recent slowdown is temporary • Not heard anything from President Trump for a few days. Must be a record • Oil down c15c at $50.58 • Sterling down vs US$ at $1.2875 • But up a shade vs Euro at €1.1817 • UK 10yr gilt yield down 1bp at 1.08% • UK market down yesterday but Europe higher. US down & Asia mixed in Thursday trading YESTERDAY’S LATER TWEETS: • Later tweets: Escape Hunt commences trading, opens at 144p (vs placing price of 135p). Escape rooms part of move to experiential leisure • JDW reports strong Q3 LfLs (+4%) & better margins. Says remains cautious on full year but should beat expectations • JDW likely to close as many pubs as it opens next year. Says needs 3-4% LfL growth to cover costs & hold margins • Crowdcube reporting more would-be fund-raisers failing to hit their targets. Becoming a trend? RETAIL NEWS WITH NICK BUBB: • Next: After the modest rally in the Next share price yesterday, we had hopes that today’s eagerly-awaited Q1 update might strike a more optimistic note, given the benefit from warm spring weather, but, alas, no such reassurance has been forthcoming. As a result, Next has cut the top end of its full year profit guidance range from £780m to £740m (whilst keeping the bottom end at £680m), which is disappointing. Q1 full-price Brand sales were down by 3.0%, despite the warmer later Easter, with Next Retail down by as much as 8.1%…and Next Directory up by 3.3. Next expect to get the benefit of improvements in its product range from the autumn onwards, but warn that “The UK consumer environment remains challenging, particularly in the clothing and homeware markets, and real wage growth is now close to zero”. Hmm.
• Morrisons: By way of contrast, the Q1 update from the fast-recovering Morrisons has reported good-looking 3.0% Retail LFL sales growth (ex the 0.4% benefit from Wholesaling), albeit 0.5% of that growth has come from Grocery Online and Morrisons note that “There was some inflation during the period, as imported food prices were affected by lower sterling”. CEO Dave Potts, says “Our new financial year has started well, thanks once again to the dedication of our team of food makers and shopkeepers. We are improving the shopping trip in many different ways, which is making Morrisons more popular and accessible for customers. These new initiatives in-store, online, in wholesale and services are beginning to build a broader, stronger Morrisons. We are confident we will continue to turnaround and grow Morrisons. Our expectations and guidance for 2017/18 are unchanged, including year-end net
• Grocery Market Share Watch: As we flagged yesterday, the latest monthly Kantar/Nielsen grocery market share figures made good reading overall, but were heavily distorted by the impact of the Easter calendar shift. Kantar said that total industry sales were up by 7.2% over the 4 weeks to April 23rd and as all the “Big 4” were 6%/7% up (having all been 1%-2% down in the previous 4 weeks), there’s not a lot of point in analysing the trends too far. Nielsen said that the last 4 weeks, to April 22nd in their case, were even stronger for the industry, at +8.6% and noted that average growth over the last 8 weeks was pretty strong at 2.8%, with the Easter weeks themselves up by 3.5%. Kantar measure grocery price inflation at 2.6% over the last 12 weeks. Incidentally, Kantar introduced Ocado to its published figures for the first time and flagged that “Ocado has doubled its share since late
• Halfords: We flagged yesterday that Halfords’ CEO’s never seem to last long…Jill McDonald has only been at Halfords for 2 years, just as her predecessor, Matt Davies, only lasted at Halfords for 2 years before moving on to run Tesco UK. Maybe the HQ in Redditch isn’t the greatest place to work…Or maybe Halfords is just a superb breeding ground for Retail executives, as another previous incumbent, David Wild, has gone on to great things as boss of Domino’s Pizza. However, the veteran investor Warren Buffett once said, famously, that “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact”…And despite its moves into car servicing and bike retailing, Halfords remains a pretty mature and over-stored business facing strong Online competition and the weak performance of the share • Shopping Centre Watch: The shopping centre giant Intu Properties released a trading update yesterday ahead of its AGM and began by saying “The active tenant demand of last year has continued into the current year with 42 long term leases signed in the first quarter representing £6m of annual rent, 5% above the previous passing rent. We have attracted a number of well-known international brands such as Hugo Boss, Guess, Tesla and Tag Heuer”. It also highlighted the strong demand for space in the Intu Lakeside leisure extension and said that “Of the 10 BHS stores that closed in 2016, we have now relet two units, are in advanced negotiations on four units and two form part of redevelopment projects at intu Broadmarsh and intu Watford. The remaining two units are at earlier stages of negotiations”. • Apple Watch: We flagged yesterday that we hadn’t had time to look at the Apple Q2 results which came out late on Tuesday night on the West Coast, but after seeing the main Business headline in the Times (“Apple suffers iPhone setback”) we expected to hear that iPhone sales had collapsed. In fact, Q1 volumes were only down by 1% (with sales by value up by 1%) and on the analysts call management said that the iPhone sell-through, adjusted for stock movements, was better than that, so they weren’t exactly a disaster, even if they fell a bit short of Wall Street expectations. And many consumers may simply be waiting to upgrade to the new iPhone this autumn. Interestingly, the CEO Tim Cook, flagged that “Apple Retail is entering an exciting chapter with new experiences for customers and breathtaking new store designs”, singling out the strong Retail growth in China. |
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