Langton Capital – 2017-05-16 – Enterprise Inns H1, licensing trends, 888 & other:
Enterprise Inns H1, licensing trends, 888 & other:
A DAY IN THE LIFE:
Bit busy today. And also still mourning the departure of the Mighty Hull City from the top flight of English football. On to the news:
ENTERPRISE INNS – H1 NUMBERS:
• H1 Results – 6mths to 31 Mar 17:
• EI Group has this morning released H1 numbers for the 6mths to end-March and our comments are set out below:
• Key Numbers:
• Enterprise reports underlying H1 EBITDA of £140m (2016: £142m), which is ‘in line with expectations and reflecting the impact of planned disposals’
• The group reports underlying PBT of £57m (2016: £57m)
• It says its ‘business [is] performing well with all operations maintaining like-for-like growth momentum and strategic evolution on track’
• Basic EPS is 2.1p (vs 6.6p) but underlying EPS is +4% at 9.6p (vs 9.2p last year)
• LfL income across leased & tenanted pubs was +1.6% (having also been +1.6% at week 18)
• Operational & Strategic Highlights:
• Pub Partnerships:
• Historically the bulk of the group’s business, EIG reports it is seeing ‘continued momentum with like-for-like net income up 1.6% (H1 2016: up 1.8%) and growth delivered across all geographic regions’
• It adds the ‘initial phases of implementation of the new Pubs Code progressing in line with expectations’
• Commercial Properties:
• These are showing ‘like-for-like net income up 1.1% (H1 2016: 6.3%) reflecting changes in estate composition, with future like-for-like net income growth expected to normalise in line with inflation’
• The group now has 304 commercial properties at 16 May 2017 with ‘an improved average annualised rental income per property of £66,000 (H1 2016: £59,000)’
• The group sold a package of 18 commercial properties on 16 March 2017 ‘generating £20 million of net proceeds, representing a 15% premium to the prior year-end book value and a gross yield of 6.57%’
• Managed Pubs:
• EIG now has ‘161 pubs trading within our 100% owned Managed Operations business at 16 May 2017 with 39 trading in the Bermondsey Pub Company and 122 in the Craft Union Pub’
• There are 24 pubs trading within Managed Investments business unit at 16 May 2017, operating through trading agreements with seven managed partners
• Balance sheet, cash flow & other:
• EIG reports net cash inflows from operating activities of £117 million (H1 2016: £129 million)
• It has seen net proceeds from disposals of £65 million (H1 2016: £27 million)
• Total capital investment was £35 million (H1 2016: £30 million) ‘with 57% focused on growth-driving investment schemes (H1 2016: 50%). Average pre-tax returns on all such investment of 21% (H1 2016: 19%)’
• Some £25m of shares have been bought back
• Company comments on performance:
• CEO Simon Townsend reports ‘we are pleased to have maintained the growth momentum in our leased and tenanted estate while making significant progress in building our commercial property portfolio and managed businesses.’
• He says ‘our transformation of the Group remains on track.’
• Re current trading, Mr Townsend comments ‘trading in the first six weeks of the second half of the year has been strong, assisted by the timing of the Easter holiday period.’
• He continues ‘we expect our trading performance to reflect more challenging comparatives in June and July as we benefited from the UEFA Euro football championship last year.’
• The CEO adds ‘we are mindful of the potential for continuing economic uncertainty over the coming months, and remain vigilant regarding possible headwinds from the Pubs Code depending upon its interpretation and application.’
• Overall, the group feels able to conclude ‘whilst taking into account these factors, we are confident that we will continue to deliver positive like-for-like net income growth in our leased, tenanted and commercial estates for the full year, we are encouraged by the trading performance of our expanding portfolio of managed houses, and we remain committed to the successful implementation of our strategic plan to deliver long-term growth in shareholder value.’
• Langton Comment: Enterprise’s shares have risen strongly after their July 2016 lows of around 74p and they are now trading at 12mth highs.
• The bid for rival operator Punch Taverns helped sentiment but much of this recovery has been down to self-help and the reorganisation, which now sees EIG operate in a much-evolved format.
• Shares have been supported by the company’s share buyback programme, which will have helped to mop up excess stock.
• The group has reassured that its strategy is being implanted and it has been able to advise that early results have been good. Current trading is strong but, with good weather in April and an Easter shifted into H2, that is perhaps understandable.
• Nonetheless, EIG’s plan appears solid. Execution remains a challenge and there are some external concerns, Brexit, the pubs code etc. but trading is in line with expectations.
• As previously reported, 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.
• This would appear, though these are early days, to be working.
• EIG’s shares remain cheap at less than 8x this year and next year’s earnings. Normalisation is critical & a dividend would be helpful.
PUB, RESTAURANT & DRINK PRODUCERS:
• Byron Hamburgers has announced the termination as a director of CEO Andrew Manders. Mr Manders was appointed to the position as recently as December last year. Mr Manders took over from long-standing CEO Tom Byng at the same time as Dalton Philips, ex-CEO of Morrison’s, was appointed chairman.
• Andrew Manders’ contract as CEO of Byron was reportedly terminated on 4 May 2017. He previously MD of Fired Earth, the retailer of premium interior design products. Prior to this he held roles at Aspinal of London, Mountain Warehouse and Jones Bootmaker.
• Derby Brewing has announced that it has reached 75% of its crowd-funding target. Its offer is open until 31 May
• Leasehold demand has fallen drastically in the last three years, a survey conducted by the Association of Valuers of Licensed Property has found. The survey reported that 46% of pub property agents had fewer inquiries for leasehold sales than three years ago.
• The first three months of 2017 saw damp restaurant industry conditions continue in the US, with consumers dining out less and average same-store sales for publicly-traded restaurants to have reported so far this earnings season down by 0.4%. Consumers also exhibited more discretion in terms of where they spent their money — same-store sales performance ranged from a decline of 15.8% at Pie Five to an increase of 17.8% at Chipotle Mexican Grill Inc.
• Stonegate Pub Company has confirmed an 18-month partnership agreement with MatchPint to provide customer marketing and promotional activity with suppliers during the Russia World Cup in July 2018. MatchPint will be operating in 425 of Stonegate’s pubs, with the app having shown to increase bars sales by 5% during big games.
• The Society of Independent Brewers (SIBA) has sent its manifesto to parliamentary candidates ahead of the General Election, in an attempt to secure the future of the vibrant independent brewing sector.
• HIM Research and Consulting has stated that creating a positive in-store experience for shoppers is vital for securing customer loyalty and spending. Data from the group found that customers who rated their in-store experience highly were 50% more likely to revisit and spent 42% more than other shoppers.
APPS AND THE ON-TRADE:
• Langton has been let loose with a pen again & we’ve written about Apps in the On-Trade. Briefly they’re here, they’re big & they’re getting bigger. The note is here
HOLIDAYS, LEISURE TRAVEL & HOTEL
• A director at Rock Insurance Group has warned that fraudulent holiday sickness claims could cause the cost of European all-inclusive holidays to increase by up to 15% annually. Spanish hotel owners say that a reported increase in claims of 700% in the last 18 months with the fraudulent claims potentially costing the industry up to £40m.
• An expert from Deloitte has suggested the US ‘laptop ban’ could be rolled out globally. Alistair Pritchard, lead partner for travel said ‘Some of our intel tells us that this may now go further, it could be a global ban for laptops and tablets.’
• According to a study by HOTREC, travellers’ priorities for hotels is feeling safe, followed by privacy and friendly staff. For restaurants it is an authentic, local food experience, with younger guests also care more about unique design, atmosphere and flexible opening times.
• Canada’s New Tourism Vision, a 20-point plan, aims to increase the number of international visitors by 30% over the next 4 years from 20m in 2016. UK tourists are the second biggest market to Canada (after the US) with 833,000 tourists in 2016, a 17% increase yoy.
• The Gambling Commission’s investigation into whether 888 Holdings was doing enough to protect customers caused its shares to fall sharply on Monday. The company could be facing a possible fine as a result of the review, according to analysts at Peel Hunt.
FINANCE & MARKETS:
• Oil up 40c or so at $51.97
• Sterling little changed vs US$ at 1.2906 but more sharply lower against a stronger Euro at €1.1741
• UK 10yr gilt yield rebounded 5bps yesterday to yield (a still-meagre) 1.15%
• UK, European & US markets all broadly higher yesterday. Far East higher in Tuesday trading.
YESTERDAY’S LATER TWEETS:
• Later tweets: Crowd-funding. Vulpine may call in administrators, shareholders’ money going to heaven.
• Crowd funding. Curious restaurants fails to raise funds, Bubble& ditto. Derby Brewing extends time period etc.
• The New Car finance deals market is said to be booming. The Finance & Leasing Association insists lending is ‘responsible’ (but +13%)
• ASDA numbers on Thursday may show group coming fourth (from four) again. Hopes are it won’t press the ‘price’ button
• Unemployment going up next year says E&Y Item Club. May be small number impacted but could hit expectations & hence confidence
• CPI rate tomorrow to be sharply higher, Bank & others saying ‘look through it, take hit to living standards on the chin’ etc.
RETAIL NEWS WITH NICK BUBB:
• Today’s Press and News: The startling front page headline of today’s FT concerns the global cyberattack (“Hackers have second US cyberweapon primed for attack, warn analysts”), but the big story in Retailing is the Telegraph scoop that Booths, the upmarket Northern supermarket chain, has parted ways with its first and only ‘outsider’ CEO, Chris Dee, in a move that returns the leadership of the business to family hands. The Times has a feature on “Amazon and its relentless river of cash”, noting that yesterday was the 20th anniversary of the initial float of Jeff Bezos’s Online giant (Amazon is now capitalised at $465bn…).
• News Flow This Week: Thursday brings the Burberry finals, the Mothercare finals, the Greggs trading update, the Booker finals, the ONS Retail Sales for April and the Asda Wal-Mart Q1, as well as the Land Securities finals. Before that, tomorrow brings the British Land finals (in the world of Retail property) and the Marks & Spencer Autumn/Winter Press Show, whilst the Moss Bros AGM is on Friday.