Langton Capital – 2017-05-25 – Young & Co, margin vs volume, new openings & other:
Young & Co, margin vs volume, new openings & other:
A DAY IN THE LIFE:
Still a bit busy, on to the news:
YOUNG & CO – FULL YEAR NUMBERS:
• Young & Co full year numbers. Revenues +9.4% at £268.9m, adjusted PBT £40.4m (+13.5%) and EPS 66.43p (+13.7%).
• Young’s FY: Dividend up 6% at 18.5p. NAV now £10.10 vs £9.30 last year.
• Young’s FY: Group reports ‘another very successful year’s trading, continuing the consistent run of outperformance driven by our premium estate of differentiated, individual pubs and hotels’.
• Young’s FY: Group says ‘Young’s, Geronimo and Ram Pub Company revenues [are] all in high single-digit growth’
• Young’s FY: Managed house revenues +7% with +4.7% being LfL. Operating profit is +9.8% to £58.4m. Group reports ‘our managed houses delivered another strong performance in 2017.’ Comps were tougher but the 2016/17 outturn has been very good.
• Young’s FY: Pub company revenues +7.1%, up 3.2% LfL. Operating profits +11.1%. The group reports ‘it has been a strong year for our tenanted estate, further underlining the decisions made in previous years to focus on the long-term opportunities that a smaller and better supported operation can deliver.’
• Young’s FY: Group has invested £38.2m during the year ‘in acquisitions, transformational developments & estate upgrades’. Debt now only 1.9x EBITDA.
• Young’s FY: Current trading: Reports ‘positive trading since the period end’. Managed LfL +4.7%. CEO Patrick Dardis reports ‘I am delighted with these results. Yet again we have outperformed the sector, and made progress on all key measures, with revenue, profit, margin, cash generation, investment, the value of our pub estate and shareholder returns all strongly ahead. This is the reward for our consistent strategy of running high quality, differentiated, individual and well invested pubs, at the heart of the communities in which they sit.’
• Young’s FY: CEO Dardis continues by saying ‘the broader economic and political environment remains uncertain and our sector faces unwelcome cost pressures on a number of fronts. In response, we are working hard to ensure we are best placed for whatever is around the corner. We have a reliable track record, a very clear strategy, a great team of people, and the financial muscle to continue to grow. We will continue to surprise and delight our customers, and to grow our estate through carefully selected acquisitions and developments, all in pursuit of delivering superior returns for our shareholders.’
• Young’s on current trading. The group reports ‘the mild and dry weather during April and the increase in “staycations” during the Easter holidays drove footfall, however this was dampened by a comparatively wet May.’ The group comments ‘in the short-term, the impact on consumer confidence from the prospect of Brexit has not been as harsh as some expected, being softened by a combination of falling sterling, low interest rates and the resilience of the British consumer.’ The group concludes ‘we remain confident in our strategy and our ability to meet and exceed our customers’ expectations.’
• Langton Comment: These are very strong numbers. Young & Co has a largely freehold estate that many operators can only dream of and it operates in economically buoyant geographies. That said, the group’s shares are not cheap. They seldom are but, at around 21x earnings for the year just commenced, would-be buyers may find themselves unable to commit. Historically, that has been a mistake.
RESTAURANT GROUP, RESTAURANT TRENDS:
• Shares in Restaurant Group steadied yesterday (they rose c0.5%) after falling 7% the day before on a broker downgrade. No comment from the company until its H1 numbers but fears are that executing on the group’s strategy will involve risk & take more time & money than was first envisaged.
• Value & volume versus margin.
• Moving from one business model (high margin, modest volume) to another (more of an everyday value proposition) takes time & effort. Initially customers, who may have been put off one, two or three years ago, don’t know that you’ve changed. Word of mouth may take years to reach them and to voucher them, you have to know who they are.
• Know your customer. Apps can be useful.
• Once the customer has been identified and vouchered or otherwise begged to come back, he or she needs to be wowed. This needs to be via price, quality or, preferably, both and, with rivals such as Franco Manca offering their top of the range & authentic pizzas for £7.55 (entry level pizzas are £6.40), Restaurant Group (and some others) have a very long way to go.
• Wow your customer. Make it impossible for them not to come back. Compel them to tell their friends. It’s easy when you say it quickly. It’s much more difficult in practice.
• Remember in the US, overbuilding has led to volume (i.e. footfall) drops all this year.
• Margin isn’t the answer. Well not all of it, anyway. You will never be able to sell one meal for a billion quid. But you may be able to sell 100m meals for a tenner each. The latter is much, much harder work. But nobody said it would be easy.
PUB, RESTAURANT & DRINK PRODUCERS:
• Ei Group has announced a new managed investment partnership with the Three Cheers Pub Co, the new venture will be called Six Cheers Ltd. Three Cheers currently owns seven pubs in south London. The first venue of the Six Cheers company will be open in Balham in early 2018.
• Truman’s Chairman, Malcolm Heap, is stepping down in order to focus his efforts on the rapidly growing Urban Pubs and Bars business. The CEO of Kleinwort Benson Investment Bank, Robert Taylor will become the new chairman of Truman’s.
• MOD Pizza UK is believed to be preparing for further expansion throughout the country, reports the MCA. The pizza chain currently operates five sites and is planning a further 10 openings in the next year.
• Grand Union has sold three sites to Young’s after it had been placed on the market last year, the MCA has reported. It has also been reported that Draft House is currently in discussions to acquire the remaining Grand Union sites.
• Fever-Tree’s co-founder and non-executive deputy chairman, Charles Rolls, intends to sell 2,500,000 shares via a placing (2.2% of the company).
• The ALMR has successfully challenged Tower Hamlets Council’s decision to introduce a late night levy after drawing attention to the Council’s ‘faulty’ consultation procedure. The Council accepts that it did not conduct the mandatory consultation on the implementation date for the levy and that its documents were worded in such a way as to confuse consultees and were likely to mislead them. ALMR Chief Executive Kate Nicholls said: ‘The ALMR will be scrutinising any further action by the Council and will forcefully oppose any measures that heap additional costs on hardworking venues and threaten jobs and investment in eating and drinking out businesses.’
• Food to go has increased its share of total eating out visits by 1.4% to 42.3% compared to last year, per MCA’s Food To Go Tracker Q1 2017. Growth has come primarily from a 2.2% rise in to-go snacks, as well as a 1.2% growth in to-go meals, while women now account for 51% of FTG visits (+3%).
• The ALMR and HOTREC (a hospitality umbrella organisation in Europe), have called for lower levels of VAT across the EU. A report released claims that lower VAT rates on hospitality services ‘is key to Europe’s competitiveness as a tourism destination.’ ALMR CEO Kate Nicholls comments ‘our report provides powerful evidence in discussions around the effect of VAT on our industry, which already faces high taxes. Importantly, it demonstrates how low VAT will encourage growth in employment.’
• ALMR looks for Brexit upside, it reports that it ‘is confident that Brexit will create the environment in which the Government can and will reduce VAT.’
• Wahaca, the mexican restaurant chain, has admitted liability for hundreds of people contracting norovirus last year. Over 350 people fell ill with the illness, with nine restaurants having to temporarily close. Wahaca could be forced to pay sufferers settlements exceeding £15,000 each.
• The Grocer reports food manufacturers ‘need to rethink recruitment as labour crisis looms’. It says the industry will need to recruit up to 140,000 new workers by 2024.
• Coca Cola reports that it is to form a new bottler to operate in the Metropolitan New York, Philadelphia and the New Jersey territories.
• Derby Brewing, which has cut its offer price by around 60% over the last 3wks or so, reports that it is now up to 90% of its target amount in its share offer. It says ‘we are really excited by the progress and would love to get to target as quickly as possible, in order to allow the chance for overfunding, so would encourage investors looking to increase their share or potential investors who have been considering investment to go ahead and join.’
• Dixons Carphone sales increased by 4% for the year to April amid what the company called ‘a lively political backdrop’. With strong growth in southern Europe, Dixons expects annual pre-tax profits to in the range of £485m-£490m.
HOLIDAYS, LEISURE TRAVEL & HOTEL
• Some 73% of British parents are reported to support term-time holiday campaigner Jon Platt. Around 49% of parents currently take their kids out of school during term time.
• Aviation industry lawyers claim that Brexit is unlikely to force changes to flights between the UK and EU, a sentiment echoed by Monarch Group chief exec Andrew Swaffield. This follows Ryanair warning that all flights between the UK and EU could cease without an agreement from March 2019.
• Soldiers will be on the streets in key public locations after the UK’s national threat level was raised to ‘critical’. This level means that further attacks may be imminent following the attack on the Manchester Arena.
• Flight booking software company eWings.com has been taken over by Hogg Robinson Group for an undisclosed sum.
• STR reports hotel KPIs for different regions. Central/South America: occupancy 54.7% (down 2.5% yoy), ADR $100.42 (down 1.4%), and RevPAR $54.94 (down 3.9%). Asia/Pacific: occupancy 72.6% (up 3.5%), ADR $102.18 (up 0.8%) and RevPAR $74.17 (up 4.4%). Middle East: occupancy 75.7% (up 7.3%), ADR $176.60 (up 2.8%) and RevPAR $133.75 (up 10.3%).
• The Conference Board of Canada believes there will be a bump in travel to the country due to a period of relatively low currency valuation. The latest ‘Travel Markets Outlooks’ reports projects a 3.75 increase in overnight visits.
• Nintendo’s share price is at a multi-year high, pushing it into the top 20 biggest listed companies in Japan. The company built upon its Pokémon Go success last year with strong sales in its new game console, the Switch. Nintendo’s shares are up 29.9% in 2017, giving the company a market cap of $39.1bn.
FINANCE & MARKETS:
• Brexit, election etc.:
o Hiatus in campaigning continues.
o Rival European cities said to be competing to take the European Medicines Agency & the European Banking Authority from London post Brexit. Barcelona, Milan, Copenhagen and Dublin are said to be leading the charge.
• Consumer confidence up in Germany.
• US Fed minutes relatively dovish, US$ falls a little.
• Sterling fractionally stronger against a weak US$ at $1.2986
• Pound down against the Euro at €1.155
• UK 10yr gilt yield down 1bp at 1.07%
• Oil price up a few cents at $54.40 on stories that Opec is close to extending its production cuts into next year
• World markets: UK up but Europe down yesterday. US higher & Asia mostly up in Thursday trading.
YESTERDAY’S LATER TWEETS:
• Later tweets: Domestic stocks hit yesterday as possible negative implications of domestic terrorism sank in. Inbound bookings may slip.
• UK April public deficit worst in 3yrs. Odd way to cut the deficit. Euro business confidence rises sharply, manufacturing at 6yr high
• EasyHotel. Facility creep (step forward Premier Inn & Travelodge) creating a gap into which EZH can continue to grow
• Restaurant overcapacity in US still a nagging issue says journal NRN. Cracker Barrell LfL sales down 4.7% in its Q3
RETAIL NEWS WITH NICK BUBB:
• Nick is taking a well-earned break, back Weds 31st.