Langton Capital – 2017-06-21 – Whitbread, delivery, contactless, easyHotel & other:
Whitbread, delivery, contactless, easyHotel & other:
A DAY IN THE LIFE:
The UK is in the middle of a heat wave.
At least it is in the South but, as there’s a weather line running West / East that’s drifting up and down the country, that’s not the case everywhere.
I mean take York as an example. Here it was around 30 degrees on Monday but, as the line moved south a bit, it was only 17 degrees yesterday and, though that made the shorts and T-shirt more than simply a run-of-the-mill Langton fashion disaster, it was a bit more pleasant.
We could get a bit of work done. Arguments didn’t exceed normal, base-levels and we were probably snoring away contentedly up here at 3am when it was 12 degrees or so outside (and not much warmer in) whilst it was blistering away at 20 plus degrees in some other areas leaving residents to wring out the bed several times during the night.
Which is not a very appealing thought because, having experienced both micro-climates in the last 48hrs, I know which I prefer.
Anyway, it’s 49 degrees in Phoenix. On to the news:
WHITBREAD Q1 TRADING UPDATE:
Whitbread has this morning updated on trade for its first quarter, the 13wks to 1 June and our comments are set out below:
• Whitbread reports Premier Inn LfL sales +4.7% with total sales +9.2%
• Restaurants are +0.7% LfL with total sales +2.1%
• Costa is +1.1% LfL with total sales +8.7%
Premier Inns & Restaurants:
• In hotels & restaurants, Whitbread comments ‘Premier Inn continued to win overall market share with strong sales growth of 9.2% as we benefitted from a resilient hotel market and the contribution from the c.9,000 rooms we opened over the last two years, which are maturing well.’
• The group says ‘our digital development team continued to innovate for our customers and we launched our personalised business to business booking platform that helped to maintain our direct bookings at 94% of sales.’
• Whitbread adds ‘we were pleased that total UK occupancy was up compared to the first quarter last year at 79.2%, at the same time as we increased our capacity.’
• Whitbread reports ‘Costa sales grew 8.7% with UK equity like for like growth of 1.1% and a good performance in our expanding travel and drive thru channels.’
• The group adds ‘we are focused on executing on our initiatives, rolling out ‘Cold Brew’ in over 200 of our stores and our latest summer Frostino and cooler drinks have just gone on sale this month.’
• Whitbread reports ‘Costa Express continued its expansion with 300 net installations during the quarter.
• The group reports ‘in May we officially opened our new Roastery giving us capacity to grow over the next 20 years and provide us with an industry-leading centre for coffee innovation and training.’
• Internationally, Whitbread reports ‘in Germany our Premier Inn hotel in Frankfurt is performing well and we continue to develop our current committed pipeline of five hotels.’
• The group says ‘meanwhile, in Costa, we are seeing good progress in China with positive like for like sales growth. We aim to accelerate the development of our international businesses in these attractive markets and continue to look for opportunities to grow more quickly.’
Debt, balance sheet & cash-flow:
• Whitbread reports ‘in line with our property strategy we completed the sale and leaseback of our 247 room hotel in Shoreditch, with proceeds of £51 million representing a good yield of just under 4%, reflecting the strength of Whitbread’s covenant.’
• The group says ‘we expect proceeds of around £100-150 million from sale and leaseback transactions this year.’
• On expansion, WTB adds ‘we have a clear plan to deliver growth in our existing estate and remain on track to open c.4,200 hotel rooms, 230-250 Costa coffee shops and install c.1,250 Costa Express machines this year.’
• Whitbread Chief Executive Alison Brittain comments ‘we have had a good start to the year, with first quarter sales growth of 7.6%, in line with our expectations.’
• She adds ‘our continued drive to grow and innovate in our core UK businesses, focus on our strengths internationally and build capabilities to support long-term growth, combined with our ongoing cost efficiency programme, gives us confidence that we will make further good progress this year.’
Langton Comment: Whitbread’s Premier Inn bounce in impressive but the continued slowdown at Costa, at least in terms of LfL sales, may be a worry to some. It will not be performing strongly in the current hot weather & retail footfall is on the slide.
Nonetheless, the company is able to refer to hot-weather products such as its Cold Brew and Frostinos.
Whitbread’s shares slid after its full year numbers and, despite a bounce in May, they are back around 6mth lows.
The shares now trade on around 15x this year’s numbers and offer a yield of c2.6%. The PER falls further, to 14x, for the year to February 2019, at which time they will offer a yield around 2.8%.
This is not cheap per se but it represents a lower rating than has been accepted as ‘normal’ for Whitbread.
The current rating reflects some concerns that the UK economy is about to slow and that, despite the company having an attractive freehold base and somewhat international brands, this will weigh on results.
PUB, RESTAURANT & DRINK PRODUCERS:
• Journal NRN in the US has said that delivery apps are not simply replacing business that would have walked in through the door for restaurants in any case. NRN says ‘the delivery trend appears to be creating its own set of business — at least in the short term.’ It quotes Sense360, which reports that consumer use of delivery apps does not cannibalize existing restaurant visits. Sense360 says that delivery is a driver of business but, since consumers are hopefully not simply eating more food, somebody has to be losing business somewhere.
• The ALMR has warned that adding public health as a licensing objective would ‘undermine existing work without tackling perceived areas of alcohol-related harm.’ It says ‘what we should remember, and what Public Health England should recognise when making such recommendations, is that consumption of alcohol is declining.’ ALMR CEO Kate Nichols goes on to say ‘to link public health with licensing decisions ignores more effective approaches to reducing harmful drinking and jeopardises hospitality businesses.’
• BBPA calls for transitional measures in Brexit. It says it has signalled its support for the approach outlined by the CBI and other leading industry groups ‘to ensure that, alongside the brewing and pub industry’s existing priorities, robust transitional arrangements are in place as the UK prepares to leave the European union.’
• Bacta, the trade association for manufacturers and operators of gaming machines, pool tables and jukeboxes, will start to have quarterly meetings with the ALMR and the BBPA. Bacta CEO John White said ‘I believe it is important the principal trade bodies maintain an open and regular dialogue, share insights and in the process help ensure a sustainable and healthy relationship which continues to make a significant contribution to the business of thousands of pubs in the UK.’
• The Barclaycard Contactless Spending Index has revealed spending on contactless payments by UK shoppers has increased 34% since the start of the year. The research shows 51% of transactions of up to £30 are now made using contactless cards.
• Imbiba backed Albion & East announces that it has secured a second site. The group says ‘we have acquired our second site in Brixton, with an Autumn 2017 opening planned’. The 4,500 square feet unit is located in an old department store. A&E reports ‘the footfall at this location is good and it is close to the Brixton Academy music venue, which is a popular London venue for live music’.
• Rising marketing costs have meant Chipotle faced its worst fall this year, with marketing and promotion costs expected to be 3.6-3.7% of sales this quarter. There are concerns over the burrito chain’s profit margin, with other expenses expected to be 16.4% of sales, up from 14.1% in Q1.
• US restaurant data released by MillerPulse has found that same-store sales increased 0.6% in May, the first month of LfL sales growth this year. The founder of MillerPulse, Larry Miller has stated ‘There should be modestly positive [same-store sales] the rest of the year,’, however he went on to highlight that ‘there are still problems,’ that the restaurant sector must overcome before they will be back to one to two percentage LfL growth.
• Bookable has found UK diners to be suffering from ‘food fatigue’. The report showed that Millennials were less likely than those aged between 35-44 to choose somewhere to eat based on whether they served ‘hipster’ or alternative food. Over half of Brits said they were not bothered with keeping up with the latest food trends. Bookable’s head of communication, Josephine Ellis said ‘It’s clear there’s a huge shift in the types of food we’re wanting to order, with our research showing that we’re moving away from ‘fads’, and instead, heading towards a healthier and more considered future when it comes to food.’
• Brighton Pier Group has announced Anne Martin is to be the new CEO, starting on 26 June. Luke Johnson, chairman of the group, said ‘Under [Anne’s] leadership over the last 11 years The Brighton Palace Pier has grown year on year. As the Group acquires more businesses, her unique experience will be invaluable in helping us to evaluate, acquire and manage these new assets.’
• Per MCA, Jill Matthews has been replaced by David Campbell at the Coaching Inn Group. Campbell was the former operations director at the Orchid Group.
• Virgin Wines is expected to relaunch its website next month after a major overhaul in a bid to increase Virgin’s interactivity with its customers. It is also planning to launch an app to streamline its operation in tandem with the new site.
• A computer glitch has caused thousands of Tesco customers to have their home deliveries cancelled. A spokesperson for the supermarket said that up to 10% of customer orders had been affected. Those affected were offered a £10 voucher in compensation.
• Sainsbury closing in on Nisa year or so after the Argos deal. Tesco Booker now with the CMA. Supermarkets cannot afford to stand still for long. Amazon rumours for Morrison will surface from time to time.
• PepsiCo has selected three UK startups for its inaugural Nutrition Greenhouse initiative, which aims to accelerate growth in nutrition-focused businesses that have sales of €2m or less. The three companies are Fit Kitchen, Tapped Birch Water and Erbology.
HOLIDAYS, LEISURE TRAVEL & HOTEL
• easyHotel reports it has secured a lease for a purpose-built 180-room “super budget” hotel in Oxford. The co says the 25yr lease site ‘is to be redeveloped as a mixed use property. A new purpose-built 180-room easyHotel will occupy the first and second floors of the property and is expected to open in the second half of the 2019 calendar year.’ EasyHotel reports ‘Oxford is a key economic centre in the UK and a popular tourist destination where demand for hotel accommodation is consistently strong. High land costs and the lack of suitable, available sites have made Oxford a very difficult city within which to develop hotels in general, and budget hotels in particular, with only 200 new hotel rooms having opened in the city in the last five years.’ CEO Guy Parsons reports ‘Oxford is a premier business and tourist destination with over 7 million visitors per year. The city has
• Global property consultancy Knight Frank expects overseas investors to support the UK’s hotel sector as a result of the drop in sterling.
• The US hotel industry saw a 1.5% increase in occupancy to 67.8% during May, while average daily rate was pushed up 2% to $126.63 and revenue per available room rose by 3.6% to $85.85. Jan Freitag, STR’s senior VP of lodging insights, commented: ‘ADR growth rate was the second-lowest of 2017 and well below the historical average for May (+3.0%). Clearly, supply growth hovering close to 2% is making hoteliers less confident in their pricing power, even when occupancy performance is positive. Moving forward, we are projecting supply growth to surpass demand growth, leading to flattening then decreasing occupancy. That will leave ADR as the lone driver of RevPAR growth.’
• One of Europe’s largest private equity groups, CVC, has agreed to buy swedish online travel agency Etraveli for €508m as consumers look to purchase cheaper and more complex flights. Etraveli, which is based in Sweden, is a global e-commerce platform for flight tickets with a leading position in the Nordics and a fast-growing international business. The online travel agent, which was owned by ProSiebenSat.1 Media SE – an independent media firm – has over €2bn transactions a year across almost 50 countries.
• A survey by long-haul specialist Southall Travel shows that of the 3,400 holidaymakers asked, 72% say they will continue with their holiday regardless of the recent election and Brexit. However, a number of British travellers are concerned about Brexit negotiations and the impact it may have on the cost of a European holiday.
• The actions of a dishonest few ‘food bug fraudsters’ are threatening the plans of many British holidaymakers, according to the boss of Jet2holidays. CEO Steve Heapy said: ‘We want our customers to have a great holiday and to continue to enjoy the benefits of all inclusive. But the danger is that these fake food poisoning claims put the all inclusive holiday at risk. The sharp rise in the number of sickness claims is costing hoteliers and travel companies dearly, and it’s frustrating when so many are made a year or more after the holiday has ended.’
• New flights have helped push British tourist numbers to Croatia up to record highs in the first half of 2017, according to official figures from the Croatian National Tourist Office. Dubrovnik saw the most overnight stays by UK travellers in the January to June 15 period, followed by Split, Istria and Zadar.
• Monarch has placed an order for 15 new Boeing 737s costing $1.7bn, taking the airline’s fleet to 45.
• Snapchat and Time Warner have agreed a partnership deal that will see TV shows released on the social media platform.
FINANCE & MARKETS:
• Bank of England governor Mark Carney says ‘since the prospect of Brexit emerged, financial markets, notably sterling, have marked down the UK’s economic prospects.’
• Carney suggests slack monetary policy could favour inflation over job losses. He says wage growth is anaemic. It is actually negative.
• Carney says due to weakness & uncertainty, now is not the time to raise interest rates.
• Carney speech calls for clearing to remain in London. Says public totally disinterested but major job risk, risk to tax income etc. if it is lost
• Sterling & bond yields lower on Carney outlook for economy. Pound down 1c vs US$ at $1.2632 and down vs Euro at €1.1345
• UK 10yr gilt yields down 3bps or so at 1.00%
• Oil down a dollare at $45.90
• World markets: UK, Europe & US all down yesterday with Asia weaker in Wednesday trade.
o George Soros suggests UK is at ‘tipping point’ & says economy could slow to such an extent that Brexit may be dropped
o Billionaire octogenarian genius Soros comments ‘Brexit is a lose-lose proposition’. UK has moved from fastest growing G7 nation to slowest in a year
o Chancellor Hammond calls for a Brexit that protects jobs & living standards. There may be no such animal
o EU’s Michel Barnier says concessions are not to be given or expected
o Labour says Tories are in disarray as it puts Brexit debacle at their door, sees road to power open for Hard Left
o Rolls Royce says uncertainty & job-creation are inversely correlated
o Telegraph reports UK car industry now demanding a special deal to avoid cliff edge. It says Brexit is binary. SMMT says ‘it is time to stop playing with words. ‘Soft’ or ‘hard’ Brexit and now ‘open’ mean nothing. It’s time to be brutally honest – our sector needs a comprehensive and bespoke trade agreement.’ Me too, please.
o The Independent quotes Survation poll as saying that 53% of those surveyed now want a second referendum on quitting the EU:
Says only 35% believe no deal is better than a bad deal
Says 69% want UK to remain in Customs Union
o Cake? Eat it? Public now searching for someone to blame as economy slows. Step forward Tory Party as Brexit debacle opens road to Hard Left
o Tory / DUP alliance said to be in doubt. Queen’s Speech today. Chance that Lame Duck administration could fall at first vote
o Telegraph says DUP may walk away. Newspaper speculates Lib Dem deal could even be in the offing
o Labour 6pps ahead in polls
o DUP says its counterparts in the 30x larger Tory Party lack negotiating experience. Strong & stable?
o Everyone demanding everything as feeble government fails to get a grip. Demand replaces word ‘request’ in many filings from the SMMT through the CBI, the BBPA, ALMR etc. right down to the local Church Social Club
YESTERDAY’S LATER TWEETS:
• Later tweets: Yesterday saw the lowest trading volumes on the LSE this year. Markets rose but enthusiasm to trade wilted in the heat
• David Davis says EU talks ‘promising’. No blows exchanged. But, he says, it’s how talks finishes that matters
• BRC says retail sales +0.2% in May. Down 0.4% LfL, however. Online still the star. Retail Economics says food +2.7%, non-food down 0.7%
• Retail Economics says electrical sales down 4.2% last month, clothing down 3.5%. Says spending looking ‘increasingly fragile’
• MCA says restaurant visit frequencies ‘taken a marked turn for the worse’. Oversupply may be an issue. Also, complacency, lack of relevance
• CBI forecasts economic slowdown. We’re sick of experts say others. D Davis is ‘optimistic’. Car manufacturers demand special deal
• Brexit, Brexit, Brexit. Lots of shoe leather, hot air & effort spent on securing ‘special deals’ etc. Who’s actually working on work?
• Carney speech calls for clearing to remain in London. Says public disinterested but major job risk, risk to tax income etc. if it is lost
RETAIL NEWS WITH NICK BUBB:
• John Lewis Partnership Sales Watch: The two businesses often react in differing ways to very hot weather and although this week will be the real test, the figure released yesterday for last week were a sign of things to come…The John Lewis weekly sales have been looking somewhat lacklustre anyway and total sales were 1.4% down gross (about 3% down LFL) in w/e June 16th and that left John Lewis running up only 0.8% gross (c1% down LFL) on a cumulative basis over the last 20 weeks. Fashion sales were down by 3% gross last week, hit by the different timing of price matching a competitor’s promotion, and Home was 5.2% down, but Electricals were 5.4% up gross, “boosted by the release of new products from Apple”. John Lewis do not say what happened to sales of blankets and duvets last week, but they do trumpet that the warm weather drove electric fan sales up by 1000% compared to last
• News Flow This Week: There is no more scheduled Retail company news this week (apart from the Boohoo.com AGM on Friday), but Royal Ascot continues this afternoon, the delayed Queen’s Speech is this morning and the prestigious BRC Annual Lecture (from the turnaround specialist Richard Pennycook) is tomorrow evening.