Langton Capital – 2017-07-27 – M&B, Thomas Cook, JE, Diageo, Britvic, Ladbroke & other:
M&B, Thomas Cook, JE, Diageo, Britvic, Ladbroke & other:
A DAY IN THE LIFE:
Quite a lot of results today. On to the news:
MITCHELLS & BUTLERS Q3 TRADING UPDATE:
• Mitchells & Butlers has this morning updated on trading for its Q3 comprising the 43wks to 22 July and further comments are set out below:
• Headline Numbers:
• M&B reports ‘trading since the half year has been strong, with like-for-like sales growth of 2.6% over the 10 week period’
• Cumulative 43wk sales are +2.0% LfL. This comprises +1.4% for food and +2.7% for drink sales
• The company says this is ‘continuing both the momentum reported at the half year and out-performance to the market.’
• Total sales have increased by 3.1% in the year-to-date.
• More on Recent Trading, Balance Sheet, Debt etc.:
• M&B reports ‘as previously advised, increased cost pressure is expected to lead to margins being lower than last year.’
• The group says ‘we have opened 13 new sites and completed 224 conversions and remodels in the financial year to date.’
• M&B updates on its pension liability saying ‘the company has now reached agreement on the 2016 triennial pensions valuation with the scheme trustees. The agreed deficit of £451m as at 31 March 2016 (2013: £572m) will be funded by an unchanged level of cash contributions (of £46m pa indexed) to 2023, as per the agreement reached in 2013.’
• Re pensions, MAB comments ‘in 2024 an additional payment of £13m will be made into escrow, should such further funding be required at that time.’
• M&B CEO Phil Urban comments ‘sales performance since the half year has been encouraging, with strengthening like-for-likes helped by the sunny weather and continued outperformance to the market’
• Mr Urban continues ’the cost headwinds we face remain challenging.’ He says ‘however, we are working hard to mitigate these where we can and we are confident that continued focus on the three strategic priority areas we have identified will help us to deliver a performance for the full year in line with the Board’s expectations and will generate long term sustainable shareholder value.’
• Langton Comment: As at its H1 in May, M&B had seen performance improve at the top line but it stated that costs were becoming an issue with EBITDA and trading margins under pressure.
• These trends have continued with MAB today confirming that sales growth (admittedly helped by the weather and by the company’s ongoing capex programme) had accelerated but that cost pressures mean that margins will decrease.
• As we said at the H1, working harder and longer for less money seems to be the order of the day- at least in the short term.
• Nonetheless, the group comments that its LfL momentum is gathering pace but, mindful that JDW recently said that it might need 3% to 4% LfL growth in order to stand still in terms of profits, there may yet be some way to go.
• The fact that the group refers to evidence that a number of its initiatives are working is encouraging.
• Evidence of a turn in the company’s fortunes may be emerging but the markets are tough and getting tougher and the competition is not standing still.
• As regards its share price, we are now at a point where the group is trading at only around 6.5x current year earnings and it has a 3.4% (and hopefully growing) yield.
• M&B has an extremely attractive estate but it still has much to do. Today’s announcement is positive in tone and illustrates that trading momentum is continuing.
PUB, RESTAURANT & DRINK PRODUCERS:
• Just Eat has seen revenue climb 44% £246.6m and underlying EBITDA up 38% to £73.6m in the first half of 2017. The leading global marketplace for online food delivery also increased order numbers by 24% to 80.4m, with LfL orders up 25%. Chairman for the group, Andrew Griffith said ‘This has been another excellent period of progress with revenues, profits and earnings all showing strong growth and once again demonstrating the strength of our business model’.
• Just Eats revenues for the first 6 months of 2017 were ahead of management expectations, which has encouraged management to raise their expected revenue for the year to between £500-£515m up from $480-£495m.
• Brtivic says it is on track to achieve current market expectations after registering a Q3 constant currency revenue increase of 6.5% to £384.6m and 2.3% volume growth. GB revenue grew 4.9% and ARP grew 1.5%, while in France, revenue increased 11% and ARP increased 6.8%. Ireland saw similar growth levels, although Britvic’s positive performance in the US was obscured by the phasing of shipments of concentrate and conditions in Brazil remain challenging.
• Simon Litherland, Chief Executive, commented: ‘Our business is in good shape, we have continued to execute our strategic priorities and deliver a robust performance, whilst taking proactive action to successfully mitigate external headwinds. Trading in the third quarter has been strong with group volumes, ARP and revenue ahead of last year, driven by a range of factors including our focus on growth channels, successful revenue management, delivery of our business capability programme and favourable weather.’
• Diageo has reported net sales increases of 15% to £12.1bn and rises in operating profit of 25% to £3.6bn in its preliminary results for the year ended 30 June 2017. All regions contributed to an increase in organic volume sales of 1.1%. CEO of Diageo, Ivan Menezes said ‘Diageo is a strong company today and we are confident in our ability to deliver sustainable growth. We are raising our productivity goal to £700 million with two thirds being reinvested in the business. We continue to expect mid-single digit top line growth, and we are raising our operating margin expansion objective to 175bps over the three years ending 30 June 2019’.
• AB InBev reports Q2 numbers, says revenue +5% with revenue per hl +3.2%. Premiumisation continues. Volumes +1%.
• AB InBev says sees ‘good growth’ in South Africa, Mexico & Australia in Q2 but falls in US, Brazil and Colombia.
• AB InBev sees EBITDA +11.8% in Q2 ‘as a result of healthy top-line growth, helped by strong synergy capture, and partly offset by CoS pressure, as anticipated.’ EPS is down from 106c to 95c ‘with higher profits more than offset by a negative impact of mark-to-market adjustments linked to the hedging of our share-based programs and the increased number of outstanding shares.’
• AB InBev says re SAB ‘the business integration is progressing well, with synergies and cost savings of 335 million USD captured during 2Q17.’
• The Coca-Cola Company has reported net revenues down 16%, due to bottling divestitures and currency exchange, in the groups Q2 results. The company is accelerating the expansion of low-and no-sugar sparkling soft drinks divisions, with President and CEO of the group, James Quincey saying ‘Not only did we see strong performance during the quarter in rapidly expanding areas of our Company, such as our innocent juice and smoothie business in Europe, our organic revenue growth in sparkling soft drinks was led by innovation in and marketing support for our low- and no-sugar options’.
• The US based casual-dining chain, Buffalo Wild Wings Inc. has seen second quarter profits down 62.9%. The CEO of the group, Sally Smith has blamed ‘historically high wing costs’ for the drop in performance, and said that the company continued to work on stabilising business ‘in the challenging restaurant environment’.
• LVMH, the world’s biggest luxury group, has cautioned that an uncertain economic climate means its second half results may not match its sterling performance in the first six months of the year. The group reported a 23% increase in first-half operating profit, although profit from recurring operations totalled €3.64bn ($4.23bn), below a Reuters poll forecast of €3.75bn.
• Tim Warrillow, the chief executive of Fever-Tree, is almost £30m richer after selling 1.5m shares in the rapidly growing premium drinks brand. Shares rose by 20% recently after yet another upgrade to the group’s profit forecasts, meaning its share price is now 15 times higher than when it floated in late 2014.
• An undisclosed buyer has been found for 20 of Handmade Burger Co’s 29 strong estate. The group had entered into administration earlier this month.
• Young’s has bought the freehold of the Chequers Inn in Bristol. The pub offers 140 internal covers and 120 external on the riverside of the Avon.
• The Craft Beer Co has struck a deal for a site near London’s Old Street, this new unit will take the chain to seven pubs in the London and Brighton areas. The site is expected to open mid September, MD and founder of the group Martin Hayes said ‘The business has been founded on working hard to get sites that are typically just off-pitch and developing them. This site however is positioned in an area of extraordinarily high foot-fall and I expect us to hit the ground running’.
• Taco Bell Corp. will begin a trial in California today, that will enable passengers using the Lyft app to add a restaurant stop on their ride.
• US wine exports volumes have fallen 15% mainly due to a decline in sales to the EU, a Rabobank report has shown. France on the other hand saw wine export volumes increase 5.9% in the first quarter of 2017.
• Refresco has agreed to acquire Cott Corporation’s soft drinks business for $1.3bn.
• The oldest pub in Bristol, the Hatchet (believed to date back to 1564), has been bought by Butcombe. Butcombe Brewery now operates over 100 pubs, with CEO Mark Crowther stating ‘The Hatchet lies in the heart of Bristol city centre and is a perfect acquisition for us. We look forward to building on its strong reputation as we continue our acquisitions across the region’.
• Three men have found guilty in the UK of selling horsemeat as beef to bolster profits.
THOMAS COOK Q3 TRADING UPDATE:
• Thomas Cook has reported Q3 numbers saying that revenues rose to £2.27bn from £1.85bn last year. Margin is down to 20.6% from 21.3%
• TCG reports underlying profit from operations of £19m vs £2m last year for Q3 alone. Net debt is £404m from £500m last year
• TCG reports Q3 has seen a ‘good performance…despite the competitive environment’. Revenue growth aided by Sterling weakness
• TCG Q3: Says customer satisfaction up, debt improved & ‘strong demand for Summer 2017’ with positive momentum continuing into Winter
• TCG summer prices +1% with bookings +11%. Greece +22% & ‘Turkey recovering well, as customers seek high-quality and value destinations’. Winter now 30% sold
• TCG says ‘full year underlying operating profit expected to be in line with market forecasts.’ CEO Peter Fankhauser comments ‘our increased focus on the customer is reflected in a good performance for the third quarter. Strong demand for our holidays across the Group combined with an improved performance in our German airline to deliver a £10-million increase in profit versus the same period last year. This improved performance means Condor remains on track to return to profitability for the full year.’
• TCG says ‘an 11-per-cent increase in bookings for this summer reflects good demand across all destinations. The pick-up in demand for Turkey we reported earlier in the year has continued, as customers are attracted to the quality and value on offer.’
• TCG concludes ‘as we go into the peak summer season, our holiday offering is in great shape.’
• TCG CEO Peter Fankhauser comments ‘as we said in May, we are experiencing pressure on margins to Spain in what is a competitive environment, though this is being mitigated by our focus on our own-brand and core hotel offering and supported by strong overall demand for our summer holidays.’
• TCG concludes ‘we continue to expect our full year underlying operating result to be in line with current market expectations.’
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• AccorHotels is bundling its three recent acquisitions (Onefinestay, Travel Keys and Squarebreak) under the Onefinestay brand. ‘With this new step in consolidating our leadership position, Onefinestay now has a sound platform combining brand excellence, a vast and complementary offer and distribution efficiency,’ Onefinestay CEO Cedillo Espin said. ‘We are hugely excited about the global development potential for our network. Our guests are always asking for more places where they can enjoy our professional hospitality and concierge experience and the integration of these three innovative brands is the answer.’
• An online listing on the Skyes Cottages website has been banned, as it advertised cottage with an ‘excellent pub next door offering fine ale and an excellent menu’, however, the pub closed more than a year ago. A customer complained to the Advertising Standards Authority, the association upheld the complaint.
• An annual study by service design consultancy Engine has found that the aviation sector did more than any other to damage its reputation over the last year through poor customer service and increasing complaint levels. Despite the drop for air travel, public transport (cited by 38%) and utilities (37%) are regarded as the worst sectors overall for customer service. Restaurants (cited by 47%) and hotels (46%) increased their lead in being seen as the best sectors for service.
• The boss of Minoan says the Scottish travel group is ‘about to enter the most rewarding period in its history’ on the back of improved first half financial results and its breakthrough last month in winning the green light to develop a luxury resort in Crete. Gross profits from the Glasgow-based company’s travel and leisure businesses grew by 14% to more than £4m, boosting travel and leisure EBITDA by 35% to £449,000 from £332,000.
• UK tourism industry leaders are putting together policy priorities to present to Whitehall as part of the government’s new industrial strategy. Kurt Janson, Tourism Alliance director, said: ‘The fact that the tourism industry is one of the key sectors with which the government wants to develop a deal is, in itself, acknowledgement of the value of the industry to the UK economy, and [of] the scope for the industry to provide growth and employment once we leave the EU. The potential benefits could be considerable. There are very few times a government asks an industry to put forward proposals – this is an opportunity we need to take full advantage of.’
• The Foreign Office has changed its advice against travelling to large parts of Tunisia and now only advises against travelling to ‘parts of the south and interior and certain areas near the borders with Algeria and Libya’.
• Escape Hunt updates on expansion. Chairman Richard Rose says ‘we are delighted to have come to the market as Escape Hunt earlier this year.’
• ESC says ‘the first 6 months of 2017 is exactly in line with our expectations.’
• ESC comments ‘we have been pleased with the sites we have been able to find across the UK, of which 6 are now in the legal documentation phase. These are all in high quality locations and meet our overall parameters. The first site is on track to open in November.’
• ESC remains on track saying ‘we are also pleased that nothing we have witnessed in the market place has given us any cause to doubt our assumptions and expectations for this market.’ It says ‘our predominant near-term strategy remains to roll out owner-operated sites in our target markets of the UK and certain EU territories, whilst continuing to grow the Escape Hunt franchise globally.’
• Facebook revenues and profits jumped by 45% to $9.3bn and by 71% to $3.9bn respectively in its second quarter and more than 2 billion people now log on to the site every month. The company said mobile ads represented 87% of its advertising revenue of $9.16bn, up from 84% a year ago.
• Ladbrokes Coral has upgraded the potential synergies of its recent merger to £150m by 2019 — more than double the original estimate. Total Group net revenue was 1% ahead of last year (cc -1%) and total Group operating profit for H1 is expected to be within the range £153.3m to £158.3m – 4% to 7% ahead of last year.
• US theme park owner Six Flag has warned it may not hit profit targets this year despite growing ticket sales. It reports that a ‘softer-than-anticipated financial performance through the first six months of the year’ made its targets more challenging. CEO Jim Reid-Anderson says nonetheless ‘I am confident that 2017 will be another record year for our shareholders as we deliver higher ticket yields, improved in-park revenue, attractive international licensing deals, new waterparks, and strong execution.’
• ITV has attributed an 8% drop in advertising revenue in the first six months of the year to ‘ongoing economic and political uncertainty’. The fall was offset by good growth at ITV studios, however, which saw sales grow by 5% thanks to shows such as The Voice and Poldark. ITV’s pre-tax profit fell 16% to £259m and the company’s performance was ‘very much anticipated’ according to CEO Peter Bazalgette.
FINANCE & MARKETS:
• The ONS estimates that the UK economy grew by 0.3% in Q2. This comes after 0.2% in Q1. The rate is about half that of other European countries. The film industry performed strongly.
• ONS says there has been a “notable slowdown” in growth from last year. It says ‘while services such as retail, and film production and distribution showed some improvement in the second quarter, a weaker performance from construction and manufacturing pulled down overall growth.’ It continues saying ‘the economy has experienced a notable slowdown in the first half of this year.’
• Commenting on the above, the NIESR says ‘the preliminary ONS release for GDP growth in the second quarter of 2017 at 0.3% was exactly in line with the Institute’s real-time forecast published earlier this month and, as with the first quarter, remains far below the traditional level of capacity growth in the UK of around 0.5-0.6% per quarter’. The NIESR reiterated that this is a preliminary release.
• NIESR says ‘the economy will probably continue to perform at sub-par levels and this implies only a minor improvement in income per head this year, which is a better measure of welfare than GDP alone.’
• NIESR says ‘there are signs that for many households consumption will be crimped as the year progresses with a fall in real disposable income and credit availability drying up’.
• MP Rachel Reeves has said that debt problems are “rearing their heads” again as the Bank of England implies that some banks are sloppy in their lending criteria.
• BMW has chosen to build its electric Mini in the UK
• UK car production was 13.7% lower in June than it was in the same month last year. The SMMT has said that the market is cooling & says that uncertainty re Brexit is a cause for concern.
• H1 car production in the UK is down 9.5% on last year.
• Oil price up 30c at $50.90
• Sterling up vs US$ at $1.3142
• Pound unchanged vs Euro at €1.1174
• UK 10yr gilt yield down 2bps at 1.24
• UK mortgage approvals down in June to 40.2k from 40.3k in May
• World markets: UK, Europe & US up yesterday with Far East mostly higher in Thursday trade
YESTERDAY’S LATER TWEETS:
• Later tweets: MARS Q3: ‘We remain encouraged by our continued market outperformance and focused on delivering sustainable growth’
• MARS Q3: Slowdown in Destination & Premium on back of hot weather impacting food sales. Group still ‘outperforming the market’
• Game Digital. Victim of continued tech evolution? If it didn’t exist, would you build it today? See email.
• CGA Prestige Foodservice Price Index shows food prices +8.8% to June. Hard to make ends meet. Fish prices +21%
• Prezzo has placed 27 of its sites up sale, roughly 10% of the group’s estate. You built it and they did not come? Was that a good idea?
• Big ticket hit by Brexit uncertainty? Vertu says has seen ‘softer trading in April, May and June’. Affordable treats holding up
• Kantar has food spend +4.7% in last month. Will be all (or more than all) inflation. Foodservice prices said to be +8.8% per Prestige
• Kantar & John Lewis agree halo slipping at Waitrose & M&S Food. Hunt for value as Aldi/Lidl sales still +19.7% y-o-y
RETAIL NEWS WITH NICK BUBB:
• Intu Properties: Today’s interims from the big shopping centre developer Intu Properties (which owns the Trafford Centre, Lakeside and Metrocentre, inter alia) report that like-for-like net rental income fell by 1.5% in the period, given the impact of the BHS closures, but David Fischel, the CEO, says “Intu has performed robustly over the six month period in a UK retail environment which continues to be challenging”, highlighting the “103 lettings in the period at 7% above previous passing rents, including brands such as Next, River Island, Hugo Boss, Gant, Paul Smith, Victoria’s Secret and Tesla”.
• Hammerson: This is a big week for the major Retail Property developers and Hammerson (who own Brent Cross and the Bullring shopping centre in Birmingham, inter alia) kicked things off with their interims yesterday, which were headlined “Record Leasing Activity And Sector-Leading Earnings Growth Drive H1 Performance”. But the 4% rise in NAV was driven by the Premium Outlet business (Bicester Village etc) and in the core UK shopping centre business retailer sales were disappointing, with sales on a same-centre basis 3.9% lower than in H1 2016, with “stronger performances from men’s fashion, sound, picture & technology and sports & outdoors offset by weak mid-range fashion and health & beauty sales”. However, the CEO David Atkins said “Whilst we are beginning to see a softer consumer backdrop and increased headwinds for retailers in the UK, given our leading assets and the
• Inchcape: The pure UK Motor dealers were hit hard yesterday by the mixed messages in the Vertu Motors and Motorpoint AGM updates, but Inchcape is much more of a global player in the premium car market (given its famously bizarre exposure to countries like Ethiopia and Chile, as well as Australia and Singapore) and today’s interims show that the track record of growth has continued, with operating profit up 23% at actual currency and up 11% in constant currency. Stefan Bomhard, the CEO, says “Reflecting the strength of these results, we now expect to deliver a solid constant currency performance in 2017, modestly ahead of our expectations at the start of the year”.
• Bonmarche: Back on 19 June, with the final results for y/e March, Bonmarche, the struggling fashion chain, said that “Trading since the beginning of the new financial year has been in line with the Board’s expectations” and ahead of today’s AGM it has issued a Q1 update flagging that, for once, that LFL have improved, with Store sales up by 4.2% and Online sales up by 39%, despite the challenging environment.
• Fact Of the Day: We are indebted to yesterday’s Times for flagging up the extraordinary fact that the humble, if nerdy, Games Workshop chain now has a market cap of as much as £470m (the shares have risen threefold over the last 12 months), which is only some £40m/50m less than Debenhams…Tuesday’s final results reported that revenue increased by c20% in constant currency terms to £158m in y/e May and that underlying PBT more than doubled to £38.4m (in case you’re wondering, Games Workshop enjoys a gross margin of over 72%…).
• News Flow This Week: Tomorrow brings the start of dealings in the Quiz IPO, as well as the latest monthly GFK Consumer Confidence survey.