Langton Capital – 2017-08-31 – Restaurant Group, Ladbroke, pub costs, P Express etc.:
Restaurant Group, Ladbroke, pub costs, P Express etc.:
A DAY IN THE LIFE:
Early company meetings today. On to the news:
RESTAURANT GROUP H1 NUMBERS:
The Restaurant Group has this morning released H1 numbers to 2 July 2017 and our comments are set out below:
• Group says total revenue fell by 1.9% on a 26wk basis.
• LfL sales were down by 2.2% in H1. This follows a decline of 3.9% in H1 last year.
• Adjusted PBT is £25.5m vs £36.6m.
• The group has taken a further exceptional charge of £22.7m. This comprises a £4.4m property provision and a £9.8m increase in onerous lease provisions.
• The exceptional charge also includes £4.2m of increased restructuring project costs.
• Adjusted EBITDA is £44.3m vs £59.6m
• Adjusted EPS is 10.0p (versus 14.3p) and statutory EPS is 0.6p versus a loss of 11.2p per share last year
• The H1 dividend has been held at 6.8% ‘reflecting the board’s confidence in the plan’.
• The group says current trading is in line with expectations and full year numbers should hit forecasts
• RTN says it ‘recognises that we are facing continued headwinds on labour costs, food and drink input costs, utilities and occupancy costs.’ It says ‘these inflationary cost pressures are anticipated to continue through the second half of the year and into next year at a similar level.’
• Re debt, RTN says ‘the Group remains highly cash generative’. Net bank debt at the end of the period was £19.3m (2016: £35.6m).
• RTN CEO Andy McCue reports ‘we have made good progress against our strategic initiatives outlined in March.’
• He comments ‘our Leisure customers are enjoying a better value, higher quality product; our growth plans for our Pubs and Concessions businesses are advancing well and we have made good progress in delivering cost efficiencies.’
• Mr McCue says ‘I’ve been impressed with our colleagues’ receptiveness to change and thank them for their contribution to stabilising the business’
• .”reports ‘we have completed the strategic reviews of our brands.’
Further on trading:
• AT Frankie & Benny’s, RTN says ‘we have focused on restoring our value credentials, deepening the distinctiveness of our offer to families and marketing to attract back lapsed customers.’
• RTN says LfL dishes are 7% cheaper. Against food inflation of around 7% and rising wage costs, margins will have been impacted
• Chiquito is ‘highlighting the value-conscious nature of our customer base’
• Coast to Coast is seeing ‘challenging’ trading. The group is discounting in order to drive sales.
• Firejacks will be developed. It offers flame-grilled steaks. Other brands are performing ‘solidly’.
Current trading & outlook:
• Restaurant Group reports ‘current trading is in line with our expectations, with year to date like-for-like sales for the 34 weeks to 27 August down 2.5%.’
• The company reports ‘2017 is a transitional year as we continue to address the competitiveness of our Leisure businesses and focus on achieving a sustainable volume-led turnaround.’
• Restaurant group says ‘where opportunities to accelerate our progress present themselves, we will invest appropriately.’
• It adds ‘as a result of the investments we have made in our new menus and promotional activity in the year, our full year 2017 cost of goods sold margin is expected to be between 1.5 and 1.8 percentage points higher than 2016.’
• Whilst referring here to costs, this implies that profit margins are lower.
• RTN says ‘we continue to expect to deliver an adjusted profit before tax outcome for the full year in-line with current market expectations.’
• It adds ‘we expect to open between 18 and 20 units in 2017 with associated capital expenditure of between £18m and £20m. Refurbishment and maintenance capital expenditure, including technology investment, in 2017 is expected to be c.£20m.’
• RTN concludes ‘we anticipate opening between 10 and 20 units in 2018.’
Langton Comment: RTN has announced additional exceptional costs but debt is down and it has once again held its dividend.
Trading is said to be in line and results for the full year should also be in line with reduced expectations.
The valuation is in flux.
And the group has little debt though it must incorporate the capital liability of leases from FY19 and its fixed charge cover was only around 2x – and that was before material cuts to forecasts.
Short term news flow is likely to be negative. Certainly, comps are becoming easier but, as mentioned above, price cuts will hit LfL sales and these and also cost increases will impact margins.
Prima facie, with group is relatively cheap as it is yielding 5.4% but execution is key & the competition will not stand idly by whilst RTN gets its house back in order.
PUB, RESTAURANT & DRINK PRODUCERS:
• Food service price inflation has slowed to 7% in the 12 months to July 2017, still three times higher than the general level of inflation. The CGA and Prestige Foodservice data shows food service inflation has fallen from 8.8% in June 2017 and 9% in May. Christopher Clare, Head of Consulting & Insight at Prestige Purchasing, stated ‘While the CGA Prestige Foodservice Price Index shows that overall the price inflation figures appear to have calmed, this is somewhat due to the high comparables of last year’.
• Starbucks UK will now sell any of its food nearing its expiration date at a 50% discount, that would otherwise be thrown away. The stock will be sold in the last hour of the day.
• PizzaExpress has increased LfL sales during the 26 weeks to 2 July by 1.3%. The Hony Capital-backed group grew turnover by 9.1% but EBITDA fell 13.9% to £40.6m. CEO of the group, Jinlong Wang said ‘Looking ahead, we believe conditions in the UK market will remain challenging, with cost headwinds continuing. However, we do expect various initiatives we have undertaken to partially mitigate these pressures’.
• NRN has reported that the big three burger companies in the US are outperforming their smaller brethren. Recent same store sales were +3.9% at McDonald’s, up 3% at Burger King and they were +3.2% at Wendy’s.
• Urban Pubs & Bars has purchased Fleet Street landmark The Punch Tavern for an undisclosed sum. Agents Christie & Co told the PMA ‘central London continues to defy the odds with plenty of demand for reasonably priced assets.’
• Smaller & ‘better’ burger companies in the US are feeling the pain. Jack in the Box LfL sales are down 0.2%, Steak n Shake is down 3.1% and other, more niche operators, are also finding the going tough. Even the once mighty Shake Shack is down 1.8% in LfL terms.
• Molson Coors has opposed claims that the group misled customers over the strength of its flagship lager Carling brand. The group has called recent media coverage of Carling being reduced from 4% ABV to 3.7% in 2012 to save on duty as ‘inaccurate’.
• Heineken has completed the acquisition of 1,900 Punch pubs. The pubs will be operated by Punch for 6 months under a transitional arrangement before being placed under Heineken’s Star Pubs & Bars estate.
• Burger King has announced plans to trial a blockchain ‘virtual cash’ project in Russia, working with the tech firm, Waves.
• Nisa has entered into exclusive talks with the Co-operative Group about a possible offer for the distributor. The Co-op has bid £140m.
• Sainsbury’s plans to launch an Argos click and collect service in dozens of its local convenience stores.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• TUI has announced that former First Choice & TUI Travel CEO Peter Long will move to Vice Chairman from his current role. TUI says Peter ‘no longer intends to become the Chairman of TUI AG’s Supervisory Board.’ TUI says ‘Peter Long has made a major contribution to TUI and the tourism industry worldwide. I am pleased that he will continue to support us with his expertise.’
• UK airports are offering as little as 86 euro cent to the pound, with the average at 95 cent. Chief Commercial Officer at FairFX, James Hickman, said ‘In reality they [airports] are ripping off the customer, who is effectively captive as they have nowhere else to buy their money at an airport’.
• Abta is warning holidaymakers not to make false sickness compensation claims and to avoid unscrupulous claims firms that might tell returning customers they are ‘entitled’ to claim from a pot of money set aside by the government or their travel firm. Tui and Thomas Cook have begun successfully challenging claims after Abta reported the number of fraudulent claims had increased by 500% since 2013. Mark Tanzer, Abta chief executive, said: ‘Holidaymakers need to understand that making a fraudulent claim will have consequences. People should be very wary of any company that encourages them to make a dishonest or exaggerated claim. Whatever a claims firm might say, fake claims are fraud.’
• Record RevPAR levels (reaching £105.28 vs a 2016 high of £103.78) helped UK hotels to top and bottom line growth in 2017. Occupancy rose 0.2% to 85.3%, which was also a record for full-service hotels in the UK.
• Ladbrokes Coral Group has reported revenue increased 1% to £1,198m and operating profit up 7% to £158.3m, in H1 results year ended 30 June 2017. Jim Mullen, CEO of the group said ‘Ladbrokes Coral continues to make good operational and financial progress. We entered the year with ambitious targets for the first half to substantially complete the integration of our teams and migrate UK Digital to a single platform. We delivered on both fronts and at the same time kept the business moving forward’.
• Ladbrokes Coral announced they will help fund the sport of greyhound racing based on off shore greyhound turnover from the start of 2018. The company owns and operates four tracks in Crayford, Hove, Monmore and Romford, and plans significant investment in welfare and infrastructure at these tracks. This move coincides with Lord Lipsey’s ongoing review into the sport.
• The online gambling industry may be able to develop an industry-wide framework to identify potential problem gamblers before their behaviour gets out of control. Work commissioned by the charity Gamble Aware and carried out by PwC shows that the companies have data that may help them identify problems at an early stage.
• The BBC reports that data from Box Office Mojo show US cinema attendance down 52% compared to 385m people this time last year. Only 208 films have been released in the US so far in 2017, compared to an average of 250 in previous years. Total gross box office receipts are the worst since 2005 at $3.5bn (£2.7bn). The BBC points out the industry is trying to combat these falling figures by creating sequels of IP from the 70’s, such as Blade Runner and Star Wars.
• Mike Ashley’s Sports Direct now controls 17.6% of Goals Soccer (up from 14.6%).
FINANCE & MARKETS:
• Unsecured borrowing growth has slowed reports the Bank of England. Nonetheless, such borrowing still rose at an annual rate of 9.8%, some four times the rate of inflation, in July.
• Monthly mortgage borrowing rose slightly in July. Some 68.7k loans were approved, the highest level since March 2016.
• The BBC suggests that credit card companies are in many cases simply increasing the limits of card borrowers as they approach their debt ceilings. The Citizens Advice Bureau would like to see a ban on increases without a cardholder’s consent.
• Updated data from the US Bureau of Economic Analysis shows that the US economy grew by an annualised 3% in the quarter to end-June. Earlier estimates had suggested a rate of growth of 2.6%.
• Eurozone industrial & consumer confidence both advanced in August
• Oil down to $50.82
• Sterling a shade weaker vs dollar at $1.2925
• Pound up against Euro at €1.088
• UK 10yr gilt yield up 2bps at 1.03%
• World markets: UK, Europe & US all up yesterday. Far East mostly down in Thursday trade
o Theresa May has said that she wants to stay on as PM for at least 5yrs and to fight the next election
o Retail organisations have warned that shop-outages are a risk if border controls for the flow of goods are not seamless
YESTERDAY’S LATER TWEETS:
• Later tweets: Might Amazon ‘do a Whole Foods in the UK’? Would threaten business models. But EU tide is flowing against likes of Google etc.
• ECI says nearly 7 in 10 fast growing consumer companies think credit markets will be easier in 12mths than they are now. Really? Really???
• House prices now falling in real terms per Nationwide. Up 2.1% in nominal terms but that implies a 0.5% real fall in prices
• WH Smith says trading in line. That is High Street tough but travel markets strong. Paid an arm & a leg for a travel plug lately, anyone?
RETAIL NEWS WITH NICK BUBB:
• McColl’s: Today’s Q3 update is bang up to date, for the 13 weeks ended 27 August, and although total sales have jumped by 31.1%, after the Co-op convenience store acquisition, LFL sales are only 0.7% up. Nevertheless, the message is that “The group remains on track to achieve results for the full year in line with management’s expectations” and CEO Jonathan Miller says: “The 298 newly integrated convenience stores have driven strong revenue growth, and our existing estate has continued to perform well, delivering a second consecutive quarter of positive like-for-like sales growth”.
• Consumer Confidence Watch: The widely-followed monthly GFK Consumer Confidence survey came out overnight and the main consumer confidence index improved by two points to -10, from -12 in July, despite expectations of a slip to -13. Interviewing was carried out between 1st and 15th August, so it is not a completely up to date reading of the national mood as we head into the key “back to skool” period and GfK themselves say: “It is unclear whether August’s rise was significant or merely a “dead-cat bounce” in an otherwise declining trend”.
• News Flow This Week: The FTSE Quarterly index review announced yesterday evening contained no changes involving Retailers and there is no more scheduled Retail company news this week, as we move inexorably from August into September…