Langton Capital – 2017-09-21 – Mitchells & Butlers, new openings, London hotels etc.:
Mitchells & Butlers, new openings, London hotels etc.:
A DAY IN THE LIFE:
Bit busy this morning (results on the back of emergency visit to the pub yesterday evening. Well two pubs, actually) so on to the news:
MITCHELLS & BUTLERS FULL YEAR UPDATE:
Mitchells & Butlers has this morning updated on and further comments are set out below:
• M&B reports ‘following a strong sales performance in early summer the market has been more challenging in recent weeks’
• The group says this is ‘particularly given poor weather this year up against a sunny period last year which has specifically impacted drink sales.’
• M&B says ‘encouragingly like-for-like sales growth continues to be ahead of the market.’ It says ‘total sales have increased by 2.9% in the year-to-date’
• LfL sales are +0.3% in the last 8wks (to 16 Sept) and are +1.8% in the 51 wks to date.
More on Recent Trading, Balance Sheet, Debt etc.:
• M&B that food sales were +1.5% in the 8wks to 16 Sept whilst wet sales declined by 1.2%
• In the 51wks to date, food sales are +1.4% and wet sales are +2.1%
• These numbers, though below inflation, are ahead of most estimates for the market as a whole
• M&B comments ‘as previously advised, margins for the full year will be below last year due to inflationary cost pressures’
• The group has opened 13 sites in the year to date and has undertaken 236 conversions and remodels
• M&B adds ‘during the year we have disposed of 79 sites which did not fit into our long-term estate plan, 73 of which were sold as a package which completed in July with the remainder sold individually.’ The group says ‘the proceeds from disposals total £46m which is marginally above the net book value of the properties.’
• M&B CEO Phil Urban comments ‘whilst the weather in August and September has adversely affected the market we remain encouraged that our like-for-like sales performance continues to outperform the market’.
• Mr Urban continues ‘this performance reflects the progress we have made towards our strategic priorities.’
• M&B says ‘we continue to work hard to mitigate the cost headwinds faced by the industry and expect to deliver a full year performance in line with the Board’s expectations.’
• Re the future, Mr Urban says ‘we will enter the new financial year with the momentum of solid sales growth, enhanced clarity on pension contributions and a clear strategy which we believe positions the company well to deliver long term shareholder value.’
• In line with much of the market, M&B had seen performance deteriorate somewhat at the top line.
• Trading recently has been tougher but the group maintains that, albeit aided by conversions and capital spending, its LfL sales are ahead of those of the sector as a whole.
• Margins are down and profitability will be under pressure. JDW has said that, with costs rising, LfL sales growth of 3% to 4% may be needed to stand still. Nonetheless, M&B’s comments re margin are in line with expectations and the group says that its full year numbers should be in line with estimates.
• 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 7.5x current year earnings and it has a 3.0% yield.
• M&B has an extremely attractive estate but it still has much to do. Today’s announcement is in line with expectations. Trading is tough and the weather is unhelpful. The current financial year should be in the bag but trading over the autumn and Christmas will be critical in deciding as to whether M&B has finally turned the corner.
PUB, RESTAURANT & DRINK PRODUCERS:
• The BBPA has published its Annual Statistical Handbook 2017, which reveals the average price of a pint of bitter in Britain’s pubs has broken through the three-pound barrier for the first time (from £2.99 to £3.05). The price of a pint of lager rose by 10p, from, £3.48, to £3.58, fueling concerns over Treasury plans to raise beer duty for a second time this year, in the Budget on 22 November. Beer remains the pubgoers’ drink of choice, accounting for 54.3% of alcohol sales in the on-trade in 2016 (pubs, hotels and restaurants), down slightly from 55% in 2015.
• Brigid Simmonds, Chief Executive, BBPA, commented: ‘Our latest Stats Handbook shows that the taxes on UK beer are still a huge cause for concern, and we cannot afford another beer duty hike in the November Budget, if we are to keep a pint in the pub affordable for British beer drinkers. However, a wealth of other data, shows that with the right policies, the beer and pub industry, which supports 900,000 jobs, can continue to help grow the economy, creating new jobs and more opportunities for the people who work in our sector.’
• CGA — Alix Partners’ September issue of the quarterly Market Growth Monitor, which looks at pub, bar, and restaurant supply, has found that Britain has just over 123,000 licensed premises at June 2017 (-0.3% year-on-year). The bulk of net closures have been of drink-led pubs and independent, one-site restaurants. The monitor also shows that, ‘amid a broadly flat market for both new openings and sales’, restaurant groups with fewer than 25 sires have achieved a 32.0% increase in premises over the last three years—more than four times the 7.6% growth rate of large companies with more than 100 sites. Medium-sized operators have increased their number of licensed premises by some 67.8% in the last three years, while large operators have seen a 4.3% fall.
• City Pub Company has appointed Nomad Liberum and Berenberg as joint brokers ahead of a possible IPO before the end of this year, per MCA. The Clive Watson-led group is looking to raise between £25m and £30m from the process, which will combine its two trading vehicles, City Pub Co East and City Pub Co West, into The City Pub Group.
• Commenting on today’s Tax Equality Day, which highlights the unfairness of Britain’s VAT system on pubs, BBPA Chief Executive Brigid Simmonds said: ‘Today the pub industry is shining a light on just how unfair VAT is, for both pubs and the wider hospitality sector. If you buy a meal in a supermarket there is no VAT, but in the pub, you pay 20%. Even a small drop in the VAT rate for eating out, to 15 per cent, would create 78,000 jobs, and would be a big boost for the economy. Lots of our competitor countries have taken action on VAT in the hospitality sector, and Britain should, too. When you add in business rates, and the huge rises we have seen in beer duty in the past decade, it all makes for an unsustainable tax burden on our pubs.’
• Meanwhile, Kate Nicholls of the ALMR commented: ‘In a week when Moody’s said rising costs and a softening of consumer confidence were resulting in an industry stress test, Tax Equality Day is a timely reminder of how much of that cost burden comes from tax and the boost which would come from targeted tax cuts. Our latest Benchmarking Report shows that the Chancellor’s decision to significantly increase pub taxes – business rates and alcohol duty – together with rising labour costs has pushed the amount the average pub pays in tax to just under 40%. That threatens investment in jobs, growth and communities and jeopardises the sector’s record of generating 1 in 6 new jobs at a time when we can ill afford it.’
• Drake & Morgan will open The Listing in Cannon Green, in the heart of the City of London, on 6 November. The 7,319 sq ft unit — Drake & Morgan’s 22nd — will be open Monday to Friday from 07:30am until midnight and will have an extensive menu boasting ‘innovative breakfast dishes, stylish small plates, flatbreads and sharing boards, superfood salads and substantial mains’ alongside cocktails, wines, champagnes, premium spirits, and craft beers.
• Deliveroo is gearing up to open 50 more takeaway kitchens in London.
• Crussh Fit Food & Juice Bars is introducing ‘Fit Bowls’ as part of its largest hot food launch to date.
• Terra Firma has sealed a £100m refinancing with specialist lender Hayfin for its Wyevale Garden Centres business.
• UK retail sales rose by 1% in August compared to the previous month, thanks to strong sales of clothing and non-essential items, which grew at their fastest rate in 15 years. The Office for National Statistics (ONS) also said that compared with last August, sales volumes were 2.4% higher. It was the 52nd month in a row that sales have risen and add to evidence of rising inflation. Last week, the Bank of England said this was likely to peak at 3% from its August figure of 2.9%, but wages in the three months to July were 0.4% lower in real terms than in 2016.
• Moody’s reports Burger King owner has increased its leverage. It says the transaction is credit negative.
• The Springboard Charity has come back with another pantomime, Aladdin. The show kicks off from the 30th of Jan until the 2nd of Feb at the Arts Theatre Soho.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• A PwC report suggests that UK hotel sector growth buoyed by the slump in the value of sterling will slow next year due to a slowdown in the economy. PwC’s latest UK hotels forecast shows a positive outlook for London with year-on-year occupancy growth of 2.3% forecast for this year with a further marginal increase of 0.2% in 2018, taking occupancy up two percentage points to 83%. Average Daily Rate (ADR) is forecast to increase 3.6% in 2017 with additional growth of 2.2% in 2018, rising to £145 and £148 respectively. This drives a ‘robust’ revenue per available room gain of almost 6% this year and a further 2.4% in 2018, taking revpar to £120 this year and £123 in 2018.
• Hotels adopting a grab-and-go concept are seeing a boost in trade compared to hotels with more traditional food and beverage, according to HNN.
Jet2.com has been ranked as the UK’s most punctual airline in August by travel intelligence company OAG, meaning the budget airline has topped the ranking for on time performance over three consecutive peak summer months.
• Mexico City airport was temporarily shut down as a massive 7.1 magnitude earthquake shook the country and claimed at least 220 people.
• ONS research shows the average traveler will spend much more on a business trip than they would on holiday. For example, in Portugal, holidaymakers tend to spend an average of £67 a day, while business travellers will spend £156, not including flights and accommodation.
• PWC has released results of London’s hotel sector, finding that occupancy climbed 2.6%, ADR rose 6.3% and RevPAR increased 9% compared to the same period last year. The boost is believed to have been driven by the weak sterling.
• Pilots of Thomas Cook have confirmed that their strike will go ahead on Saturday as part of a dispute over pay.
• Gfinity, the London based esports group, has announced it will launch a second season of its Elite Series later this year. The season will begin on the 6th October 2017 and will finish on the 9th December 2017. The players will be competing for prize money valued at £225,000, and will be battling against one another in the same three games as season one: Rocket League, Street Fighter V and Counter Strike: Global Offensive.
• The first season of Gfinity’s elite series earned a total viewership of 3 million people from around the globe, with the event being broadcast on BBC Three, BT Sport, Eleven Sport and Twitch.tv.
• Shares in Taiwanese smartphone firm HTC have been suspended amid rumours that Google’s parent company, Alphabet, is planning a takeover.
FINANCE & MARKETS:
• The Bank of England’s Agents reports between late May 2017 and late August 2017 suggests that ‘households had responded to squeezed incomes by trading down or focusing on essential purchases.’
• The Bank says ‘as a result, demand growth had slowed across a number of consumer-facing sectors, and modest nominal consumer spending growth primarily reflected price inflation.’
• Bank agents report ‘investment intentions indicated weaker growth within services, but were more positive for goods exporters.’ It says ‘growth in labour costs per employee had been subdued, with settlements clustered around 2% to 3%. Recruitment difficulties remained elevated, with conditions becoming very tight for some skills.’
• The Bank adds ‘the impact of past falls in sterling on consumer goods price inflation appeared to have reached its peak. Consumer services price inflation was steady overall.’
• OECD reports a global rise in the employment rate for women since 2008 is holding back wage growth.
• US Fed says it is about to start selling back into the market some of the assets that it has acquired via QE
• US home sales to a one year low in August
• Oil up to $56.15
• Sterling down vs dollar at $1.3486
• Pound up vs Euro at €1.1348
• UK 10yr gilt yield up 2bps at 1.35%
• World markets: UK mixed with Europe & US higher yesterday. Far East mostly up in Thursday trade
o Evening Standard has Britain’s economic growth ‘in the slow lane’ due to Brexit upset & prospect of Hard Left government
o Mrs May to speak in Florence tomorrow
o Boris not resigned yet, says he won’t
YESTERDAY’S LATER TWEETS:
• Later tweets: Shepherd Neame LfLs for the year to 24 June an outstanding 8.1%
• Shep’s last 10wk LfL sales +1.5%, says ‘we are mindful of the political and economic backdrop.’ Period excludes most of Sept tough comps
• Discounting on the up. Prezzo is offering 50% off main courses today. Bella Italia is offering 50% off mains until 2 October.
• BDO research shows that 66% of medium sized business are less confident about growth 100 days on from the general election
• Strong retail numbers send interest rates & Sterling higher, dampen FTSE100 rise. Rate increase in November getting more likely
START THE DAY WITH A SONG:
Ed’s Easy Diner, Handmade Burger Co, the list goes on. Many sector specialists fear others might bite, which, coincidentally was yesterday’s song ‘Another One Bites the Dust’ by Queen, congrats to those who recognised it. Today’s song is:
‘Jibber jabber at the bargain booze,
And reciting Charles Bukowski, I got nothing to lose.’
RETAIL NEWS WITH NICK BUBB:
• Planet ONS Watch: We flagged yesterday morning that in the real world, August (the 4 weeks to Aug 26th) was another reasonable month on the High Street overall, as per the recent BRC-KPMG Retail Sales survey, thanks to the boost to Non-Food from the rather autumnal weather. But we found out at 9.30am that life was even better on that strange parallel world, the Planet ONS, as per the Office of National Statistics Retail Sales figures for August, which had been delayed for 6 days by unspecified IT problems…Credulous City economists were impressed by the much better than expected 1.0% month-on-month rise in seasonally adjusted sales volume, which lifted the year-on-year growth rate to 2.8% in August. We focused on the 5.8% growth in the non-seasonally adjusted sales value figures and immediately noted that this was boosted by suspiciously good growth in the ONS figures for “Small
• Today’s Press and News: There is a Pets at Home Capital Markets Day today, but there has been no announcement about it yet, so there is time to catch up on yesterday’s House of Fraser interims and River Island’s full-year results and the coverage of the Kingfisher interims in the papers today (the Telegraph headline is “B&Q chief rules out Screwfix sale as “turnaround” stays on track”). Today has brought interims from the Coop, with Food LFL sales up by 3.5%, “reflecting 14 consecutive quarters of like-for-like sales growth”.