Marston’s, EasyHotel, Revolution, cinema, retail & other:

A DAY IN THE LIFE:

Bit busy with results today. On to the news:

LANGTON RESEARCH, GET IT WHILE IT’S HOT @ £200 + VAT:

Topical to say the least. See comments below from Prezzo parent Papa Topco.

Headings in our note include Why the Increase in Supply, evidence of oversupply, consequences of oversupply with a case study comprising a City of London walk.

It’s an easy (if at times queasy) read & if you’d like a copy at £200 + VAT (in money, beer or pizza subject to negotiation), then please drop us a line.

MARSTON’S FULL YEAR TRADING UPDATE:

Marston’s has this morning updated on its full year trading being the 52wks to 30 Sept 2017 and our comments are set out below:

Trading – Destination & Premium:

• Marston’s Premium & Destination pubs have increased LfL sales by +0.9% in the full year

• That represents a 0.8% decline in the last 10wks. The group says ‘the more subdued summer trading and relatively stronger performance of wet sales compared to food sales was consistent with the market.’

• Marston’s comments ‘a disciplined approach to pricing and promotions and good cost control contributed to the operating margin in Destination and Premium being only slightly below last year despite the continued cost pressures.’

• Margin may be down by 30bps or so. Wet sales have held up better in recent weeks than food sales

Trading – Taverns:

• LfL sales in the year as a whole are +1.6%

• Sales are  +0.3% in the last 10wks

• Marston’s says ‘these wet-led community pubs continue to benefit from greater consumer interest in local beers and craft drinks and the continuing development of our offers, together with the continued strong performance of pubs operated under franchise-style agreements.’

• September will have been tough (warm last year, cool this) for wet-led pubs

Trading – Leased Pubs:

• Leased profits per pub +1% for the year as a whole.

• Marston’s says this is ‘reflecting the high quality of our Leased estate, together with licensee stability’

• Leased profits were +2% at the 42wk stage suggesting a negative performance over the last 10wks

Trading – Beer Company:

• Marston’s comments ‘in Brewing, we have had a transformational year including the successful acquisition of the Charles Wells Brewing and Beer business in June, and growth in distribution through entering into long term agreements including Punch B and Hawthorn Leisure.’

• The group reports that own brewed beer volumes are +6%

• Disaggregating the Charles Wells’ acquisition is difficult but underlying sales look to have been modestly positive

Balance Sheet, Cash Flow & Debt:

• No detailed comments at this stage

• Re estate expansion, Marston’s says ‘we completed 19 new pubs and bars and eight lodges.’

• The group says ‘openings were weighted towards the end of the financial year, and four pubs planned for September will open in late October.’

• It does reduce its targeted number for FY18 saying ‘in the 2018 financial year we now expect to open 15 pubs and bars, and six lodges.’

• Marston’s says ‘this modest trimming of our openings programme reflects a degree of caution given recent subdued market conditions, but our investment criteria are unchanged. Our new pubs continue to open strongly and the performance of those opened in recent years remains good and in line with targets. We remain confident that investment in new pubs and bars creates shareholder value, and is an important component of our strategy to achieve organic growth. We have a good pipeline of sites beyond 2018.’

• Expansionary capex could be £65m next year against £75m this

Dividend:

• No comments at this stage though earnings growth is still expected and a maintained or more likely modestly raised full year dividend is likely

Conclusion & Outlook:

• Marston’s comments ‘sales and profits for the year are ahead of last year, and we target further growth in 2018.’

• It adds ‘there is no significant change to the cost trends highlighted previously, but we have identified cost savings of approximately £5m per annum including the recently announced reorganisation of the pub operational structure, demonstrating that we are alert to opportunities to mitigate ongoing cost increases.’

• Marston’s CEO Ralph Findlay comments ‘our priority is to focus on quality, service and standards. We are well placed to continue to implement our growth strategy through investment in higher quality pubs and bars and through our unrivalled beer brand range supported by high customer service standards.’’

Langton Comment: Marston’s has reported a slowdown in sales in recent weeks.

• The cool weather in September will not have helped but the group has taken the decision to slightly slow its rate of expansion next year until the economic situation becomes more clear.

• Margins will be a little lower and cost pressures remain as previously reported.

• The group’s shares trade at little over 7x earnings and offer a yield of around 7%

• There are wider economic concerns regarding the consumer but, in previous slowdowns, the market for ‘affordable treats’ has remained relatively buoyant whilst large-ticket spending has come under pressure.

• Marston’s has an attractive, well-managed and well-maintained estate of largely freehold properties and its shares are not trading on a demanding rating. The company, overall, is selling product that the consumer would like to buy at a price they are prepared to pay.

AN UPDATE ON CINEMA (AND IMPLICATIONS FOR LEISURE PARK FOOTFALL):

A desperate situation?

• Film is (or has been) a proxy for Leisure Park attendances.

• But data from the US shows both production and demand wilting.

• It had been hoped that rebooting 70s classic would revitalise the industry.

• But down 52% year to date is hardly inspiring. Langton comment here.

Big releases have recently stumbled…

• An autumn recovery looked on the cards. ‘Blade Runner: 2049’ was critically acclaimed.

• But since release, Box Office Mojo (BOM) tells us the film struggled, the BBC claims it sagged and Reuters says it faded.

• The film only took $31.5m of the $45-50m expected on its domestic opening weekend.

A mortal blow to the big screen?

• It’s a sample of one but is a strong release schedule enough to buoy attendances?

• Hurricanes Stateside don’t help but perhaps agile on-demand competitors are taking share from cinema. Customers may favour streaming from home.

• Currently, many industries are facing significant ‘sea-changes’. High-street retail is disrupted by online, casual diners by delivery and hotels by the sharing economy etc.

• Cinema is not immune & its draw for leisure park-based F&B outlets may be weakening.

REVOLUTION BAR GROUP – APPROACHES FROM DELTIC & STONEGATE

• The put up or shut up deadline is 5pm this evening

• Deltic notes Artemis’s change of mind re Revolution, says ‘the Merger Proposal remains Deltic’s preferred structure’

• Deltic says it is not the intention that its backers extract cash via the merger terms. It says the loan holders ‘would, as an alternative to the original Merger Proposal, be prepared to convert all or part of the value of the Ranimul Loan into additional shares in Revolution at a conversion price of not less than 203 pence per share subject to a special dividend or equivalent mechanism for a return of capital of not less than 20 pence per share being paid to all shareholders in the Enlarged Group on the merger becoming effective.’

• Deltic chairman Bob Brannan comments ‘Deltic is incredulous that Keith Edelman, the only Board member of Revolution who has had any contact with Deltic in respect of the merger proposals, and its advisers can, given feedback from Revolution’s shareholders, continue to recommend Stonegate’s offer at a price below both the current Revolution share price and all broker estimates whilst refusing to have any meaningful engagement with Deltic and demonstrating a limited understanding of the nightclub market. If Deltic succeeds in implementing its Revised Merger Proposal, it will adopt a very different approach to the stewardship of shareholders’ capital.’

• Revolution maintains its ‘Board does not believe that the merger proposal would create shareholder value for Revolution’s existing shareholders in excess of the certain and immediate value represented by the recommended 203p cash offer from Stonegate Pub Group Limited’.

• Revolution comments ‘there is no certainty or guarantee that the Deltic management team would be able to deliver either their forecast financial performance or the estimated cost synergies of the Enlarged Group’.

• Revolution chairman Keith Edelman maintains ‘the Board does not believe that the pursuit of a merger with Deltic is in the best interests of the Company or its shareholders and, in the absence of a firm cash offer from Deltic, maintains its unanimous recommendation that shareholders should vote in favour of Stonegate’s offer at the Revolution shareholder meetings on 17 October 2017.’

PUB, RESTAURANT & DRINK PRODUCERS:

• Domino’s Pizza Group has recorded Q3 sales up 20.8% to £286.4m, with UK LfLs growing 8.1%. The period saw the group opened its 1000th UK store, and an increasing shift to online sales (up 17.4%). CEO of the group, David Wild said: ‘In the UK, consumers are uncertain and they continue to focus on value’, he went on to comment: ‘We expect to launch a record 90 stores in the UK this year, with an encouraging pipeline already in place for openings in early 2018. More recently, we have seen a real surge in digital engagement’.

• Consumer spending in the UK fell according to data from Visa, with overall expenditure falling 0.3% on an annual basis. Consumer spending has decreased in four of the last five months.

• William Grant & Sons has recorded after tax profits of £222.1m for the year ended 31st December 2016. The distillery’s standout brands were Glenfiddich, Hendrick’s and The Balvenie.

• Sparkling wine sales have soared in the UK, with volume sales of alternatives to Champagne climbing 76% in the last five years. Data from UHY Hacker Young has found that the UK has consumed 34.4m gallons of sparkling wine in the last 12 months, compared to 19.5m gallons five years ago.

• Oakman Inns & Restaurants has announced strong sales, with LfLs for the 26 weeks ending 1st October 2017 up 8.6% with total sales climbing to £13.5m (an increase of 27.5%). Founder, Peter Borg-Neal said he was ‘absolutely delighted with our performance over the first half of the year’ but went on to mention: ‘The key challenge we are experiencing is the increase in input prices driven by sterling weakness. We have seen a large increase in food prices whilst being very wary of passing them on to the consumer’.

• The survey for the twelfth ALMR Christie & Co Benchmarking Report was launched on Monday; the report provides an overview of operating costs for pubs, bars, nightclubs & restaurants.

• Euro Garages reported revenue of £2.29bn for the 17 months ending 31 December 2016 as it ‘enhances footprint’.

• The British Retail Consortium has warned that consumers will ‘pay the price’ unless EU workers are given more certainty on their futures.

• Aldi has announced plans for a 950,000 sq ft distribution centre in Bedford, its twelfth in the UK.

• BRC says that higher food and clothing prices fuelled retail sales ‘growth’ last month

• FT reports that agricultural incomes could halve after Brexit in the absence of a free-trade deal with the EU

• Chief Executive of the ALMR, Kate Nicholls has stated: ‘We welcome assurances that robust outcomes, not time constraints, will drive trade negotiations, but eating and drinking out businesses will need swift clarity around the Prime Minister’s comments on immigration registration’.

• Whitbread has announced that Costa has acquired the remaining 49% of its South China Joint Venture from its JV partner, Yueda for around £35m. This gives the group total ownership of the venture, which currently operates 252 stores in south China. Alison Brittain, CEO of Whitbread stated: “One of our three key strategic priorities is to focus on our strengths to grow internationally and today’s announcement marks a significant and exciting step in our ambitious growth plans for China’.

• LVMH, the world’s leading luxury group in terms of sales, has recorded a 12% increase in sales (€10.4bn) in Q3 2017.

HOLIDAYS, LEISURE TRAVEL & HOTEL:

• EasyHotel has seen total system sales increase 39% to £29.7m in the year ended 30 September 2017. The group’s LfLs increased 13.7%, as well as the group opening a further 5 hotels. CEO of the group, Guy Parsons said: ‘The strong like-for-like performance of both our owned and franchised hotels and their continued outperformance against the market is very encouraging’.

• UK Finance reports that debit card spending abroad by UK tourists fell 13% year on year to £3.16bn, yet overall debit card spending had risen, suggesting an increase in staycations.

• Tui has increased capacity to Turkey, Canaries and Lapland; adding 250,000 extra seats following Monarch’s collapse.

• The new Iata world air transport statistics report shows an additional 242m air trips in 2016 over 2015, an increase of 7%. From a total of 3.8bn passengers, Asia-Pacific represented 35% of market share, Europe 26% and North America 24%.

• Thomson Cruises will be rebranded Marella Cruises, with Thomson changing to Tui later this month. 

• AccorHotels has bid for the Australian based Mantra. Mantra is Australia’s second largest hotel chain (operating more than 125 hotels), with the AccorHotels bid valuing the group at $1.2bn Australian dollars.

OTHER LEISURE:

• Amazon could receive an additional tax bill in the US, following demands last week by Brussels for back taxes in a regulatory pincer on untaxed profits of nearly €2bn held in Europe.

FINANCE & MARKETS:

• Oil $55.86

• Sterling $1.3166 and é1.1183

• UK 10yr gilt 1.36%

• World markets: UK down, Europe up, US down, Far East up.

• Brexit:

o Ball in your court, no, yours…

YESTERDAY’S LATER TWEETS:

• Later tweets: Prezzo’s parent, Papa Topco, lost £71.1m in year to 1 Jan 2017. Says facing ‘headwinds / turbulent times’. Bulk of loss is write-offs.

• Deltic back in the game? Group sees Artemis withdraw its support for rival Stonegate

• Sky News reports Luke Johnson owned chain of bakeries Gail’s had appointed KPMG to advise it on potential sale

• MCA finds UK Eating Out Market down 1% in value in Q2 2017 vs same period last year. Not good when inflation & capacity are added in

• Jet2.com has added 550,000 summer seats at former Monarch bases. All companies moving to fill the vacuum.

• Milk price stronger, wheat and sugar cheap. Dry shredded wheat on the cards if the economy gets any tougher?

• Blade Runner disappoints at US box office. Misses targets. Something fundamentally adrift or just hurricane hangover?

• World Cup to be a thing next June. Food led operators not so happy. Hopefully England to avoid giants of the game this time. Like Iceland…

START THE DAY WITH A SONG:

Yesterday was the ‘Your Song’, by the legendary Elton John. Today’s song:

For each a road,

For every man a religion,

Face everybody and rule

RETAIL NEWS WITH NICK BUBB:

• BRC Retail Sales for September (the 5 weeks to Sept 30th): We flagged yesterday that another modest overall LFL sales rise was expected from today’s survey, but the outcome of +1.9% was a bit stronger than we’d pencilled in, although the BRC was quick to flag that it was driven by “Retail Essentials”, defined as Food and Clothing, “with consumers buying their winter coats and back to school items, but shying away from big ticket items such as furniture and delaying the renewal of key household electrical goods”. The best 2 sub-sectors in September were Clothing and Footwear, helped by the autumnal “back to school” weather, but the 2 worst sub-sectors were Household Appliances and Furniture.

• Ted Baker: The General Retail sector was quite weak yesterday, but good old Ted Baker was one of the few risers, up by 3.7% ahead of today’s interims (for the 28 weeks ended 12 August) and the fan club will not have been disappointed to see some decent-looking figures: group revenue was up 14.0% (up 9.5% in constant currency) to £296m and PBT was 18% up at £25.3m. The estimable Ray Kelvin, the Founder and CEO, said: “The Ted Baker brand has continued to perform well and in line with our expectations across all distribution channels…Whilst trading conditions in some of our markets remain challenging, we are confident of making further progress for the full year, in line with our expectations”. 

• Pets At Home: The Pets share price has had a decent rally recently, but it closed 1.6% lower at c216p last night, as just before the close the pre-flotation backer KKR began selling a 12.2% stake in the business at 195p. Merrill Lynch announced at 7am that the placing of 61m shares had been concluded, leaving KKR with a 12.4% stake, subject to a 60 day lock-up.

• News Flow This Week: Tomorrow brings the Dunelm Q1 and Capital Markets Day, the Vertu Motors interims and the Quiz pre-close update. Then Thursday brings the Booker interims, the WH Smith finals and the N Brown interims.