Langton Capital – 2017-10-23 – Brewdog, discounting, Stonegate, profit warnings & other:
Brewdog, discounting, Stonegate, profit warnings & other:
A DAY IN THE LIFE:
I think that the day’s not too far off that sees me one of those cranky middle-aged men who spend their days grumbling to themselves and occasionally shouting at the television.
Particularly when the news is on because, what with the sloppy reporting, the fake news and the misspeaking politicians being consistently economical with the truth, there’s quite a lot to raise the average person’s blood pressure – and it may be getting worse.
Because we have slack editorial oversight, those generally straight politicians saying things they don’t believe (in the national interest), other (most) politicos talking through the back of their heads and others such as the Bank of England and various government hirelings using words like uncertainty and turbulence when they mean disaster and cliff-edge.
So what’s not to shout at? Anyway, it’s going to get warmer this week and then cold. Frost by the weekend, they say. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• BrewDog co-founder James Watt has told MCA that he has taken back most of the MD responsibilities following a restructuring of the brewer’s senior management team and the departure of Gareth Bath and Luis Garrido. The group has recently launched its Equity for Punks V, which aims to raise £50m to help fund its three-year expansion plan. Watt also confirmed BrewDog’s intention to list on a stock exchange within the next five years
• Some moves from the majors to edge back on discounting. Prezzo now ‘only’ 30% off, Pizza Express 25% off. Café Rouge still offering 40% off mains. Only takes one & the others may feel obliged to follow. Discounting is easier to start than it is to stop.
• Stonegate has reported somewhat historic numbers for the year to 25 Sept 2016 to Companies’ House.
• Stonegate reports ‘pre-exceptional operating profit for the period was £46.4m (2015: £35.1m). The group reports a loss before tax of £12.5m (2015: profit £4.2m). This was driven by exceptional costs such as the impairment of asset values and the loss on sale of non-current assets.
• Stonegate points out that, prior to its more recent purchases, it was ‘the fourth largest managed pub operator in the United Kingdom in terms of number of pubs.’ It says ‘it has developed a range of urban and suburban formats built on its understanding of what its customers want.’
• Stonegate reports its ‘strategy is to improve growth through increasing our exposure to the more attractive categories and segments of our markets, through continuing to intelligently invest in its pub estate to maximise site profitability, pursuing targeted acquisitions of attractive and complementary pub portfolios with upside potential, aligning its formats to benefit from emerging consumer trends and delivering operational improvements across its pub estate to drive margin growth’.
• Regarding the outlook, at the time that it signed its accounts (January 2017), Stonegate said ‘trading for drink led businesses has outperformed the overall retail sector performance in 2016 and we expect that to continue into 2017. Whilst there are cost pressures coming from National Living Wage, rates valuation and potential cost price rises from exchange rate movements in 2017, Stonegate is well placed to mitigate these with the continued roll-out of the successful investment programme where we are seeing industry-leading returns.’
• Stonegate has made an accumulated loss of £55.8m since incorporation.
• Ernst Young has reported that profit warnings are sharply higher on the back of a less buoyant economy. It reports that there were 75 profit warnings in the three months to the end of September from listed companies in the UK, up from 45 in Q2. EY says ‘summer brought more mixed fortunes for UK plc, with the contrast between accelerating overseas markets and the slowing UK economy increasing.’
• EY says ‘many businesses besieged by pricing pressures before Brexit are also now feeling the brunt of rising domestic uncertainty and rising costs.’ The Bank of England is thought likely to raise interest rates next month.
• Cost increases are an issue in the US reports NRN. The journal says that labour and food costs are on the rise.
• US diner brand Denny’s has confirmed it is attempting to relaunch in the UK with the signing of a 10-site franchise deal.
• BK Brasil Operação e Assessoria a Restaurantes SA, operator of the Burger King fast-food chain in Brazil, is to list an undisclosed amount of new shares on the country’s stock exchange.
• Higher chip and avocado prices and slower traffic sent shares in US operator Del Taco Restaurants down more than 18% on Friday. Profit margins were lower than expected in Del Taco’s third quarter as a result of high labour inflation and rising food costs.
• UK consumer confidence rose 3% in the third quarter of 2017 compared to the preceding three months, breaking three consecutive quarters of decline, according to the Consumer Tracker report from Deloitte. The Tracker’s reading remains negative, however, at -7. The quarterly survey, which records responses from 3,000 UK consumers, also found that people are more worried about debt pressures, with discretionary spending on going out, restaurants and hotels all down 4%. Rising inflation is still taking its toll on consumer budgets and household disposable income remains a key concern.
• More than 56,000 small businesses in England face the prospect of steep Business Rate rises next year, new research from CVS has indicated. Chief executive of British Retail Consortium, Helen Dickinson said: ‘Across the country, especially in economically deprived and vulnerable communities, the cost of failing to take action will likely be seen in yet more empty shops and gap-toothed High Streets’.
• M&S has opened its first Wasabi concession store in its Westfield Stratford store, with the retailer hoping to open a further 4 restaurants over the coming months.
• Wagamama has refinanced its £150m bond with 7.87% interest to a £225m issue with 4.12% interest, according to the Telegraph and companies house. The new bond will help to pay off shareholder debt, which includes £185.9m of fixed interest loan notes. Sales for Wagamama increased 16% to £266m over the year, with operating profit up nearly a third to £21.9m.
• HelloFresh, a German meal-kit-delivery group, is offering £319.3m worth of shares in its IPO. The Rocket Internet majority owned company will have a valuation of up to €1.5bn excluding debt.
• Aldi and Lidl have filed 90 planning applications so far during this year, according to Barber ABI and The Sunday Telegraph. By comparison the Big Four have filed just 11 applications between them in the same amount of time.
HOLIDAYS & LEISURE TRAVEL:
• Chadwell Travel, which trades as A1 Travel has entered into administration following costs incurred due to the collapse of Monarch Airlines.
• Accor reports solid Q3 numbers, with the group confident that it will reach its FY operating profit target of €460-480m.
• Alphabet has led a $1bn funding round in the ride-hailing app Lyft, valuing the company at $11bn. The Uber rival has stated its interest in expanding outside the US.
• The Victoria Derbyshire show has found that nearly 95% of advert breaks in UK football matches feature at least one gambling advert. The government is considering whether new restriction are needed with a report expected later this week.
FINANCE & MARKETS:
• The UK government’s budget deficit fell to £5.9bn in September, the lowest number for that month in 10yrs.
• ONS reports government debt up by £145bn in the year to September, equivalent to 87.2% of GDP. Treasury spokesman says ‘whilst we’ve made great progress getting the deficit down by over two thirds, government borrowing is still far too high at over £150m a day.’
• Government should borrow more money to fund new house building says shadow communities’ secretary Sajid Javid.
• Philip Hammond is being warned that right wing Brexit Tories may ambush him over his budget in a move to oust him from no11. Brexiters appear concerned that the Chancellor is not committed to a leave agenda.
• Oil up 50c or so at $57.88
• Sterling stronger at $1.3198 and €1.1214.
• UK 10yr gilt yield up 5bps at 1.33%
• World markets: UK, Europe & US up on Friday. Asia mostly lower in Monday trading.
o Labour’s Emily Thornberry has said that UK negotiations with the EU are heading for a “no deal” exit
o Theresa May is to update on progress today
o UK facing an investment crisis as companies cut back on spending amid Brexit uncertainty reports EEF
o Five business groups including the IoD and the CBI are to tell the government that a transition deal needs to be available to them in detail urgently. Uncertainty will otherwise adversely impact investment, output and jobs
PRIOR DAY’S LATER TWEETS:
• Later tweets: MCA’s Eating Out Panel says frequency of diners down last month for 4th month in a row.
• Butter prices are +73% over the last year, milk bottomed out in June last year & now up c40%
• No wage growth could stop inflation dead. Good as far as it goes. But no wage growth? Not so good for consumer stocks…
• IHG UK provincial REVPAR up more than London at +5% and +3% respectively.
START THE DAY WITH A SONG:
Yesterday’s song was from the former Velvet Underground songwriter, Lou Reed, with ‘Take a Walk on the Wild Side’. Today’s song:
It’s so typical of me to talk about myself I’m sorry,
I hope that you’re well,
Did you ever make it out of that town where nothing ever happened
RETAIL NEWS WITH NICK BUBB:
• Saturday Press: The Saturday papers were thin pickings in terms of Retail News and the Daily Mail was, as far as we can see, the only paper to follow up on Friday’s press preview of the John Lewis Oxford store, with a bullish article about the new services focus, headlined “John Lewis plots High Street fightback”. However, Reuters had a piece headlined “John Lewis winning in challenging market, boss says”, flagging that MD Paula Nickolds admitted that October trading on the High Street has been pretty grim, but said that John Lewis was outperforming: “We believe we’re trading about a couple of (percentage) points higher than the market”. In other news, the Times and the Guardian Money sections highlighted that Marks & Spencer has moved into the mortgage market , prompting the Business editorial in the Times to thunder that “M&S Bank, actually 100% owned by HSBC, has not greatly
• Sunday Press: The Retail cupboard was also rather bare in the Sunday papers, but the Sunday Telegraph and the Mail on Sunday came to the rescue with a couple of Debenhams stories, ahead of Thursday’s finals: the former flagged that Debenhams has angered the small business lobby by demanding retrospective discounts from suppliers and the latter had an interview with the new CEO Sergio Bucher, highlighting how the revamped Stevenage store has reduced clutter. The Mail on Sunday also noted that Sainsbury is launching an upmarket menswear range called Tu Formal, whilst the Sunday Telegraph also flagged that Aldi and Lidl are pressing on with their store opening plans even though the “Big 4” supermarket chains are radically pruning their store expansion programmes. The Sunday Telegraph also had a feature article on the Mall of America in Minneapolis: “Malls must learn new tricks or it’s
• Pendragon: Unexpectedly, the big motor dealer group Pendragon has issued a trading update today and the news is not good, with a warning that “during the quarter as consumer confidence waned we experienced significant market pressures” and that full year PBT will be down from £75m to only £60m (even though H1 profits were 10% up, at £48.5m). There is also a strategic update, with the veteran CEO Trevor Finn saying that “We are placing our software and online technologies at the heart of our business as a platform to fulfil customers’ vehicle and servicing needs. We believe this strategy will provide more reliable and sustainable returns”. Pendragon says that “we anticipate resumption of growth in profits in 2018”, but the analysts call at 8.30am should be lively.
• News Flow This Week: Tomorrow brings the Carpetright and Shoe Zone pre-close trading updates, whilst Thursday brings the Debenhams finals and the Inchcape Q3 update. And tomorrow sees the opening of the new and much-awaited Westgate shopping centre in Oxford.