Langton Capital – 2017-10-26 – C&C, AB InBev, Byron, McDonald’s, interest rates & other:
C&C, AB InBev, Byron, McDonald’s, interest rates & other:A DAY IN THE LIFE: But busy this morning. Would you believe it but MIFID II, the Markets in Financial Instruments Directive II that comes into force on 3 January, is taking up a bit of our time. Get it while it lasts but, for the moment, let’s move on to the news: PUB, RESTAURANT & DRINK PRODUCERS: • It’s tough out there. See Langton note on capacity (only £200 + VAT for this wonderful document). Sky reports the board of Byron burgers has launched a strategic review of the business, potentially leading to the sale of the business or disposal of a substantial amount of sites. Insiders stressed that banking covenants had not been breached and that there was no need for a company voluntary agreement for the c70-site strong burger chain, according to Sky. • C&C H1 numbers: Group reports revenue down 6.8% at €273.1m with adj. EBITDA of €57.6m, down 4.6%. • C&C H1 numbers: Group reports adj. EPS of 12.9c, down 3.7% with a dividend of 5.21c, i5.0%. • C&C H1 numbers: Sees ‘strong performance in our Tennent’s businesses’. Group says ‘investment in Tennent’s founts and new brand campaign is driving share growth, volumes (+0.4%) and revenues (+5%).’ • C&C H1 numbers: Says ‘total GB cider volumes [are] flat, including first year contribution from acquired craft cider brand – Orchard Pig.’ C&C says the ‘transition of Magners and other cider brands to new AB InBev distribution arrangements [is] on track with momentum building.’ • C&C H1 numbers: Reports Magners brand volumes down 6% ‘against strong comparatives’ but says that recent Bulmers’ and Outcider campaigns are delivering retail growth. Bulmers’ volumes nonetheless down 5%. The group says this is ‘reflecting reduced draught distribution, a weaker cider category and strong comparatives’. Premium cider is growing (volumes +24%). • C&C says its investment in Admiral Taverns is a platform providing direct access to the UK on-trade. C&C exports volumes are +5%. CEO Stephen Glancey reports ‘during the first six months, we have continued to drive performance in Scotland, invest behind the strength of our core brands in Ireland and evolve our model in GB through our agreement with AB InBev and our planned investment in Admiral Taverns. Our continuous focus on cost, efficiency initiatives and effective working capital management have also delivered an improved operating margin and strong cash generation.’ • C&C reports ‘trading patterns over the first half have been rather less predictable than we would normally anticipate.’ The group says ‘however, much of our underlying performance has been resilient.’ • C&C reports ‘in the UK Tennent’s is one of the few standard lagers in growth outperforming in the critical independent free trade and also the grocery channel.’ • C&C concludes ‘volatile market conditions remain across the industry.’ It says ‘looking further ahead we are increasingly confident that our brands, market positions, operational investments and now enhanced route-to-market infrastructure in GB will return the business to growth and deliver enhanced shareholder value over the medium term.’ • AB InBev has reported Q3 and 9mth numbers saying revenue grew by 3.6% in the quarter with revenue per hl +5.0%. • AB InBev Q3: Group says ‘on a constant geographic basis, revenue per hl grew by 5.4%, driven by revenue management initiatives and continued premiumization.’ • AB InBev Q3: Total volumes down by 1.2% in Q3. Own beer volumes down 1.5%. Says ‘continued strong growth in Mexico, Argentina, and Africa was more than offset by soft shipment volumes in the US, primarily driven by the substantial weather impact in many parts of the country, and Brazil.’ • AB InBev Q3: Big brands up. Group says ‘combined revenues of our three global brands, Budweiser, Stella Artois and Corona, grew by 1.6% in 3Q17 and by 7.3% in 9M17.’ Budweiser revenues fell 2.2% (despite 4.4% growth in out-of-US revenues) but Stella grew by 0.9% and Corona revenues were +11.2% outside of its home market of Mexico. • AB InBev Q3: EBITDA +13.8% with margin +353bps to 38.9%. Profit after tax up to $2.6bn from $1.4bn last year ‘driven by the organic increase in EBITDA and lower net finance costs, partly offset by higher income tax expenses.’ • AB InBev Q3: Regarding SAB, the group says ‘the business integration continues to progress well, with synergies and cost savings of 336 million USD captured during 3Q17. We are updating our 2.8 billion USD synergy and cost savings expectation to 3.2 billion USD on a constant currency basis as of August 2016.’ • McDonald’s is ready to ‘flip the marketing switch’ on digital services such as mobile ordering and delivery as it looks to make these features a more meaningful party of its business. Speaking on an analyst call yesterday following its Q3 results, McDonald’s US VP Chris Kempczinski explained: ‘We are still in the early innings of digital but we’re seeing a really nice start to it. We are seeing strong offer momentum… and as we’re rolling out mobile order and pay, the power is going to then bring together the offer with the ability to do mobile order and pay. Right now we’re really focused on getting the operations right. What happens in 2018, when we flip the marketing switch on it and start to drive really much more increased usage? We want to make sure that we’re ready when we do flip on the marketing switch that we’re ready to handle the business with it.’ • With Anthony Joshua’s highly anticipated title dence on Saturday, analysis by MatchPint and beer quality expert Vianet, shows how pubs that showed the Mayweather vs McGregor experienced sustained and impressive sales throughout the night. Sites keeping their doors open for the fight saw an additional 22 pints sold per hour, equating to a massive 9% Saturday trade increase compared to MatchPint sites that did not show the fight. ‘Pay-per-view boxing continues to draw massive online attention as sports fans plan ahead to avoid disappointment’ says Robert Stewart, Head of Operations at MatchPint. ‘The youthful make-up of punters searching for fights also gives operators a fantastic opportunity to access a key demographic.’ • The eating and drinking out sector is a major asset to the UK economy and can be a driver of future growth, but needs targeted support from the government, according to the ALMR. Pubs, bars, restaurants and nightclubs are set to see a £220m tax hike at next month’s Budget, through increases in business rates and excise duty. ALMR Chief Executive Kate Nicholls said: ‘With Brexit on the horizon, this is a hugely important moment for the UK. This could also be a crucial Budget for the eating and drinking out sector. Unquestionably, cost pressures are rising at a time of maximum uncertainty and confusion for employers.’ • The average consumer spends £676 on coffee from shops and cafes, according to findings by Ginger Research for syrup maker Monin, and 76% of respondents claim they regularly experiment with different styles and flavours. Lee Hyde, beverage innovation manager at Monin, said: ‘Over a third of Brits confirmed they know more about coffee than they did five years ago and coffee drinkers are finding new ways to personalise their drinks, reaching for flavours from popular vanilla to more adventurous flavours like salted caramel.’ • Coca-Cola gained market share on rivals, PepsiCo, recording a 3% increase in North American Q3 sales. RBC Capital Markets analyst, Nik Modi commented: ‘Coca-Cola is clearly gaining share as evidenced by the very wide performance gap between itself and PepsiCo’. • In the US, Buffalo Wild Wings shares soared more than 20% on Wednesday on the back of better-than-expected earnings. Net income adjusted for one-time events in Q3 fell 10.7% to $21.2m, beating analysts’ expectation even though chicken wing prices surged 25.6% yoy. • Also in the US, Chipotle Mexican Grill saw its stock drop by more than 14% yesterday after reporting a halt in its recovery. The company reported same-store sales of 1% which company execs called ‘essentially flat’; on a two-year basis same-store sales are down 21.1%. Two years ago Chipotle was remarkably profitable, with restaurant margins exceeding 25 percent, enabling the chain to pay off a new unit in a year and a half. • Deutsche Bank’s asset division has warned property values on famous shopping streets in London are at risk due to retailers relocating for affordability reasons. Deutsche Bank said ‘Prime high street retail rents in central London are at considerable risk of decline’. HOLIDAYS & LEISURE TRAVEL: • The Cyprus Tourism Organisation has recorded a 14.7% rise in the number of tourists traveling to the island this year, compared to last. Total visitor numbers to the island between January and September 2017 were over 3m, with UK visitors increasing from 149,586 to 165,728. • Wyndham Q3 2017 saw revenues up 4% yoy to $1.6bn with net income rose 3.6% to $203m and a diluted EPS of $1.97 per share, an increase of 11%. Adjusted EBITDA was up 3.1% to $436m, with the company saying that hurricanes affected performance in Q3. The company also added $1.0bn to its share repurchase authorisation. • Chairman & CEO of Wyndham Worldwide, Stephen P. Holmes, said ‘Despite the weather-related challenges in the quarter, we generated a strong increase in new timeshare owners and year-over-year growth in our earnings per share. We have also strengthened our presence in the midscale hotel segment with the addition of the AmericInn brand and its 200 franchised hotels in October.’ • A Jet2 flight from Glasgow to Crete departed with only one passenger on board, with the company saying it was ‘not unusual’ to have lower bookings on the final flight of the season. Karon Grieve was the only passenger on the 189-capacity plane and paid just £46 for her ticket. • Abta believes the House of Lord’s ban on cold calling by management firms will help to reduce the amount of fake holiday sickness claims. An Abta spokesman said ‘we have been calling on the government to introduce a ban, so this announcement is a significant and very welcome advance in the industry’s fight against fraudulent claims.’ FINANCE & MARKETS: • Times reports housebuilders have scaled back plans to build homes in London. Plots registered to build fell by 35% in Q3 vs same period last year. • Car production in the UK fell in September per the SMMT. The fall was on the back of a 14% drop in demand in the UK. SMMT reports ‘with UK car manufacturing falling for a fifth month this year, it’s clear that declining consumer and business confidence is affecting domestic demand and hence production volumes.’ • The UK economy grew by 0.4% in Q3. This was ahead of the 0.3% expected & makes a rate rise on 2 Nov more likely. • Sterling higher on back of expected rate rise, the first in 10yrs, next Thursday. • Local chamber of commerce reports that Yorkshire businesses are outperforming the national average • Oil little changed at $58.37 • Sterling up over a cent at $1.3263 • Pound up half a cent vs Euro at €1.1215 • UK 10yr gilt yield up 6bps at 1.41%. Highest rate since end-April. • World markets: UK down yesterday on stronger pound. Europe down, US down and Asia down in Thursday trade • Brexit: o Speaking in London, Michael Bloomberg has said that Brexit ‘single stupidest thing any country has ever done’ apart from electing Donald Trump. o SMMT says ‘Brexit is the greatest challenge of our times and yet we still don’t have any clarity on what our future relationship with our biggest trading partner will look like, nor detail of the transitional deal being sought.’ It continues ‘uncertainty regarding the national air quality plans also didn’t help the domestic market for diesel cars, despite the fact that these new vehicles will face no extra charges or restrictions across the UK.’ o Toyota says it needs clarity on the terms of Britain’s access to European Union markets after Brexit to secure production. VP Didier Leroy says ‘we cannot stay in this kind of fog when we don’t know what will be the output of the negotiations.’ o Frankfurt banking boss Felix Hufeld has said banks moving parts of their operations to Germany will not be allowed to use ‘letterbox models’. Hufeld says ‘we will only accept ‘fly and drive’ in individual cases and for a certain transitional period.’ o But IAE (expert alert) says additional barriers to trade with EU ‘would not be as large as many fear’ o David Davis says the UK wants an outline agreement with the EU by Q1 next year as to any transitional arrangements. Davis suggests that parliament may not get any further votes on developments. o Davis suggests UK would pay a fee for rolling one-year extensions to membership PRIOR DAY’S LATER TWEETS: • Discounting back on the up despite half term. Prezzo is back at 40% off mains, Pizza Express ‘up to 25% off’ and ASK 30% off mains. • McDonald’s strong in UK & says that its newly-introduced delivery service is performing well. • UK is one of the world’s best-value travel destinations due to sterling weakness, per Lonely Planet • Reuters’ poll suggests chance of a disorderly Brexit ‘has crept higher’. 0.4% GDP rise should see interest rates rise next week. • John Lewis coming up with some poor numbers. Weather hit fashion but Waitrose also struggling to keep >0% START THE DAY WITH A SONG: Yesterday’s song was OMD with Electricity. Today who sang: Hello, hello, You put love in my hand, I know, I know it’s made of lead, Hello, hello, Science came, a kingdom reigned RETAIL NEWS WITH NICK BUBB:
Debenhams: Today’s final results statement from Debenhams is headlined “Delivering the first building blocks of Debenhams Redesigned”, so it is predictably long on words/hope and short on hard facts/current trading news, but the underlying profit before tax of £95.2m for y/e Aug (down 17%) is said to be in line with market expectations, before exceptional charges of £36.2m. And continued cash generation and confidence in the Debenhams Redesigned strategy encouraged the Board to maintain the final dividend of 2.4p (making a total dividend of 3.425p). As for the outlook, the new CEO Sergio Bucher says “the environment remains uncertain and we face tough comparatives over the key Christmas weeks. However, we are well prepared for peak trading and the early signs from our activity to date confirm that we are moving in the right direction towards a successful and profitable future for Today’s Press and News: The news that Marks & Spencer Clothing Jo Jenkins is quitting to take the reins at the fashion chain White Stuff next spring is the big talking point in today’s papers: the FT points out that she had only been in her new expanded role for less than a month, whilst the Telegraph also highlights that the John Lewis Partnership is losing its highly regarded Development Director Tom Athron. In other news, the Times flags that Sports Direct has appointed a City fund management analyst Liam Rowley as Head of Strategic Investments and the Daily Mail notes that the embattled New Look is cutting 400 store management jobs.
Retail Sales Watch: All the focus now is on how badly October will turn out on the High Street, but we haven’t seen the final word on how good the outcome was for September. We flagged on Friday last week that the ONS Retail Sales figures for September (the 5 weeks to Sept 30th) were relatively sedate, as the Office of National Statistics (the ONS, aka the “Planet ONS”) reported non-seasonally adjusted total sales by value up by 4.6% last month (ex-petrol), driven by the reported 8.7% growth for Small Retailers, whereas the BRC-KPMG measure of gross sales (which focuses on Large Retailers) was up by only 2.3% (up 1.9% LFL). So, who was right? Well, the new consultancy group, Retail Economics (RE), which is run by Richard Lim (who used to run the monthly BRC-KPMG Retail Sales survey), has just come out with its own overview and their estimate is that gross Retail sales rose in value by John Lewis Space Watch: We flagged yesterday that the poor John Lewis sales figures for last week were broadly the same in both gross and LFL terms, but, of course, that is not often the case. Following the opening of Chelmsford on Sept 29th last year and the opening of Leeds on Oct 20th, first half sales (to end July) were inflated by 2.2% by such new store sales growth and in the first 6 weeks of the second half that figure was running at +1.9%. From now on, Chelmsford and Leeds are both in the LFL sales calculation, which just leaves the opening of Oxford to boost top-line sales and our best guess is that Oxford will add c0.7% to fiscal Q4 sales growth. And, needless to say, we think that John Lewis will do extremely well to hold LFL sales in their Q4, even if they continue to outperform the market a bit… Bunnings Watch: The Australian conglomerate Wesfarmers released its Q3 sales figures yesterday and was honest enough to admit that LFL sales in its UK Homebase/Bunnings DIY business slumped by as much as 11.9%, as the big stock clearance continued. The Bunnings Group MD Michael Schneider said that “While the performance of Homebase is disappointing, we continue to be encouraged by the performance of the Bunnings pilot stores”. The next trading news will come with the Q4/finals in mid-February and it will be clear by then whether B&Q and Wickes have managed to pick up much of the market share vacated by Homebase/Bunnings.
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