Langton Capital – 2017-11-22 – Thomas Cook, SSP, EI Group, discounting, Stride & other:
Thomas Cook, SSP, EI Group, discounting, Stride & other:
A DAY IN THE LIFE:
So, hands up who reads their phone in the loo.
Not while you’re holding your mobile device, of course, you won’t be able to finish reading this sentence but I would say the majority participate in the above relatively harmless pursuit and, whilst I would suggest that it’s pretty safe in the sitting position, it can lead to some strange juggling and unintended exhibitionist behaviour when at the urinal.
And, whilst I’ve yet to see a social-media starved yuppy drop his phone into the urinal and wee on it, I’m living for that day. On to the news:
ENTERPRISE INNS – FULL YEAR NUMBERS:
Following the announcement of its full year results earlier today, EI Group hosted a meeting for analysts and our comments are set out below:
• EBITDA was down a little on disposals. PBT was virtually unchanged & EPS was up on a lower tax charge and share buy-backs
• It’s worth remembering that 90% of group income still comes from leased pubs. This business is now back in growth
• It has to be said that Q3 was helped by good weather and a late Easter. LfL income was +3.9% in Q3 and +0.8% in Q4
• The business is much more stable. Unplanned failures were only 1.3% of the estate. This may be a base-level figure
• NAV per share is 313p. Pubs in the north & midlands fell by 1%. Pubs in the south increased by 1%
• The group has predictable free cash flow. It is for this reason that a share buyback programme is planned. A dividend may be forthcoming in due course
• Debt repayments are factored into cashflow projections. There is no pinch-point anticipated
• Loan to Value is only 55%
• Enterprise said that its evolution continues & that it was now in a position to accelerate internal transfers from leased & tenanted units to managed and commercially leased
• The move to MRO leases has been slower than anticipated. Commercially leased units may therefore top-out at a lower-than-previously-expected figure
• Of the 790 trigger-points to date, only around 140 or so are thought likely to lead to an MRO solution
• EIG anticipates having 2,700 leased pubs, 800 managed units (500 Craft Union, 200 Bermondsey & 100 Managed Expert) and 700 commercially-let units by 2020.
• Disposals will mostly be of bottom-end units. The group has not seen any dropping off in buyer interest
Langton Comment: EIG has reassured that it is executing on its May 2015 strategy update.
• This committed the group to develop and grow its managed operations & that it would move a number of units across to a commercially-leased division for those lessees that wished to go free of tie.
• EIG now feels sufficiently confident to accelerate its transformation.
• Debt is manageable, cash flow is solid and, though the economy as a whole may face some headwinds, the group’s predominantly wet-led offer is perhaps more resilient in a downturn than might be eating out.
• EIG’s shares are cheap and, should the group be ‘normalised’ and be viewed this way by investors, there is potential upside from current levels.
PUB, RESTAURANT & DRINK PRODUCERS:
• SSP has announced FY profits have risen 27% (constant currency) to £162.9m, with LfLs climbing 3.1% resulting in full year dividends increasing 50% to 8.1p per share. Kate Swann, CEO of the group stated: ‘SSP has delivered another good performance in 2017. Operating profit was up 27.0% at constant currency, driven by good like-for-like sales growth, substantial new contract openings and further operational improvements’. Commenting on current trading she said: ‘The new financial year has started in line with our expectations and, whilst a degree of uncertainty always exists around passenger numbers in the short term, we continue to be well placed to benefit from the structural growth opportunities in our markets’.
• EI Group yesterday bought back 55,454 of its own shares for cancellation at 133.1p
• Discounting: Vouchercodes says Pizza Express offering 25% off with Prezzo 50% off mains and Chimichanga and Toby Carvery likewise. Black Friday starts today and lasts for 5dys plus for some others.
• Three fifths of home meals or snacks now involve a bakery item, the MCA has reported. Breakfast remains the driver for out-of-home bakery sales with 66.2% of occasions involving a bakery item.
• Family visits to the pub has risen 0.5% accounting for 19.8% of all pub meal occasions, whereas adult-only visits have fallen 0.1%, on last year. Cyril Lavenant, foodservice director UK at the NPD Group, said: ‘Pubs continue to grow at a slower pace than the overall foodservice market in YE September 2017 (Total OOH +0.5%, Pubs +0.2%). In a surprise turn of events, for the first time in many years, independent pubs grew visits by +2.0% in YE September 2017, contributing to overall pubs growth and stealing share from branded pubs (branded – 67%; independents – 33%, up +0.5ppts). Branded pub visits decreased YE September 2016 by -0.7%’.
• Hi-Spirits is offering a new range of simple-to-make Christmas cocktails, with managing director Dan Bolton stating: ‘These drinks have been developed with mainstream pubs and bars in mind. We also work closely with operators to create bespoke cocktails at this time of year, and many bartenders enjoy creating their own seasonal serves with our brands’.
• Drake & Morgan has opened its new London bar, the Listing, in the new Cannon Green development.
• Hippo Inns has secured its 11th site — the Blue Anchor in Hammersmith — and expects to open another four pubs in the next nine months, per MCA.
• Manchester United FC has announced a multi-year partnership with Melitta that will see 200 of the catering equipment brand’s fully automatic coffee machines installed in the club’s grounds.
• Ei Managed Investments has announced the launch of its ninth venture, Hush Heath Inns, with the first site set to be The Ship Inn in Rye, Sussex.
• Go Outdoors reports full year sales of £213.8m, up 5.7% with gross profit increasing 5% to £67m. The retailer attributed part of this growth to larger store formats.
• Wales’ largest brewer and hospitality company, SA Brain, has announced a major regeneration project, that will see the building of a three million square foot brewery and offices.
• A cafe in Hong Kong and Singapore is charging a whopping $60 for a cup of rare coffee.
THOMAS COOK – FULL YEAR NUMBERS:
Thomas Cook has this morning reported full year numbers to end-September and our comments are set out below:
• Group reports revenue for the year (aided by currency moves) of £9.0bn, up from £7.8bn last year
• Underlying gross profit is £1.995bn (2016: £1.829bn) with EBIT of £231m (2016: £197m) and underlying EPS of 9.3p (2016: 8.1p)
• Thomas Cook announces a dividend of 0.6p, up from 0.5p last year and says that debt is down to £40m from £129m last year
• Group says it has made ‘good financial progress’. It has seen a ‘strong recovery at Condor; increased profits in Continental Europe and Northern Europe’
• In the UK, margins are lower after four consecutive years of profit growth
• The group has new financing arrangements to 2022 ‘providing greater liquidity and flexibility to invest in growth’
• TCG will grow its business in China and says it has a tenfold growth in customers targeted in 2018
• CEO Peter Fankhauser comments ‘2017 was a milestone year in the strategic development of Thomas Cook. By delivering what we promised on strategy, we’ve inspired more customers to choose our holidays for their hard-earned weeks in the sun, while at the same time transforming the scale of the opportunity ahead for the Group.’
• CEO Fankhauser continues ‘we now see that the deliberate decision we made to put the customer back at the heart of our business is bearing fruit.’
• TCG says ‘increased customer demand delivered a 9 per cent growth in revenues in the year. Combined with the successful turnaround of our German airline division, Condor, this led to an underlying operating profit of £330 million, an 8 per cent increase year on year.’
• TCG says ‘the actions we have taken in the last 12 months take us significantly further forward in our strategy for profitable growth. The strategic alliance we signed with Expedia will transform the way we work, enabling us to offer a much greater choice of hotels to Thomas Cook customers at lower cost and complexity to us.’
• Re China, Mr Fankhauser reports ‘I am also excited by the growth opportunities we have in our fledgling business in China, as well as in financial services with the launch of Thomas Cook Money. In a very short space of time, Anth Mooney and his team have developed a really innovative set of financial products that I believe will make customers think again about what we can offer – and help us reclaim our position as number 1 for holiday money.’
Current trading & outlook:
• Thomas Cook CEO Peter Fankhauser reports ‘looking to the year ahead, we can see real momentum in our Group Airline, and expect our Continental Europe and Northern Europe tour operator businesses to continue their good performance.’
• He says ‘while conditions are challenging in the UK, we have implemented a set of actions to improve performance. Overall, based on current trading, I believe that we are well-positioned to achieve a full year operating result in line with market expectations.’
• Winter 2017/18 is selling in line with expectations. The programme is 58% sold.
• Summer 2018 has started well. Bookings and pricing are ahead of last year. TCG says ‘demand for our holidays to Turkey and Egypt is very strong, which we expect will start to alleviate the margin pressures caused by the high concentration of holidays to Spain in 2016 and 2017. Bookings to Greece and Cyprus are also up significantly, following a strong summer in FY17.’
• TCG says ‘customer demand for non-Euro destinations such as Turkey and Egypt, where we have long been market leader, is picking up well.’
• Thomas Cook’s shares have risen ahead of its numbers on the back of positive press comment last weekend.
• The figures today, though aided by currency translation and below some estimates, should reinforce the belief that the group’s recovery is well-established and that, more importantly, it has some way to go.
• There is a lot of paddling going on below the waterline and, on the back of the Expedia deal and the China JV to bear fruit over the medium term.
• Consensus numbers have the group trading on a next year PER of around 10x earnings. This is rather lower than one would expect for a company whose recovery is not complete.
• TCG’s China JV is potentially very exciting and we believe that its shares offer good value.
HOLIDAYS & LEISURE TRAVEL:
• FT reports Swedish hotel investment firm Pandox is the front runner to buy Jury’s Inn’s hotel business for £800m from its US private equity owner
• The number of UK tourists to Cyprus has already improved on last years total of 1.1m by 6.4% with global arrivals up 6.9% to 3.4m.
• Airbnb and Marriott have locked horns publicly with Marriott CEO Arne Sorenson saying Airbnb is ‘spending a lot of money on government affairs, and they’re playing pretty aggressive’ and Airbnb retorting that Marriott has ‘habit of taking billions of dollars from taxpayers to subsidize the construction and operation of your hotels’.
• The introduction of an under 30s railcard will see card holders receive a discount on rail travel of a third.
• Gfinity, the London based esports entertainment company, today released its audited FY results finding that revenue had increased 64% to £2.37m but loss before tax climbing to £5.3m, 71% rise on last year. The group raised £9.95m of new funds during the year via two new placings. Neville Upton, the group’s CEO said: ‘The loss for the year was in line with expectations and reflects our investment in building a world class executive team, further investments in the Gfinity Esports Arena and technology and in preparations for the highly successful launch of the Gfinity Elite Series, the first professional season of which commenced in July 2017, with the second season now underway’. Mr. Upton went on to state: ‘Following the year end, I was also delighted to announce further steps in our global expansion including the acquisition of CEVO, Inc. in the USA and Gfinity’s first overseas deal
• Newcastle United have received a formal takeover bid of around £300m from Amanda Staveley’s PCP Capital Partners. The bid comes after a month of talks but falls short of Mike Ashley’s reported asking price of £380m.
• Stride Gaming yesterday reported full year results to end-August saying it has had ‘a transformational Year driven by strong growth in Real Money Gaming.’ The operator announced net gaming revenue +18% at £89.9m with EBITDA of £20.2m against £16.4m last year. The group made adjusted EPS of 27.5p, up 29%. CEO Eitan Boyd reports ‘2017 has been a year of significant progress for Stride Gaming during which the Group has delivered outstanding growth in its core Real Money Gaming business.’ The CEO concludes ‘the online gaming industry remains fast-growing and dynamic. As an operator with scale, proprietary technology and operational momentum we are confident of delivering further success in the year ahead and continued progress against our growth strategy.’
• Stride Gaming has announced that it has acquired a 51% stake in Passion Gaming Private Limited, an Indian gaming company, for a cash consideration of $3.75m. The company reports ‘the investment fits with Stride Gaming’s stated long-term growth strategy of expanding the Company’s presence into new growth markets and attractive, related online gaming product verticals.’
FINANCE & MARKETS:
• NIESR reports ‘UK productivity has been woefully poor since the onset of the Global Financial Crisis and has surprised forecasters to the downside.’ It says ‘a striking observation is that there is a negative relationship between employment and productivity.’
• CBI reports price pressures eased in November.
• UK government borrowing rose to £8bn in October, up £500m on the same month last year.
• Oil up 40c at $63.01
• Sterling little changed at $1.3251 and €1.1284
• UK 10yr gilt yield down 3bps at 1.27%
• World markets: UK, Europe & US up yesterday with Asia higher in Thursday trade
o Monumental waste of time & effort continues with the ‘ball in your court’ and ‘no, the ball’s in yours’ dialogue continuing.
PRIOR DAY LATER TWEETS:
• Later tweets: When will we be getting back to full margin? Are discounts, incr. marketing, advertising etc. negatively correlated to trading fundamentals?
• Discounting. Black Friday apparently lasts 5dys minimum. Steak & chips for £6. But wait, it’s a BOGOF. Only £3 each? Where’s the margin?
• You pay for corners, you get corners. You pay for goals, and you might get them. Some operators targeting LfL sales rather than profits?
START THE DAY WITH A SONG:
Yesterday’s song was ‘Purple Rain’ by Prince. Today who sang:
I still love you, But now I think it’s time I live my life on my own,
I guess it’s just what I must do
RETAIL NEWS WITH NICK BUBB:
• Signet: We flagged yesterday that the Q3 results from the most shorted US retailer, aka Signet Jewelers, would be worth a look…and they were a positive triumph for the shorts, with the shares crashing by 30% on the back of the news that LFL sales fell by 5% in the 13 weeks to Oct 28th and warning of “unexpected disruption during the transition of our credit services”. The UK Jewellery division of H Samuel and Ernest Jones (which now accounts for just 11% of group sales), was also down by 5.1% LFL in Q3.
• Quiz: We noted on Friday that when the Scottish-based fashion chain Quiz floated at the end of July, it was promoted as a semi-Online growth stock, at a time when Online fashion stocks were all the rage. But now the fizz has gone out of the likes of Boohoo, the Quiz share price has slumped and it closed last night at 157.5p, just below the 161p float price (having peaked at 204p post-float). So the company needed to be convincing about trading prospects when it reported its interims today, despite the well-publicised problems of High Street fashion retailers…and it has, flagging that underlying sales have been nearly 33% up in the last 7 weeks, after 35% growth in the first half (driven by strong Online and International growth). CEO Tarak Ramzan says “Current trading has remained strong since the period end and, underpinned by our strong collections, the group enters the important
• ScS: The sofa retailer ScS could also have been expected to be a bit cautious about life, but, no, ahead of today’s AGM it has put out a bullish trading statement, reporting that the group has made a good start to the financial year, with LFL order intake up 2.9% for the 16 weeks ended 18 November. Interestingly, that comes despite a 6.4% drop in LFL sales in the House of Fraser concessions, a fall shrugged off as simply reflecting “strong comps”. The company says “Whilst it is still early in the current financial year, the group continues to trade in line with our expectations. We believe the group’s increasing resilience and value proposition will enable us to manage the continued economic uncertainty and take advantage of opportunities”.
• John Lewis Partnership Sales Watch: A week ago, we flagged that, after a terrible October, the great High Street bellwether John Lewis had also a terrible first half of November (racking up six bad weeks in a row)…But yesterday’s sales figures for last week from JLP show that John Lewis has seen a modest, discount-driven pick-up. Total sales edged up by 0.3% in gross terms (c0.5% down LFL, ex Oxford) in w/e Nov 18th,even though Fashion sales were 3.8% down in gross terms, despite good Clothing sales and colder weather (this was blamed on “changes in annual competitor promotions which particularly impacted sales of beauty products”). And Home was 1.4% down gross, despite “strong week of sales of ‘Moz The Monster’ products”. But gross Electricals sales were 7.8% up gross, “as customers took advantage of early Black Friday deals which we price matched due to our Never Knowingly Undersold
• News Flow This Week: The Budget speech by the embattled Chancellor starts at 12.30 today. Tomorrow we get the Majestic Wine interims, the Mothercare interims and the Hotel Chocolat AGM. And Friday, the day after Thanksgiving Day in the US, is “Black Friday”, in case you hadn’t noticed…
• Music Lyric of the Day: Our friends at the Leisure sector experts, Langton Capital, have long had a quiz about the lyrics of pop songs in their excellent daily note, so we are indebted to them for inspiring the first of an occasional series of topical pop song questions. So, today, on Budget Day, from which song do these lines come from: “I got a job working construction for the Johnstown Company, But lately there ain’t been much work on account of the economy”?