Langton Capital – 2017-11-29 – Britvic, Cineworld, EI Group, food inflation & other:
Britvic, Cineworld, EI Group, food inflation & other:
A DAY IN THE LIFE:
Bit busy this morning. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Britvic reports FY numbers, says it has seen ‘a strong performance delivered by the successful execution of our strategy’
• Britvic reports revenue +7.7% to £1,540.8m with organic revenue +2.5%. Adjusted EBITA +5.1% to £195.5m, with organic adjusted EBITA up 5.6%
• Britvic reports profit after tax decreased 2.5% to £111.6m, including £24.7m of planned costs related to the business capability programme
• Britvic reports adjusted EPS of 52.9p, up 7.3% on last year with a full year dividend some 8.2% higher. CEO Simon Litherland comments ‘Britvic has again demonstrated the resilience of our business, delivering another strong set of results. We have grown both organic revenue and margins whilst continuing to progress our strategic priorities. I am particularly encouraged that we have increased the proportion of revenue generated from innovation and accelerated the returns from the business capability programme.’
• Britvic concludes ‘while April 2018 brings uncertainty with the introduction of the Soft Drinks Industry Levy in GB and Ireland, we are well placed to navigate it thanks to the strength and breadth of our brand portfolio and our exciting marketing and innovation plans. This, combined with our continued focus on revenue and cost management, means we remain confident of making further progress next year.’
• CGA Prestige Foodservice Price Index shows inflation eased to 5.8% in October. It says there are ‘signs that steep inflation in prices across the sector may be starting to ease.’ This, though c2x the rate of inflation as a whole, is the joint lowest figure since February this year.
• CGA Prestige predicts a further easing of pressures into 2018, saying inflation in a year’s time should be under 4%. The Index does say there is ‘uncertainty around issues including Brexit negotiations and the La Niña weather phenomenon may yet have a negative impact on the cost of food and drink items brought into the UK from overseas.’
• CGA Prestige reports sugar prices are down on last year with meat and veg also at lower levels of inflation. Fish, fats and oils are still considerably higher than they were a year ago.
• Prestige’s Christopher Clare reports ‘in a week where the Chancellor announced changes to the calculation of business rates, the drop in inflation for product purchases will of course be further welcome news. Prices have now been broadly steady for around 8 months, albeit at a higher base than a year ago – this might provide some relief for busy operators over the festive season.’
• CGA comments ‘it is encouraging to see evidence that stresses may be easing in the latest edition of our Index.’ It says the lower price rise ‘does at least suggest that a welcome degree of stability is starting to return to the supply chain.’
• Discounting looks as though it’s set to continue into December with Prezzo offering 2-4-1, Pizza Express is 25% off & Café Rouge offering 40% off mains. F&B offers are constantly in to the top 3 offers from Vouchercodes.co.uk. Restaurant Group Chiquito’s is also offering 50% off mains.
• EI Group yesterday bought back another 182,296 shares for cancellation at an average price of 147.24p.
• US restaurants reported a 6.3% increase in spend over Thanksgiving and Black Friday this year vs last.
• Grind raising money on Crowdcube. The group is offering 4% of its equity for £750k, implying a pre-new money valuation for the nine-strong chain of £18m or £2m per site.
• Sadiq Khan, Mayor of London, has urged authorities to resist applications to redevelop areas directly connected to pubs.
• The CEO of the ALMR, Kate Nicholls, has commented on the London Mayor’s actions stating: ‘We fully welcome the Mayor’s new guidance on planning which will see the Agent of Change principle written into the London Plan. The ALMR has been long campaigned for this additional protection, which will go a long way to slowing the large number of pub and late-night venue closures we have seen in the capital in recent years’.
• Pizza Hut has just opened its 9,000th international store in Mumbai India.
• Vital Ingredient, the healthy food-to-go concept, is reviewing its future funding options after receiving a number of approaches, the MCA has reported. The 20-strong chain has hired Deloitte to aid it with its next stage of growth.
• The Luke Johnson backed Patisserie Holdings is considering a bid of £150m for Bread Holdings, both of which are chaired by Mr. Johnson.
• Bread Holdings, which has an annual turnover of £100m, has appointed KPMG to advise it on strategic options for the company. Patisserie Valerie has net cash of £21.5m on its balance sheet and said it would consider buying Bread ‘if it were to become available at an attractive price’. The auction is believed to be at an early stage and Mr Johnson, who chairs both companies, would not be involved in negotiations to avoid any conflict of interest.
• Adnams has entered into a distribution partnership with Crafted Exports to bring craft beers and limited edition ales from popular US breweries to the UK. MCA writes that breweries such as Harpoon Brewery; Captain Lawrence Brewing Co; Butternuts Beer & Ale and Warwick Valley Winery are included in the agreement.
• Grupo Modelo is to invest some $754m in its brewing and bottling plant in the central Mexican state of Hidalgo.
• Arby’s Restaurant Group has agreed to buy Buffalo Wild Wings Inc. for $157 per share, valuing the chicken wing chain at $2.9bn including debt. This represents a 38% premium to Buffalo Wild Wings’ closing stock price on 13 November.
• German ecommerce platform Zalando received more than 2,000 orders per minute during peak trading times on Black Friday, breaking last year’s record of 1,500.
• The London based hospitality group, Rhubarb, is set to open its first international site in New York. P.B. Jacobse, CEO of Rhubarb said: ‘We are incredibly excited to be opening our first restaurants outside the UK at Hudson Yards, New York. We have been looking to open in New York for several years now and the Hudson Yards development is incomparable – their commitment to a fully collaborative approach with all of their partners, from retail to food and beverage means this will be the ultimate, united experience’.
• Short sellers gambling on the further falls in Ocado’s share price were surprised by the online grocer announcing it had finally struck a long-awaited deal to supply technology to a major international supermarket chain. The group’s shares climbed 21% on the news.
• The grocery sector faces a tough Christmas with tobacco wholesaler, Palmer & Harvey, entering into administration causing the loss of 2,500 jobs.
HOLIDAYS & LEISURE TRAVEL:
• A number of railway lines that were closed in the 1960s could be reopened says the government. Transport Sec Chris Grayling says that he is looking to go back to the past in order to prepare Britain for its future
• CBRE maintains US hotel industry should see continued levels of record occupancy
• Russian carrier Aeroflot Group has increased passenger numbers by 16.3% in the first 10mths of 2017.
• Indonesia has kept Bali airport closed due to the erupting volcano on the island
• Derek Moore, chairman of Association of Independent Tour Operators, has said the ban on credit card surcharging could force up holiday prices next year. Holiday prices were already forecasted to be increased by exchange rate fluctuations and increased hotelier rates. One member of Aito predicted price rises could be between 8% and 10% next year or more for European holidays.
• Hotelbeds Group reports that a strong return of British tourists has led a solid recovery of hotel bookings in Turkey. The Hotelbeds platform recorded a 40% increase year-on-year in the overall transaction value of reservations of Turkish accommodation since October 1.
• Newcastle airport has reached 5m passengers this year for the first time since 2008, making this its busiest year in a decade.
• Responsible Travel has called for tourists to rethink their travel bucket lists in order to combat ‘overtourism’ and instead seek out ‘brave, alternative adventures’.
• Softbank is leading a consortium of firms that are attempting to buy to buy at least 14% of Uber by bidding for shares at a 30% discount to Uber’s most recent valuation of $69bn, instead valuing the company at $48bn.
CINEWORLD TO BUY REGAL ENTERTAINMENT FOR $3.6BN
• Cineworld is in talks to buy US operator Regal Entertainment for as much as $3.6bn per Press reports. Regal said in a statement that Cineworld’s all-cash offer would value it at $23 per share. Regal shares rose by 16% on the Reuters story that it had received the approach. Regal Entertainment has 561 theatres with 7,315 screens. Cineworld has 2,049 screens across 221 sites in Britain, Ireland, Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, Romania and Israel.
• Cineworld responds by saying it is ‘in advanced discussions with Regal’. Regal is the US number two. Cineworld is ‘finalising due diligence in relation to a possible all-cash offer to acquire 100% of Regal at a price of US$23.00 per share.’
• Cineworld says ‘it is currently intended that Cineworld would fund a potential acquisition of Regal through a mixture of incremental debt and a material equity raise by way of a rights issue, including a commitment to full subscription from Cineworld’s 28% shareholder, Global City Holdings N.V.’
• Cineworld continues by saying that its ‘present strategy is to evaluate all opportunities to complement its organic growth. In keeping with this approach, it has continued to monitor possible selective acquisitions that have the potential to enhance its existing operations, and which allow it to expand into new markets. The potential acquisition of Regal would provide Cineworld with a highly attractive platform in the world’s largest cinema market.’ The group will make a further announcement in due course.
FINANCE & MARKETS:
• OECD reports global growth will peak at an 8yr of 3.7% high next year after 3.6% this year. The OECD reports ‘things look really good now, but unless we see some robust private sector activity and renewal of capital stock, generating higher real wages, we are not going to maintain the growth rates we see today.’
• Deloitte has reported that the number of new office developments commencing in London fell 9% over the last 6mths
• Oil down 50c at $63.14
• Sterling up vs dollar at $1.3363
• Pound up vs Euro at €1.1272
• UK 10yr gilt yield down 1bp at 1.25%
• World markets: UK up yesterday with US & Europe also higher. Far East mostly down in Wednesday trade.
• Brexit, lame government etc.:
o Bank of England obliges banks to hold £6bn but says they could cope with a “disorderly Brexit” in 2019
o OECD reports UK should mirror EU as much as possible if it wants to minimise the post-2019 hit to its economy. OECD reports ‘the major risk for the economy is the uncertainty surrounding the exit process from the European Union, which could hold back private spending more than projected.’
o SMMT says it needs quicker progress & certainty if it is to invest in the UK
o Construction industry calls for clarity over migrants, access to labour if it is not to face a cliff-edge
PRIOR DAY TWEETS:
• Later tweets: CBI says optimism across hotels, bars & travel firms is at a 6yr low. Reading fell for second quarter in a row in Q3.
• Shaftesbury (has >100 restaurants & leisure sites in West End) reports robust FY numbers, differentiates from some other property plays
• Bricks & Clicks? Amazon expected to buy Booths (Waitrose of the North) for £150m
• Loungers posts strong full year numbers, revenues £91.8m & is making real, below the line, profits – see email
• Ocado confounds bears but Pets @ Home & Topps’ Tiles point to tougher trading. Recently-listed Pets shows 11% fall in PBT. Shares down 8%
• Topps says big ticket tough, adds ‘market conditions remain challenging…PBT will be at the lower end of the current range’
• Human nature. If trading is tough, raid the larder so numbers less bad than could have been. If it’s tough for a 2nd year, you’re scuppered
START THE DAY WITH A SONG:
Yesterday was Lionel Richie with ‘All Night Long’, but today who sang:
‘Don’t push me ’cause I’m close to the edge,
I’m trying not to lose my head’
RETAIL NEWS WITH NICK BUBB:
Motorpoint: the new car sales market may be troubled, but Motorpoint, the second-hand car hypermarket chain, has announced some strong interim results today (plus a £10m share buyback) and flagged that “the supply of stock coming into the business remains good and management are comfortable with the group’s trading performance so far in H2. The Board is therefore confident of delivering full year results in line with market expectations”.
John Lewis Watch: We flagged yesterday that although the last couple of months have been a struggle for John Lewis, all the indications have been that last week went well, given the focus on Electricals. And we had therefore pencilled in modest 2%/3% overall sales growth, to c£205m, for w/e Nov 25th. But we were too cautious, as the £214m record outcome announced yesterday morning was a pleasing +7.2% (up c6.5% LFL). The big driver was indeed Electricals, up 9.7% gross, but Fashion was also very good, up 9.9% gross (with Beauty up 27.5%), although Home (with less discounting activity going on) was, disappointingly, down by 2.1% gross. Last week’s John Lewis outcome pulled the cumulative run-rate for the last 17 weeks up to +1.4% (broadly flat LFL), but what we said yesterday about the week not being a triumph in terms of gross margin, given all the price matching that went on, still
Waitrose Watch: Over at Waitrose, JLP had less to shout about as gross sales last week were down by 0.2% on last year, or nearly 2% down on a LFL basis. Over the last 17 weeks Waitrose sales have cumulatively been up by 1.3% gross (down slightly LFL).
Today’s Press and News: The Ocado/Casino and Pets at Home news get plenty of coverage in today’s papers, but the big news is that around 2500 jobs lost have been lost after the grocery and tobacco wholesaler Palmer & Harvey went into administration. In other news, the Times picks up the Evening Standard story that Sports Direct is poised to buy Brixton Market for £30m, whilst City AM notes that Sports Direct’s investment in Game Digital has been very profitable so far (with the shares climbing to 47.5p yesterday, after selling the Multiplay business).
News Flow This Week: Tomorrow we get the ASOS AGM and then the DFS AGM is on Friday, although no trading updates are expected. And with the end of the month moving firmly into view on the horizon, we get the widely followed GFK Consumer Confidence Index for November first thing tomorrow, with a modest dip expected.