Langton Capital – 2017-11-30 – Marston’s, Greene King, consumer confidence etc.:
Marston’s, Greene King, consumer confidence etc.:
A DAY IN THE LIFE:
Marston’s and Greene King meetings to get to this morning so straight on to the news:
MARSTON’S FULL YEAR NUMBERS:
Marston’s has this morning released full year numbers for the 52wks to 30 Sept 2017 and our comments are set out below:
• Sales, partly driven by acquisitions such as that of Charles Wells but also due to LfL sales increases across the group’s divisions and to organic growth. have increased by 10% to £992.2m
• Operating profit is up by 1% to £174.5m and PBT is 3% higher at £100.1m
• Operating margins, in line with earlier announcements, are some 40bps lower in 2017 than they were last year
• EPS is up by 2% at 14.2p (on slightly lower tax charges but more shares in issue) and the final dividend has been increased to 4.8p, making a 7.5p pay-out for the year as a whole
• Dividend cover is 1.9x earnings
Trading – Destination & Premium:
• Marston’s Premium & Destination increased total revenue by 4.5% to £438.0 million ‘reflecting the continued strong performance of our new-build pub-restaurants and growth in like-for-like sales.’
• Underlying operating profit of £88.9 million was up 2.3% (2016: £86.9 million). Profit per pub is 1% up compared to last year.
• Total like-for-like sales were 0.9% above last year.
• Marston’s says ‘reported operating margin of 20.3% is slightly below last year, reflecting anticipated cost increases in labour, business rates and energy costs.
Trading – Taverns:
• Taverns increased total revenue by 3.4% to £246.7 million, ‘principally reflecting the continued conversion of pubs to our franchise model.’
• Operating profit was up 0.7% on last year ‘reflecting growth in the core business offset by disposals.’
• Profit per pub was up 2% on last year.
Trading – Leased Pubs:
• Leased total revenue decreased by 0.7% to £54.6 million and underlying operating profit of £27.1 million was up 0.7% on last year.
• Marston’s says ‘the performance of the core estate was strong with rental income per pub up 2%.’
• Operating margin of 49.6% was up 0.7%, reflecting a higher mix of rental income and sales from premium products.
• Profit per pub was up 2% on last year.
Trading – Beer Company:
• Marston’s comments that ‘total revenue increased by 30.8% to £252.9 million, principally reflecting the acquisition of CWBB in June 2017 and continued growth in ale volumes in the core business excluding CWBB.’
• The group adds ‘underlying operating profit increased by 9.9% to £25.5 million.
• Operating margin of 10.1% ‘was below last year reflecting the CWBB business which has historically operated at a lower margin.’
• Marston’s says ‘we would expect margins to recover as synergies are delivered in 2018.’
• Marston’s reports that it remains in growth in the first 7wks of the current financial year
• No material changes to estimates are expected as a result of today’s announcement
• The group is not discounting heavily. It does not expect margins to fall further. It is not guiding to further increased costs in FY18 (unlike M&B and some other operators)
• The absence of further cost increases should mean that Marston’s needs only 1.5% to 2.0% LfL sales growth in order to stand still in terms of profits. Some other companies have recently mentioned 3% or 4%
Balance Sheet, Cash Flow & Debt:
• Marston’s operating cash flow is up by c£30m at £214m.
• This feeds through to a modest cash outflow for the year as a whole. Disposals are down a little (c£25m) and new build costs, mostly a timing issue, are higher
• These timing impacts could reverse in the current financial year
• Marston’s opened 19 pubs in the year. It bought a further 9 and opened 8 lodges
• In FY18, Marston’s expects to open 15 new-build pubs and to open 6 lodges. Some 2/3 of these openings will happen in H2
• Debt before lease financing is £1.03bn, in line with last year. Debt, the majority of which is to fund fixed assets rather than current spending, is 4.7x EBITDA.
• Fixed charge cover is 2.6x
• Some 45% of EBITDA comes from outside the group’s securitisation. Most new-build pubs are outside
• MARS is 94% freehold & its NAV is 147p per share
Conclusion & Outlook:
• Marston’s CEO Ralph Findlay comments ‘we have achieved strong revenue growth and higher earnings, despite increasing employment and property costs.’
• Mr Findlay continues ‘our business has been transformed in recent years with a significant improvement in the quality of both our pub and beer businesses.’
• Marston’s maintains ‘while political and economic uncertainty is likely to continue, we remain confident that our proposition founded on providing great customer experiences, the very best service and value for money, leaves Marston’s positioned to deliver further growth in the year ahead.’
• Marston’s has reported numbers in line with best estimates and it guides to a relatively benign cost picture going forward.
• The group reports that current trading is ahead of the same period last year and its new build pub & lodge programme remains on track.
• Debt is in line with estimates and is due to fall as a multiple of EBITDA. Dividend cover is set to edge up but, with a yield of around 7.1%, income stocks will be attracted to Marston’s as an investment.
• October was clearly better than September but it’s December tomorrow and Christmas trading will be critically important. Chilly weather is OK but snow would be a negative.
• As mentioned, Marston’s shares trade at little over 7x earnings and, though there are wider economic concerns regarding the consumer, the market for ‘affordable treats’ has remained relatively buoyant.
• 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.
GREENE KING H1 NUMBERS:
Greene King has this reported H1 numbers for the 24 weeks to 15 Oct and our comments are set out below:
• Greene King reports sales of £1.03bn, down 1.2% on last year
• Adjusted PBT is down by 8% at £127.9m
• EPS is down by 8.3% at 33p
• The H1 dividend is unchanged at 8.8p
Further trading comment:
• GNK says it has seen a ‘further outperformance from Local Pubs, Pub Partners and Brewing & Brands in a challenging first half’
• The group says it is cutting costs & has identified £40-45m of cost savings
• Brand optimisation is ongoing. The group has seen a return on investment over 25%
• Fayre & Square is to be de-branded by year end
• The Spirit refinancing is ‘under way’ with a new facility agreed & bond prepayment announced
• GNK says ‘Pub Company volume trends improved post period end after £10m investment in value, service and quality’
• LfL sales were down 1.4% for retail, profits were +1.5% in Pub Partners and brewing turned in a 0.3% increase in volume
Cash flow & balance sheet:
• Greene King says it has seen strong cash flows
• It maintains that its balance sheet remains strong and adds that this is ‘supporting attractive and sustainable dividend’
• Net debt to EBITDA is 4.2x
• Fixed charge cover is 2.3x
• The group maintains that it has headroom in its securitisation
• Greene King CEO Rooney Anand comments ‘the first half was challenging for our managed pubs, but our actions to strengthen performance have produced an improvement since the period end.’
• Mr Anand says ‘we have committed additional investment to enhance the customer experience, including being more competitive on price, having more team members available at key times and strengthening local marketing activity.’
• GNK says ‘Pub Partners and Brewing & Brands again outperformed the market, generating cash for the group and raising the profile of Greene King.’
• Re cost savings, the co adds ‘we will continue to benefit from our ability to generate significant cost savings and to improve investment returns to over 25% from rebranded pubs.’
• The company concludes ‘Greene King is a strong, competitive business with industry-leading brands, a strong and flexible balance sheet, a sustainable dividend and an excellent track record of outperforming in challenging conditions.’
• It says ‘we are adapting our strategy to ensure we continue to sustain our long-term competitiveness, strong cash generation and attractive returns to shareholders.’
• Greene King has further updated on trading for September & October and once again, the picture is not pretty.
• September was poor across the industry but October should have been better. Indeed GNK is able to say that trading has improved since its year end.
• The group points to rising costs, slacker demand and to problems with Fayre & Square.
• Re current trading, GNK says ‘following the additional investment in value, service and quality, trading in Pub Company since the period end improved versus the trends seen in the first half. Deposited Christmas day bookings are up 3.0% on last year.’
• It says ‘trading in Pub Partners and Brewing & Brands remains ahead of last year.’
• As always, Christmas will be very important.
• Overall, GNK remains concerned about the wider economy. Its comment re the dividend could be seen as defensive, sensible or reassuring. Or all three.
• Uncertainty is unavoidable and this will extend to forecasts. These are likely to be reduced. We believe that small ticket purchases may hold up better than the economy as a whole but, with M&B cautioning last week and the casual diners warning on trading, it is clear that the pub is not immune.
• GNK is one of the UK’s better-positioned pub companies and, with its shares now trading at a single-digit multiple, it is not expensive. However, forecasts will come down. Also, with a big acquisition under its belt, the group has to execute on its strategy. There have been some signs of indigestion recently and cautionary comments may put off would-be buyers in the short term.
PUB, RESTAURANT & DRINK PRODUCERS:
• GfK reports that UK consumer confidence has fallen to its lowest level since the period immediately following the June 2016 Brexit vote.
• GfK consumer confidence comes in at minus 12 in November, down from minus 10 in October. GfK says ‘the confidence trajectory is unquestionably negative and sadly no amount of tinsel or baubles will change it. We need some big, positive economic good tidings to reverse this downwards trend.’
• Heineken has acquired a minority stake in Brixton Brewery which will help the craft brewer to expand its capacity.
• Per MCA, the board of Busaba Eathai welcome Mark Angela, chief commercial officer of SSP, as its newest member. Angela previously spent four years as CEO at PizzaExpress.
• Cornwall’s oldest bakery, Warrens Bakery, has announced ambitious plans to open 1,000 stores after launching its first London site. The company is capitalising the recent popularity of baking by forming a partnership with Bake-Off star Martha Collison.
• Coffee chain Grind has put a £2m cap on its crowdfunding campaign after reaching its £750,000 target in less than a week. The company has set a target of opening 10 more sites in the next five years. In 2015, Grind previously raised £1.3m from crowdfunding.
• Ten of Yorkshire’s F&B firms, including Seabrook and North Brewing Co, have been showcasing their wares at Food & Hotel China (FHC), China’s biggest hospitality trade show. The Department for International Trade (DIT) took a mission of 60 British producers and distributors to the event. British beer was centre stage at this year’s show, with a dedicated UK beer pavilion introducing British beer to international buyers.
• CEO of the ALMR, Kate Nicholls, commented on the draft London Plan saying ‘It is good to see the Mayor’s Office taking seriously the opportunity to support London’s hugely important eating and drinking out sector and a recognition that pubs and live music are at the heart of the London Plan.’
• Regarding the draft London Plan, BBPA CEO Brigid Simmonds said ‘I welcome the fact that the draft plan recognises the great contribution that pubs make to the economy and social life of London…We will certainly be responding to the consultation as there are also some aspects that will need careful consideration, including a proposal around the need to market a pub for a specific period of time before any change of use and how this might work in practice.’
• Ed Hughes, Sharp’s beer sommelier, claims ‘hop-centric’ beers may be on the way out with traditionally flavoured beers making a comeback.
• Steve Ells has stepped down as CEO of Chipotle Mexican Grille, ending a 25-year run at the helm. Ells has been named executive chairman with the company starting a search for a new CEO.
• Tokyo transport chiefs have chartered a rescue bus for drunk people who fall asleep on the last train home.
• BoxPark Shoreditch will have an exclusive Christmas shopping night featuring a Secret Santa Shop.
• Vietnam is to begin selling off a majority stake in its biggest brewer, Sabeco, in a deal the government hopes will bring in at least £3.7bn. Many foreign firms from Japan’s Asahi Group Holding to Belgium’s AB Inbev have shown an interest in Sabeco, or Saigon Beer Alcohol Beverage Corp, since it was earmarked for privatisation. Dutch brewer Heineken currently holds a 5% stake in the Vietnamese firm. The tripling of Sabeco’s share price to 340,000 dong ($14.96) from its December 2016 listing, and a foreign ownership limit of 49% could deter some global brewers from participating in the stake sale.
• Kellogg’s is to reduce the amount of sugar in its three top selling children’s cereals by between 20% and 40% by the middle of next year. The lines are Coco Pops, Rice Krispies, and Rice Krispies Multi-Grain Shapes.
HOLIDAYS & LEISURE TRAVEL:
• On the Beach, the online travel agent, has released FY results showing group revenue increased 17.2% to £83.6m with profit rising 33.8% to £28.5m. Simon Cooper, Chief Executive of the group commented: ‘We remain confident in the resilience and flexibility of our business model to capitalise on any structural changes in the market. On the Beach continues to successfully build a leading position as more consumers discover the ease of use and wide choice of beach holidays that our platforms offer’. He continued with: ‘The Board is pleased to report that current trading is in line with expectations and believes the business is well positioned for the key trading period that commences in late December and continues into Q1 2018’.
• HNN interview with new IHG boss Keith Barr reveals his biggest surprise on taking the job was ‘how many consultants email me every single day telling me they can solve all my problems! I hadn’t realized that was going to be (the case). I could probably use a full-time person working on just that.’
• IHG CEO Keith Barr tells HNN IHG has gaps in its brand line-up that could lead to more offerings.
• Weaker consumer sentiment and rising prices in 2018 will add to UK retailers’ woes according to a new report by the Economist Intelligence Unit. The report forecasts the UK retail market to fall by 0.4% next year, well below the average global growth rate of 2.5%.
• Flights from Bali have resumed after three days of disruption due to a volcanic ash cloud, however, officials said the airport might have to close again if the wind changes direction.
• Super Breaks has launched the UK’s first and only direct flights to Akureyi, North Iceland.
• The first floor of 12-20 Crown Hill, central Croydon has been let to Pure Gym.
• Macquarie is placing shares in Jackpot Joy on behalf of a current holder. It says ‘the Seller reserves the right to upsize the transaction subject to investor demand.’ Any remaining shares ‘held by the Seller which are not sold in the Placing will be subject to a 90-day lock-up undertaking (subject to certain customary exceptions).’
FINANCE & MARKETS:
• US economy grew more rapidly than expected in Q3
• Oil up 25c or so at $63.41
• Sterling up at $1.3472
• Pound higher vs Euro at €1.1352
• UK 10yr gilt yield 9bps higher at 1.34%
• World markets: UK mixed with internationally-focused FTSE100 down & mid-cap higher. Europe up, US mixed & Asia mostly lower in Thursday trade
• Brexit, slightly less lame government etc.:
o UK achieves a breakthrough of sorts in Brussels by agreeing to everything that the EU demanded from day one
o Boris silent on his earlier ‘go whistle’ comments.
o Deal with EU on Northern Ireland ‘may be close’. It may also involve agreeing to everything that the EU wants. This could put pressure on the DUP alliance.
PRIOR DAY TWEETS:
• Later tweets: CGA Prestige has food inflation easing to 5.8% in October. May be topping out. Will still be 4% end of next year says CGA
• Discounting set to continue into December with Prezzo offering 2-4-1, Pizza Express is 25% off & Café Rouge 40% off mains
• Grind raising money on Crowdcube. Offering 4% of equity for £750k, implying pre-new money val. of £18m or £2m per site.
• Cineworld to buy a company larger than itself, in the US, for cash and debt. No risk there, then?
• When is €20bn really €58bn? Ask Mr Davis etc. Farage says country selling out, remainers say it’s the NHS that can ‘go whistle’ etc. etc.
• Ocado burns the bears, Pets at Home burns its shareholders etc. Waitrose says the going’s tough. J Lewis doing OK (for one week, at least)
START THE DAY WITH A SONG:
We mixed it up a little bit with Grand Master Flash’s The Message. Today, who sang:
I said, maybe I don’t really wanna know,
How your garden grows,
Cause I just wanna fly
RETAIL NEWS WITH NICK BUBB:
• Consumer Confidence Watch: The widely followed GFK Consumer Confidence Index for November came out overnight and, although we flagged yesterday that a modest dip was expected, the overall fall from -10 to -12 was tad worse than City forecasts. All five measures used to calculate the score fell in November, with the biggest drop occurring in the Major Purchase Index (down 6 points, to -3). Polling was done in the first half of November, so well before the Budget and Black Friday, but Joe Staton, the Head of Market Dynamics at GFK, says in the press release: “The confidence trajectory is unquestionably negative and sadly no amount of tinsel or baubles will change it. We need some big, positive economic good tidings to reverse this downwards trend – some snap we can put into our Christmas crackers”.
• Pets At Home: We are indebted to yesterday’s Times for pointing out that on Tuesday, along with the resignation of the CEO, it was announced that KKR’s representative on the Board of Pets At Home has stood down as a non-exec, which may pave the way for their big private equity backer to sever all its relationships with the business. Back in early October, KKR sold a 12.2% stake in the business at 195p, leaving KKR with a 12.4% stake, with a 60 day lock-up, which will expire in early December…
• FTSE Watch: Last night’s FTSE Quarterly index review saw, as expected, the Online takeaway food business, Just Eat, get into the FTSE 100 index (with effect from Dec 18th). There were no other changes involving retailers, unless you count BCA Marketplace (the Online second-hand car website), which got into the FTSE 250 index, with a market cap of £1.7bn, or the good old Royal Mail (which still delivers many Online orders), which got onto the Reserve list for the FTSE 100 index, with a market cap of £4.4bn…
• News Flow This Week: The ASOS AGM is being held today at 12 o’clock at the company’s HQ in sunny Camden, but no trading update is expected. Tomorrow’s DFS AGM is being held at 2.30pm in the company’s HQ in not so sunny Doncaster, but, again, no trading update is expected.
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 30 Nov 17 Greene King H1 numbers
• 30 Nov 17 Marston’s FY numbers
• 30 Nov 17 GfK Consumer Confidence numbers
• 5 Dec 17 Vianet H1 numbers
• 6 Dec 17 EasyHotel FY numbers
• 11 Dec 17 Hollywood Bowl FY numbers
• 12-13 Dec 17 Fed interest rates’ meeting
• 12 Dec 17 UK CPI & RPI numbers
• 13 Dec 17 TUI full year numbers
• 14 Dec 17 Bank of England MPC interest rates decision
• 14 Dec 17 Ocado Q4
• 14-15 Dec 17 EU summit in Brussels
• 9 Jan 18 Elegant Hotels FY numbers
• To 10 Jan 17 Xmas updates Nichols, Just Eat, Everyman
• Est 18 Jan 17 Premier Foods Q3 update
• Est 19 Jan 17 Revolution Bar Group H1 update
• To 20 Jan 17 Xmas updates Cineworld, Gym Group, Mitchells & Butlers
• Est 23 Jan 17 Easy Hotel AGM & update
• Est 23 Jan 17 Paddy Power FY update
• Est 24 Jan 17 Marston’s AGM & update
• Est 24 Jan 17 M&B AGM & update
• Est 25 Jan 17 Restaurant Group FY update
• Est 25 Jan 17 Hostelworld FY IMS
• Est 25 Jan 17 Pat Val AGM & update
• Est 26 Jan 17 Whitbread Q3 update
• Est 26 Jan 17 SSP Q1 update
• Est 30 Jan 17 PPHE FY update
• To 31 Jan 17 Xmas updates Goals, Gregg’s, Elegant Hotels, H Chocolat
• 30 Jan 18 Cranswick Q3 update
• 8 Feb 18 EI Group AGM & Q1
• 8 Feb 18 Bank of England MPC interest rates decision
• 8 Feb 18 Bank of England Inflation Report
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Thurs 30 Nov 2017:
Thurs 30 Nov 2017 Conclusion or carried forward J. 2 DO
GLOBAL EQUITY MARKETS:
COMMODITIES & OIL:
YESTERDAY’S MOVERS, THEMES ETC.:
TWEETS / RESULTS & STORIES:
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