Langton Capital – 2017-12-06 – EasyHotel, services growth, new openings & other:
EasyHotel, Saga, services growth, new openings & other:
A DAY IN THE LIFE:
Getting chilly tomorrow. Temperature down 10 degrees in a day. And here’s me in London without a coat. Just a scarf and a cheeky smile. Meanwhile, in York, temperature due to fall below freezing by Friday and not get above two degrees or so until a couple of days before Christmas. Should work wonders for sales of mince pies, custard, gravy, curry mixes and the like. You know who you are. Not so good for suntan lotion, iced cream etc. Bit of a rush so on to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• UK services growth slows, prices rising at fastest rate in six years per latest PMI. The IHS Markit’s purchasing managers’ index for the services sector fell to 53.8 in November, down from 55.6 in October. This still implies growth but is below expectations of 55 or so.
• Services PMI shows slight fall in optimism, rises in costs and increases in output prices. IHS reports ‘slower service sector growth comes as a disappointment after the improved performances of both manufacturing and construction in November.’ It continues ‘however, despite the weaker service sector expansion, the latest survey data indicate that the economy is on course to enjoy robust growth in the fourth quarter. The survey data are so far consistent with the economy growing at a quarterly rate of 0.45 per cent in the closing months of 2017.
• EI Group has bought back another 135,358 of its own shares for cancellation at a price of 146.5p per share
• Subway has announced its intentions to trial a delivery service in London next year, the MCA has reported.
• Chris Moore, the former chief executive of Domino’s Pizza, and Adam Batty, former general group counsel and company secretary at Selfridges and Domino’s, are launching a new fast-casual dining concept, Happy Birds early next year in Bristol, the MCA has reported.
• Income due to be squeezed as Rail Delivery Group (RDG) have announced that the average train fare in the UK is set to increase 3.4% from January 2, 2018. This is the largest rise since 2013, with RDG chief executive, Paul Plummer stating: ‘Government controls increases to almost half of fares, including season tickets, with the rest heavily influenced by the payments train companies make to government’.
• Heineken has begun construction of its first brewery in Mozambique, investing US$100m into the project. The 0.8m hectolitre brewery will be located in the province of Maputo and completed in H1 2019.
• FSR Mag over in the US has written about ‘eatertainment’ — the dining concept that sees customers eat food while playing games. With mini-golf bars, ping pong, and darts bars popping up more and more in the UK, FSR writes that the trend is ‘exploding’ and a host of US competitors are gearing up for expansion in 2018.
• Britons will ‘starve’ if European fruit pickers are shut out after Brexit and the subsequent labour shortage is not addressed, according to the CEO of English wine producer Chapel Down. ‘We want a resolution to allow us to have freedom of movement for labour to pick the fruit, this is something that affects all fruit farmers across the south east of England.’ Said Frazer Thompson. ‘I’m hoping it will be sorted out and I hope they won’t close the doors, as if there’s no-one to pick the fruit, we’ll have to import everything.’
• Remarkable Pubs has opened its 14th site, The Virgin Queen, in Hackney. MD Elton Mouna described the venue as ‘a Tardis of Tudor opulence’.
• McDonald’s returns to a value focus as it introduces what it calls the $1 $2 $3 Dollar Menu. This follows the gradual phasing out of the famous Dollar Menu in 2013.
• Southern Comfort is ramping up its Christmas push by bringing ‘The Spirit of New Orleans’ to the UK.
• Starbucks’ new Shanghai Reserve Roastery is the largest in the world, occupying 30,000 sq ft and is dubbed the ‘first fully immersive coffee wonderland in China’.
EASYHOTEL FULL YEAR NUMBERS:
EasyHotel has this morning reported full year results for the 52wks to 30 Sept 2017 and our comments are set out below:
• EasyHotel reports that system sales for the year rose by 39.2% to £29.67m. Revenue was up by 39.7% at £8.42m.
• Adjusted EBITDA was up by 48.3% at £2.3m with PBT of £860k, down from £1.09m last year.
• EPS was 0.7p (2016: 1.4p) and the full year dividend is maintained at 0.33p per share
• Profit was down ‘reflecting increased costs associated with the expanding development pipeline, the £0.24m net book value negative impact of the closure of two floors at easyHotel Old Street and the absence of any capital gain this year from disposals (2016: £0.28m)’
• Cash generated from operations increased to £2.22m from £0.85m
• Balance sheet net assets were £70.2m (2016: £33.2m)
• EasyHotel reports that owned hotels ’significantly outperformed [the] competitive set with LfL revenues +13.7%’
• It reports that LfL franchise revenues were up by 8.6% ‘with particularly strong performance in Continental Europe’
• The new booking engine has been implemented smoothly and ‘five new hotels totalling 535 rooms opened over the course of the year and trading exceptionally strongly, with combined occupancy of over 85%’
• The group now has a total network of 598 owned rooms and 1,750 franchised rooms
• Owned hotels in Leeds, Sheffield & Oxford were secured during the year
• Some 404 owned and 835 franchised rooms were added to the development pipeline. This now totals 921 owned and 1,798 franchised rooms
• Post the year end, EasyHotel opened its 78-room unit in Liverpool in November
• A 104-room Newcastle hotel will open in December and a site has been acquired in Cardiff. Two new franchise sites have been added in the Netherlands
Re Old Street:
• EZH announced on 1 August that it believed ‘restoring and extending the office use on the upper floors of the Group’s freehold building at Old Street, London should maximise value from the property.’
• It says today ‘we have plans to upgrade our London Old Street 92-bedroom hotel and, subject to planning consent, exploit the value of the remainder of the building through development of office accommodation.’
• EZH says that its asset value has risen post its share placing and its investments.
• It suggests that it only has the capital available at present for one more owned hotel.
• There are opportunities out there & EZH says that it is considering its funding options to take advantage of these as they arise
Conclusion & Outlook:
• EasyHotel CEO Guy Parsons says ‘2017 has been a year of strong progress for the Group as we continue to develop the easyHotel brand as a market leader in “super-budget” sleep.’
• He says ‘impressive like-for-like sales growth has been achieved across our existing network of hotels, underpinned by the smooth implementation of our new booking engine and yield management system across the entire easyHotel network.’
• Mr Parsons adds ‘we continue to accelerate our growth plans for the brand, targeting carefully selected locations to build our portfolio of owned and franchised hotels and applying strict investment criteria, ensuring we can continue to deliver a blended ROCE target of 15%.’
• The CEO reports ‘the Group’s asset backed balance sheet remains strong but with our current development pipeline we are only able to finance one further owned hotel.’
• The company maintains ‘we continue to see a good number of attractive potential development opportunities to further accelerate the Group’s growth. Consequently, the Board is considering its financing options, which may include new equity and debt, to fund these opportunities.’
• Overall, Mr Parsons concludes ‘whilst the wider macro-economic uncertainty continues to impact consumer confidence, we believe easyHotel is well positioned.’ He says ‘the refinements that have been introduced to the business over the course of the last year are further strengthening our brand and ensuring that the easyHotel offering is one that can support delivery of the Board’s ambitious long-term strategy for growth.’
• Trading is currently positive at EasyHotel. The group has a recognisable brand that is now being rapidly rolled out via a mix of own-managed hotels and franchised units. The group is professionally run, its new booking engine has been implemented smoothly, and its new-model units are ahead of expectations.
• The group listed in June 2014 at 80p when it raised around half of its targeted £60m. The group came back to the market in October 2016 when it raised £38m at 100p.
• EZH’s shares have been strong recently & trading has been good.
• The group says that it is considering its funding options. Under ‘normal’ circumstances, the threat of more equity being issued could see a share fall but, in the case of EasyHotel, it is worth remembering that its last share placing was conducted at a premium.
• The idea that ‘facility creep’ (free towels, Wi-Fi, TV, coffee etc.) will always create a space for new entrants at the budget end of the market has resonance. That new entrant needs to be cheap but also to be recognisable and to supply a consistently high quality and value for money product.
• EasyHotel has the opportunity to fill this very large market segment. And not just in the UK. The group is operating (or will soon operate) its own units in the UK & Spain.
• In addition, the group has franchised units in the UK, Spain, Germany, Holland, Dubai, Iran and Sri Lanka. It also has franchisees in Nepal, Hungary, Bulgaria & Belgium and other territories are likely to be opened up (via the low risk, low capital route of franchising) in due course.
HOLIDAYS & LEISURE TRAVEL:
• Saga warns on impact of Monarch collapse.
• The group has updated on trading saying ‘the Group’s growth in Underlying PBT is expected to be between 1% and 2% for the year ended 31 January 2018.’ It says ‘this has been impacted by more challenging trading in insurance broking during the period and the Monarch Airlines administration, which has affected our Tour Operations business.’
• Saga reports ‘for the full year, the written profit of our Retail Broking business is expected to be ahead year on year, with a strong performance in motor partially offset by a challenging trading environment in home and travel insurance. Earned profit for Retail Broking is expected to be marginally lower than the prior year due to a lower written to earned benefit.’
• Saga CEO Lance Batchelor reports ‘against a backdrop of some challenging trading conditions in our final quarter, we continue to develop the business for the long term. With greater customer insight and a stronger business platform, now is the right time for Saga to invest in growing the customer base and the business.’ Mr Batchelor continues ‘we are confident that the actions taken will ultimately see a better quality of earnings and profit growth across the business, supporting our progressive dividend policy for the benefit of our shareholders.’
• President Trump’s travel ban on six countries can go into full effect, pending legal challenges, following the ruling by the US Supreme Court. The decision covers the third version of the directive that the president has issued since taking office last year. Seven of the nine justices lifted injunctions on Monday imposed by lower courts against the policy.
• CEO of Jet2holidays, Steve Heapy, has urged independent travel agents not to sell Thomas Cook or TUI packages as doing so is tantamount to ‘helping your high street competitors’. Jet2holidays sales made through travel agents dipped from 32% to 28% after Thomas Cook decided to stop selling their packages.
• Beyond Escapes is set to open its £45m flagship experience in Pickering, North Yorkshire next summer in a move that will create 250 jobs. The site will be able to accommodate up to 1,000 guests and will offer boutique-style, high quality accommodation catering to the staycation market.
• Research from the Foreign & Commonwealth office shows only 2% of British holidaymakers are concerned about taking out appropriate travel insurance. Instead, the main worry for travellers was found to be getting through airport security and luggage systems.
• Virgin Trains East Coast staff are set to strike in the new year, with the Rail, Maritime and Transport (RMT) union citing poor working conditions and sick pay as the aggravator.
• Yotel plans to open its first Edinburgh hotel in Q1 2019 on Queen Street with 280 ‘cabins’, walking distance from Waverly and Haymarket train stations.
• Disney is leading the race to acquire a majority in Twenty-First Century Fox, with Comcast Corp its bidding rival.
• UK esports company Gfinity is set to include Fifa 18 in season three of the Gfinity Elite Series.
FINANCE & MARKETS:
• Demand for new cars fell for the eighth month in a row in November per SMMT. Some 163,541 new cars were bought during November, down 11.2% on last year. Diesel sales were down by nearly a third. The SMMT reported ‘an eighth month of decline in the new car market is a major concern… exacerbated by ongoing anti-diesel messages from government.’
• Oil up 30c or so at $62.65
• Sterling down vs dollar at $1.3425
• Pound up a shade vs euro at €1.1338
• UK 10yr gilt yield down 1bp at 1.27%
• World markets: UK down yesterday with US and Europe also lower. Far East mostly down in Wednesday trade
• Brexit etc.:
o New PM Arlene Foster suggests we’ll have to have a fresh look at how we do things around here
o Current PM Theresa May under pressure to do a deal before the end of the week. Ireland the sticking point. A united Ireland is perhaps the price that needs paying / but won’t be paid depending on who you’re listening to
o Unnamed senior EU diplomats said to be suggesting the end of the week is a real rather than a contrived deadline
o Chancellor Philip Hammond has said that the UK needs a ‘new paradigm’ for financial services trade with the EU. Nobody knows what that means.
PRIOR DAY’S LATER TWEETS:
• Later tweets: Optimism falls per CGA survey due to ‘perfect storm’ incl. rising food & property costs & Brexit. Sick of experts.
• CGA: 71% of hospitality leaders Brexit negatively impact their business. Only 3% say it was positive. Still sick of experts, etc.
• Barclaycard says spending down in real terms, HM Gov. says pub & bar insolvencies +9% on last year. Still sick of experts?
• Cineworld buys bigger company. In USA. Using devalued Pounds. Takes no2 operator. In a tough year for cinema. With Netflix booming etc.
• Services PMI miss forecast. 53.8 (vs 55.6 in Oct) but implies growth. Prices rising at highest rate in 9yrs. Sick of surveys, too?
• Milk price roaring. Up 60% in 18mths. Implications for producers (and their spending habits) and also for users, food producers etc.
• Sainsbury trials branded in-store coffee shops. Have captive footfall. May take market share as we surely have enough already?
START THE DAY WITH A SONG:
Yesterday’s song was The Clash singing White Riot. Today who sang:
Every time just like the last,
On her ship tied to the mast,
To distant lands
RETAIL NEWS WITH NICK BUBB:
Shopping Centre Watch: A major upheaval has been announced in the world of shopping centres this morning, with Intu Properties (of Trafford, Lakeside and Metrocentre fame) agreeing to be taken over by its rival Hammerson (of Brent Cross and Bicester Village fame) in all-paper deal. Based on the closing price of 534.5p for Hammerson last night, the terms value Intu at c254p (a c28% premium to last night’s close), equivalent to £3.4bn. Intu’s big shareholders have agreed to the deal, so, unless somebody else intervenes, that would be appear to be that. Hammerson is holding a conf call for analysts at 9am, with the focus likely to be on the mooted £25m of synergies and the planned disposals of £2bn
John Lewis Watch: The weekly sales figures from that great bellwether, John Lewis, yesterday revealed that sales did not fall back as sharply as we had thought last week: we had pencilled in a fall of 4%/5% in gross sales, to c£164m, for w/e Dec 2nd (versus £172m in the same week last year and the bumper £214m in Black Friday week this year), but sales were actually up by 3.4% gross (or c2.5% up LFL), to £178m, led by Electricals growth of 7.1%. John Lewis provides very little commentary, but discount promotions were carrying on nearly all week, so the gross margin would be nothing to write home about and progress was doubtless skewed to Online rather than Stores…
News Flow This Week: The ABF (Primark) AGM update is on Friday.