Langton Capital – 2018-01-23 – Marston’s, DP Eurasia, SSP, continuing discounts & other:
Marston’s, DP Eurasia, SSP, continuing discounts & other:
A DAY IN THE LIFE:
The traffic lights were out for a part of our normal journey to the supermarket over the weekend and boy, did the traffic move quicker.
There were polite ‘you first’ type gestures going on, there were no queues ahead of the lights, there were pedestrians crossing the road safely etc. etc. and the trip took about half as long as it would have done normally when bus-only green lights and rigid east then south then west then north then pedestrians lights would be operating.
Which makes me think that 70% or so of traffic lights surely make traffic circulation worse. Sure, there maybe should be peak-time lights but what’s wrong with permanently flashing amber lights to warn people to approach carefully. I mean double fines in areas with flashing lights etc. like they do in a number of countries, have a ‘sneak left on red’ permission with doubled fines if you botch it up etc.
Anyway, that’s quite enough of that. If you would like to purchase some widely-acclaimed-to-be-wonderful Langton research then see below. On to the news:
• Langton has put together a compendium of around 3 dozen 60-seconds pieces (c200 words or so each) for distribution at £200 plus VAT, free to clients.
• Please let us know if you would like a copy.
• Topics will be covered under a number of headings: Introduction (demographics etc.), The Disruptors, Drinks & Experiential, Food and Hotels & Travel.
• Titles include Grey Dawn (Generation Have-It-All), Millennials (Generation Rent), Life in the Slow Lane, Prepacks – A Reward for Failure etc. Full list of titles available on request.
MARSTON’S Q1 (16 WEEK) TRADING UPDATE:
Marston’s has this morning updated on trading for the first 16wks of its current year and our comments are set out below:
• Sales, once the two weeks’ snow that impacted Destination & Premium is taken into account, remain on track
• Overall, Marston’s reports ‘we continued to make progress in the period with growth in both sales and underlying earnings, helped by the acquisition of the Charles Wells Brewing Business in May 2017 and the contribution from the 19 new-build pubs in financial year 2017.’
• The group says ‘snow and icy weather towards the end of the period, both in early December and between Christmas and New Year, caused some unavoidable disruption to the business.’
Trading – Destination & Premium:
• Marston’s Premium & Destination LfL sales are up 1.1% – excluding the impact of two weeks’ snow
• Total sales are +4.9% ‘reflecting the contribution from the estate expansion in 2017.’
• Headline LfL numbers are down by 0.9%. The snow cost some 2ppts. Marston’s numbers are ahead of the market
• This amounts to around £2m in sales or £1m in profits
• Margin is in line with expectations. Marston’s had earlier said that margins will be slightly lower this year on the back of increased costs
• Heavy discounting continues in the market as a whole and, though Marston’s is not taking part, price rises may not be advisable in the immediate term
Trading – Taverns:
• Taverns’ LfL sales are +2.6%
• Wet-led sales held up well, even during the snow. Fewer customers rely on cars & trade is a little less weather-dependent
• Marston’s says sales are ‘benefiting from the performance of franchise-style agreements and an improved drinks range.’
Trading – Leased Pubs:
• Leased income is up 2% on a LfL basis. The estate has ‘performed well’
Trading – Beer Company:
• Marston’s beer company has increased own-brewed beer volumes by 33%, largely on the back of the Charles Wells’ acquisition
• Although no LfL numbers are given (and it may not be possible to disaggregate the purchase at this stage) underlying trade is believed to be strong
• Synergies are progressing as planned
• Marston’s reports ‘in addition to the acquisition of Charles Wells Brewing Business we are benefiting from distribution gains achieved in 2017 and a stronger brand portfolio well represented in the premium ale, craft beer and ‘world beer’ segments of the market.’
Balance Sheet, Cash Flow & Debt:
• Marston’s does not update on balance sheet movements at its quarterly statements but the group has opened 3 destination pubs and two lodges in the year to date
• In the year as a whole, Marston’s will open 15 pubs and 6 lodges. The lodges opened to date include a 104-bedroom unit in Ebbsfleet
Conclusion & Outlook:
• Despite some of the problems that have been highlighted recently by mid-cap retail stocks in general, Marston’s is trading ahead of the market
• The group remains in sales & earnings growth
• Marston’s CEO Ralph Findlay comments ‘we are pleased with our progress, which included record total retail sales in our pubs of £4 million on Christmas Day – 5.4% higher than last year.’
• Mr Findlay says ‘we continue to achieve growth against tough market conditions and are benefiting from investment in both pubs and brewing. We look forward to continuing to provide our customers with a great pub experience and excellent service, as well as delivering value for shareholders, over the year ahead.’
• Marston’s has acknowledged the impact of the snow on its Destination & Premium business. It has nonetheless outperformed the market and wet-led sales have been more robust. Beer sales are strong and synergy benefits continue to be mined from the Charles Wells acquisition.
• The consumer is under pressure but Marston’s shares trade at little under 8x earnings and they yield around 6.7%.
• The group has an attractive, well-managed and well-maintained estate of largely freehold properties. Food and lodging are growth businesses and Marston’s 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.
PUB, RESTAURANT & DRINK PRODUCERS:
• The Association of Licensed Multiple Retailers and the British Hospitality Association are to merge to form a ‘powerful unified voice for UK’s £130bn hospitality sector’
• ALMR & BHA to merge to form UK Hospitality. The new body will ‘actively speak out for the UK’s third largest private sector employer, which combined directly generates £130bn of revenue each year.’
• UK Hospitality says it ‘will bring together businesses from all aspects of hospitality – pubs, restaurants, nightclubs, hotels, leisure parks, contract caterers, entertainment and visitor attractions.’ It will ‘actively speak for these combined industries on the big strategic, structural and regulatory issues and deliver policies to support its strong growth trajectory.’
• The new body will give ‘an authoritative voice to over 700 companies and 65,000 venues. It will speak on behalf of a wide range of leisure and ‘out of home’ businesses, from FTSE 100 enterprises to multi-site and independent single-site operators.’
• ALMR CEO Kate Nicholls is CEO-elect of UK Hospitality said ‘this sector is a vital, dynamic economic powerhouse whose importance is clear in our communities, our high streets and our everyday lives.’ Nick Varney, the proposed Chair of UK Hospitality comments ‘hospitality is a prosperous and vibrant sector with great potential for further growth if the right policies are in place. We are calling for a new ministerial champion and sector deal enabling the hospitality sector to invest in world-class careers and customer experiences.’
• The Jamie Oliver Restaurant Group has announced which 12 of its UK store it will close following a strategic review. The units that are set to close are the following: Bath, Bristol, Bluewater, Chelmsford, Greenwich, Harrogate, Kingston, Milton Keynes, Piccadilly Diner, Reading, St Albans and Threadneedle St. Jon Knight.
• Castle Rock Brewery is to rebrand as Elsie Mo, after one of its longest standing ales and second biggest-selling core brew.
• UberEats has acquired Ando, the digital-only smartphone app-based restaurant in New York. Ando’s brick and mortar site has closed as integration into UberEats get underway immediately.
• SSP has reported Q1 results showing total group revenue up 13.5% on a constant currency basis, with LfL sales rising 2.7%. SSP stated that its acquisition of the German food and beverage airport outlet company, Stockheim should be completed by early 2018. SSP commented that current year’s trading had started well with an encouraging pipeline of new contracts.
• DP Eurasia, the Turkey and Russia Domino’s Pizza franchisee operator, has updated on its FY showing group system sales up 32.8%. The group added 76 new stores to its estate in 2017 taking its total number of stores to 643. The group commented that Adjusted EBITDA for 2017 should be in line with expectations.
• Aslan Saranga, CEO of DP EU commented on the group’s FY results: ‘We are extremely pleased with our top line performance for 2017 in both of our main markets of Turkey and Russia. In Turkey, we achieved double digit like-for-like growth, an acceleration from the previous period, and in Russia it was another record breaking year in terms of store openings. We added 49 stores to the estate, including our first stores in St Petersburg and Krasnodar, our first expansion outside of Greater Moscow in Russia’.
• Compass Group has commented on the Trump tax cuts saying the effect will be to reduce the effective tax rate for the group from 26.5% to around 24%. It says its cash tax rate will move to between 19% – 22% in the year ended 30 September 2018.
• Discounting continuing. See yesterday & add Harvester 33% off mains.
• Bacardi has agreed to buy Patrón Spirits International in a deal valuing the latter at $5.1bn. Bacardi currently owns more than 200 spirits brands.
• EI Group yesterday bought back another 161k of its own shares for cancellation at 141.9p per share.
• The BBPA has responded to proposed gaming machine changes saying the government should ensure that fruit machines remain attractive to customers ‘so that they continue to form a vital revenue stream for Britain’s pubs.’ BBPA boss Brigid Simmonds reports ‘the amusement machine offer in pubs needs to be able to develop to meet the expectations of the consumer and form part of a low stake, low prize entertainment offer in a pub. Our proposals to increase both stake and prize should help keep pub amusement machines competitive.’
• Peter Backman has reported that, for F&B operators. ‘Christmas has been a disappointment.’ Mr Backman says ‘while there was some growth…it wasn’t spread across sectors (Pubs did OK with wet sales; restaurants performed less well)’.
• Sector analyst Peter Backman comments that trading and margins ‘which had been going downhill for most of the year – were reaching crisis proportions for some operators.’ There were CVAs last year along with pre-packs and store closures. Oversupply is a problem & discounting is intense. Mr Backman says ‘against this background, the changes in distribution are worth noting. P&H ceased to operate in the period, while Tesco’s acquisition of Booker continued apace.’
• AB InBev and Molson Coors are set to increase prices by more than inflation over the next 12 months, with some beers and ciders due to be up 3.9%. A spokesperson for AB InBev stated: ‘We have communicated to our customers that from 1 February 2018 we will be increasing our wholesale price by 3.9% across our portfolio (excluding duty). This increase is part of our regular price reviews and reflects ongoing pressure in the beer industry and the UK economy’.
• Pragmatist has reported that tabletop tablets at ‘full-service casual dining chains’ does in fact increase customer spend by £2.60. Research from Cornell University has indicated that 79% of customers agree that restaurant technology improves their dining experience. Tabletop tablets have also been shown to reduce dining time of customers by 31% increasing operators table turnover.
• ETM has reported LfL sales up 10.8% last December, with total sales up 34.4%. Founder of the group, Ed Martin said: ‘We are thrilled with our Christmas and NYE results which included a record week before Christmas where we exceeded £1m in sales. 34.4% sales growth with carefully managed costs has resulted in a very healthy increase in profit for the period. I would also like to thank our dedicated team for their efforts to deliver this result. 2018 will see continued site roll out and the development of a new sales division helping to further drive the group’s performance’.
• Chief Executive of the ALMR, Kate Nicholls has stated: ‘We’re glad to see that the Government has taken the pragmatic and positive step to introduce the Agent of Change Principle. It is clearly unfair that venues are required to solve noise issues when property developers have knowingly chosen to build nearby. The ALMR has been urging MPs to recognise for some time that without such a change, many long-standing established venues could have been driven out of business, severely damaging the UK’s night-time economy’.
• Sainsbury’s has announced a ban on the sale of energy drinks to under-16s from 1 March.
• Tesco is to cut 1,700 jobs from its shops and warehouses as part of its turnaround strategy, but will try to move staff affected by the cuts into 900 new roles being created. The roles being cut include people managers in 757 large stores and seven warehouses in the UK, and compliance managers in 667 large stores and seven warehouses. In addition, the job of customer experience manager will be scrapped in 266 Tesco Extra stores.
Cooper King Distillery, one of only three in England to be run solely on green energy, will start producing gin this spring and will distill whisky in the summer.
• Michael Gove has approved £16m of cash for Defra Brexit preparations in a bid to avert ‘severe disruption’ to public services.
• The Campaign for Real Ale (CAMRA) has proposed to expand its remit to include cider and perry and to refocus its shift ‘beyond tradition pubs’. Members are also being asked if the organisation should make changes to the range of types of beer that it represents, including those which do not currently meet the organisation’s definition of ‘real ale’ in a bid to ‘engage with all beer drinkers and with all pub-goers, irrespective of what they choose to drink, increasing its ability to campaign in the interests of a much larger constituency.’
HOLIDAYS & LEISURE TRAVEL:
• Airbnb has reportedly withdrawn from the race to sign Wyndham Worldwide’s UK travel brands – including Hoseasons, James Villa & Cottages.com – which are valued at around $1bn. Some of the private equity firms bidding include US giant Blackstone, London-based CVC Capital Partners, former owner of Formula One, and the French firm PAI Partners.
• STR reports record-breaking performance for the US hotel industry in 2017 compared to 2016, with occupancy +0.9% to 65.9%, ADR +2.1% to $126.72 and RevPAR +3.0% to $83.57. Amanda Hite, STR’s president and CEO, said demand was ‘no doubt boosted by post-hurricane business in Houston and several major Florida markets’.
• Uber CEO has announced the group’s focus on ‘responsible growth’ as the group look to a fresh start in Germany.
• Shares in UK bookmakers fell sharply after a report suggested slashing the maximum stake on fixed-odds betting terminals from £100 to £2. Shares in Ladbrokes were down 9% and William Hill fell 12% in afternoon trade. Ministers are likely to cut the stake after the consultation closes on Tuesday.
• The Edelman Trust Barometer reports that only one in four Britons trusts social media and that users would like to see tighter regulation to prevent illegal and unethical behaviour. On the other hand, faith in traditional journalism rose sharply last year.
FINANCE & MARKETS:
• The prospects for world growth have improved reports the IMF. Global growth could be 3.9% this year and next.
• IMF reports that too many people worldwide are failing to benefit from increases in general levels of prosperity.
• Sterling up vs dollar at $1.3977
• Pound higher vs Euro at €1.1401
• Oil up at $69.46
• UK 10yr gilt yield up 2bps at 1.36%
• World markets: UK mixed yesterday with Europe and US higher. Far East mostly up in Tuesday trade.
• Brexit etc.:
o Reuters reports City bosses as saying the UK government has failed to produce any data on how it sees the UK financial industry developing after Brexit
ADMIN UPDATE, RESEARCH ETC.
• Langton is between offices. Please communicate via email. MIFID II is now in operation.
PRIOR DAY LATER TWEETS:
• Later tweets: Langton research. Compendium of c3 dozen 60-seconds pieces (c200 words) for distribution at £200 plus VAT, free to clients.
• Discounts still coming thick & fast: 50% off mains, 2-4-1 deals, 41% off, 40% off and varioius meals for a fiver
• GOAL: FY LfL sales down 0.5% (some units closed for refurb). Says numbers ‘will be broadly in line with lower end of mkt expectations.’
• Guardian says ‘blue Christmas leaves retailers with depressed and sales. Massacre of midcaps say other observers
• Peter Backman reports poor Xmas trading, particularly for restaurants has threatened ‘already weakened finances’ for some operators
START THE DAY WITH A SONG:
Yesterday’s song was ‘Eleanor Rigby’ by the Beatles, today who sang:
Well, I lie and I’m easy,
All the time but I am never sure
Why I need you
RETAIL NEWS WITH NICK BUBB:
Pets at Home: After all the recent shocks, today’s Q3 update from Pets at Home makes a point of being “scheduled” and the news is fine: Merchandise LFL revenue growth was 6.8% (“with good performance in store sales, as well as from omnichannel initiatives – Order In-Store and subscription”) and Services LFL revenue growth was 10.1%, reflecting strong growth in first opinion and specialist referral vet services. All financial guidance, including gross margin expectation, is unchanged and CEO Ian Kellett says: “I’m happy to report further progress in the third quarter, where trading momentum in our Merchandise division built over the Christmas period. In the year since we launched our lower pricing initiatives we have seen a really strong customer response to the investments we have made”.
FD Watch: Game Digital has announced that its FD Mark Gifford wants to retire and Superdry has announced that FD Nick Wharton also wants to move on.
The Range Watch: Our 2018 “Tip of the Year” is good old B&M, but it is not the only fast-growing discount non-food chain around, as there is also Home Bargains and The Range, to name but two. And, fresh from his scoop about the Dixons Carphone CEO change on Friday evening, the well-informed Mark Kleinman, of Sky News, also had the scoop on Sunday night that The Range is planning an IPO in the second half of this year (as flagged by CityAM and the Telegraph yesterday). The Plymouth-based The Range, which sells a variety of branded homewares at discounted prices, is expected to make a profit of about £100m in the year to January and could be worth up to £2bn. It is best known for being founded by the colourful entrepreneur Chris Dawson, who identifies himself so closely with the “Only Fools and Horses” TV character Derek Trotter that he owns the car registration “DE11 BOY”. The
Gadfly Watch: Having noted yesterday the Gadfly column comment on Bloomberg about the Dignity and Carpetright profit warnings (“What do carpets and coffins have in common?”), we’ll again give them the last word on the CEO change at Dixons Carphone: “It’s no surprise CEO Seb James is stepping down…It’s telling that the Board had a replacement – Alex Baldock, CEO of Shop Direct – already lined up. Clearly, it had been planning for James’s succession: to the point of appointing a headhunter to conduct a search…James did a reasonable job, although he inherited a strong strategic plan from his predecessor John Browett and, until a year ago, had Charles Dunstone, founder of Carphone Warehouse, as chairman…At Dixons Carphone, Baldock will bring digital experience, having transformed Shop Direct from a fusty catalogue company into a slick online retailer. He also has knowledge of consumer