Langton Capital – 2018-03-01 – AB InBev, Merlin, Nichols, Prezzo, WTB & other:
AB InBev, Merlin, Nichols, Prezzo, WTB & other:
A DAY IN THE LIFE:
Plenty to write about but no time in which to do it. On to the news:
RECENT CLOSURES, CAPACITY & F&B TRADING IN GENERAL:
• Conclusion. Restaurants will survive but there will be pain for landlords, restaurant winners will still win but capacity will take some time to come out.
• Sky points out that the collapse of Toys R Us UK and Maplin’s is partly to do with the move online. The failure of such heavily-discounting but fundamentally me-too operators such as Prezzo is a little more complicated.
• Prezzo is to cut one in three of its sites in a CVA. The landlords will be squealing. This comes on the back of similar moves by Jamie Oliver, Byron, Strada, Vital Ingredient, Handmade Burgers and others. Several operators, such as Square Pie, are simply shutting down altogether. It is good news for the industry as a whole and better operators, such as Fulham Shore’s Franco Manca, should benefit over time.
• Franco Manca said that it was slowing its opening programme as it expected to get better deals from landlords ‘in the future’. Well, the future may have arrived more quickly than the company and others believed.
• Meanwhile, the closure of retail park retail units will not be good news for retail park food operators – see QUESTIONS – below.
• Causes? Overcapacity, costs, sluggish consumer, overcapacity and overcapacity. Many if not most of the industry’s woes are self-inflicted. Chef shortages, rising rents, Brexit-related food cost increases, the growth of delivery and the rest have not been helpful.
PUB, RESTAURANT & DRINK PRODUCERS:
• Nichols has reported FY numbers to 31 Dec saying revenues rose 13.2% to £132.8m and EBITDA was 0.9% higher at £31.7m.
• Nichols PBT pre-exceptionals was £30.5m (up 0.4%) with EPS up 2.4% at 67.9p and a final dividend up 15.3% at 23.4p. John Nichols, Non-Executive Chairman, said ‘in 2017 we delivered strong double-digit sales growth across both the UK and international businesses, even though the market conditions have been challenging. Profits were maintained despite previously announced external challenges in the Yemen region and we are proposing to increase the final dividend by 15.3%.’ Mr Nichols concludes ‘the Group expects to deliver further progress in 2018, supported by the advantages of our diversified business model and the strength of our brands.’
• Whitbread yesterday announced that its Premier Inn subsidiary was to acquire 19 leasehold hotels in Germany for an undisclosed sum.
• The move will give Premier a ‘substantial presence’ in Germany as it will leave the group with a total committed network pipeline of 31 hotels with more than 5,700 rooms across 15 cities that are all expected to be open by the end of 2020. Whitbread says ‘we believe Germany has many of the structural growth drivers that have underpinned the success of Premier Inn in the UK and that Germany is a market that will deliver strong returns in the future.’ CEO Allison Brittain says ‘this acquisition mirrors the strategic opportunity that we identified with Costa in China, where we recently bought out Costa’s South China joint venture partner.’ She says ‘Whitbread’s strong businesses still have considerable growth opportunities in the UK, however, these two transactions and our continued investment in these new markets, gives us confidence in our ability to build international businesses of
• AB InBev has reported Q4 and full year numbers saying that revenue grew by 5.1% in FY17 and by 8.2% in 4Q17, with revenue per hl growth of 5.1% in FY17 and 6.6% in 4Q17. AB InBev says ‘on a constant geographic basis, revenue per hl grew by 5.1% in FY17 and by 6.7% in 4Q17, driven by global premiumization and revenue management initiatives.’
• AB InBev reports total volumes grew by 0.2% in FY17 ‘with own beer volumes up 0.6% and non-beer volumes down 3.1%. In 4Q17, total volumes increased by 1.6%, with own beer volumes up 2.3% and non-beer volumes down 3.6%.’
• AB InBev reports ‘we are using our industry leading analytics, insights and brands to understand and address the evolving needs of consumers around the world.’ It says ‘our geographic diversity limits our dependence and exposure to any one region, and our global footprint positions us for sustainable long-term growth.’
• AB InBev concludes ‘while we delivered solid results in 2017, this is only the beginning of our combined company’s journey for the next 100 years and beyond.’
• Prezzo plans to close up to 100 units across Britain as it becomes the latest restaurant operator to launch a company voluntary arrangement. The radical overhaul will see a restructuring of its finances and spells the end of its Tex-mex chain Chimichanga, although only a few hundred of its 4,500 strong workforce is likely to be lost. Sources said on Wednesday that the CVA process would be unveiled ‘in the next few days and would involve negotiations with landlords to secure rent reductions at many of Prezzo’s remaining restaurants.
• Langton has commented on overcapacity on a number of occasions. Our note from last year is now available at £100 plus VAT (was £200). It documents a 3-mile triangular walk in the City & Holborn area and comments on the capacity changes therein over the last 10yrs.
• But are the to-date modest closures sufficient to stabilise the industry? Perhaps not though directionally they are helpful. We have no doubt that restaurants, which are as a concept older than the bible, will survive. The best amongst them will prosper but, until units are permanently shut, there may still be too many of them.
• See our ‘QUESTIONS’ section below.
• Deliveroo aims to reduce plastic packaging by using its purchasing power to buy up a wider range of sustainable packaging. Emma Cox, the company’s product marketing manager, said convenience culture must not come at an environmental cost.
• Shares in US-based Monster Beverage dropped more than 10% in after-hours trading on Wednesday as reduced inventories led to quarterly sales falling short of estimates. For Q4 2017, the company reported net sales up 7.5% to $810.4m whereas analysts were expecting $843m.
• CEO of UKHospitality, Kate Nicholls, said ‘The Mayor’s approach to supporting and revitalising London’s night-time economy has been welcome and the Night Time Commission, with myself directly involved, is at the heart of these exciting plans.’
• London-based cider maker Hawkes has accused the National Association of Cider Makers (NACM) of failing to represent the interests of smaller producers and criticised the current UK cider taxation system, per MCA. Speaking to the paper, Simon Wright said: ‘There is a huge difference between the way that cider tax is structured and the way that beer tax is structured. [Cider tax] only basically suits small producers who are farmers who aren’t interested in growing and selling to the masses, or in favour of the big guys. But if it was done on volume production, like in small breweries’ relief, everyone would have a fair crack of the whip.’
• A study from the Institute of Alcohol Studies (IAS) has revealed that beer sold in supermarkets is 188% more affordable than it was in 1987, illustrating the ‘widening gulf’ between on-trade and off-trade prices. By comparison, on-trade beer has become 34% more affordable over the same period. Similar patterns were shown for wine and spirits.
• Although reportedly served up at Justin Timberlake’s latest album party, a poll of 2,036 consumers on behalf of The Grocer has found that only 14% of Brits would consider snacking on insects.
• MCA’s Operator Data Index, which ranks the top 100 brands by turnover and outlets, includes a number of newer operators including Five Guys, Franco Manca, and The Alchemist.
• The latest BRC-Nielsen shop price index shows fresh food price inflation slowing significantly in February, increasing just 0.9% compared to 1.7% in January. Overall shop price deflation deepened to 0.8% over the month, from 0.5% in January.
• With Toys R Us UK and Maplin going into administration, 5,500 jobs hang in the balance. Toys R Us Uk is planning an ‘orderly wind-down’.
• Tesco-Booker merger is set to go ahead on March 5 as shareholders vote yes.
• Wholesale natural gas more than doubled in price in the UK on Wednesday due to the ongoing cold weather. They showed that gas for immediate delivery hit 12-year highs at 190p per therm before slipping back slightly.
HOLIDAYS & LEISURE TRAVEL:
• HotStats reports UK hotels facing a challenging start to the year due to rising costs, with profit per room declining 3.9% yoy. For January, RevPAR grew 0.6% to £66.28, ADR was up 0.8% to £102.58 but occupancy fell 0.2% to 64.6%.
• Thomas Cook is introducing a zero deposit ‘buy now and pay later’ scheme to help holidaymakers spread the cost of trips. The payment plan will be available on holidays booked 14 weeks or more before departure and travelling between 1 November 2018 and 31 October 2019.
• Eurostar reports passenger numbers up 3% to 10.3m in 2017, helping sales revenue increase 11% to £880m. The company said growth was boosted by a 26% increase in US tourists using the service to travel between continental Europe and the UK.
• Merlin has reported FY numbers saying visitor numbers rose 3.5% to 66m with revenue +0.7% at £1.594bn and EBITDA +3.5% at £474m.
• MERL reports PBT of £271m vs £259m last year. Adjusted EPS is 20.5p (vs 19.5p) and the dividend is 7.4p vs 7.1p.
• MERL points out that, despite higher inbound tourist numbers, London trading has been challenging.
• MERL points out it has seen ‘8.2% organic revenue growth (constant currency) in LEGOLAND Parks’ revenue due to the opening of LEGOLAND Japan and continued strong like for like performance’. Midway Attractions organic revenue growth was 1.3% ‘reflecting the roll out of new attractions offsetting a decline in like for like revenue due primarily to London trading’.
• MERL reports ‘Resort Theme Parks’ organic revenue decline of 0.4% reflecting adverse weather conditions in Europe.’ CEO Nick Varney reports ‘a year that started well with positive momentum in almost every part of the Group was ultimately defined by the unprecedented spate of terror attacks in the UK and poor to extreme weather throughout the summer season in Europe.’
• Mr Varney says ‘despite this, thanks to the efforts of our extraordinary team, we have reported overall growth in revenue, profit and cash flow, welcoming 66 million visitors – our highest on record.’ He says ‘against a difficult trading backdrop, we continued to make good strategic progress. We opened 383 new accommodation rooms, six new Midway attractions, including the launch of a new brand – ‘Little BIG City’ – in Berlin, as well as a new LEGOLAND park in Japan.’
• MERL concludes ‘Merlin continues to evolve and, with attractive market fundamentals and the right strategy in place, we remain highly confident in the long term prospects for the business.’ Re current trading, the group says ‘trading at this seasonally quiet point in the year has been in line with expectations.’ It says ‘whilst recent foreign exchange movements could materially affect our 2018 reported results, our underlying expectations remain positive and unchanged.’
• Cineworld Group has now completed the acquisition of Regal Entertainment Group.
• Yesterday, Spotify filed for a direct listing of up to $1bn with the US Securities and Exchange Commission. In its filing, the company said it has 71 million premium subscribers and about 159 million monthly average users. By comparison, Apple Music, which was launched in 2015, has 36 million paying subscribers.
FINANCE & MARKETS:
• Foxton’s yesterday reported revenues down 11% with profits down sharply on the back of a weaker London property market.
• Sterling down sharply yesterday at $1.3752 and €1.1277
• Oil down a buck and a half at $64.67
• UK 10yr gilt yield down 4bps at 1.51%
• World markets: UK, Europe & US down yesterday with Far East mixed in Thursday trade
• Brexit, politics etc.:
o EU, Ireland, Labour (and ultimately the voters) are now calling the government out on Brexit. Reality is hitting the fan.
o Boaty McBoatface protest vote in June 2016 is perhaps having consequences not conceived of by voters at the time. No (or little) mention then of £40bn divorce payment, permanent slower growth, Irish union against the will of the majority in Ulster, alienation of the young, last throw of the dice for Baby Boomers etc. Just billions for the NHS, win back control, bent bananas and misguided comments on democracy, Jingoism etc.
o Bloomberg says ‘Theresa May is boxed in on her road to Brexit, with rebels on each side blocking her moves just as the European Union demands progress.’
o FT says Britain must commit to the possibility of Northern Ireland staying in the EU customs union. Border would be in the middle of the Irish Sea
o Times: David Davis threatening EU that UK will not pay the cash agreed last December unless the Irish union ‘threat’ is removed
o Times reports EU demands powers to suspend Britain’s access to the single market unilaterally if Brussels believes the UK has broken the terms of the agreement.
PRIOR DAY TWEETS:
• Later tweets: Whitbread acquires 19 leasehold hotels in Germany for undisclosed sum. Is ‘an important step in scaling its business internationally’
• GfK reports UK consumers more pessimistic about their finances. But they still believe they will be better off than ‘others’
• Overcapacity. MCA reports pace of casual-dining expansion slowing. Good as far as it goes. But capacity is cumulative, still too much
• Job losses. Toys R Us & Maplin’s? When does this become serious. Unemployment at historic lows but the needle is flickering upwards
• Big ticket feeling the pinch? Wickes says ‘LFL sales growth slowed through the course of 2017’. Business ‘increasingly challenging’
• Wickes saw ‘disappointing autumn Kitchen & Bathroom showroom promotional period.’ Customers put off big items to shore up day-to-day spend?
• Brexit crunch time. No more road to kick the tin down. Labour smells blood. Tory Brexit debacle risks letting in hard-left government
• Irish border. Mutually exclusive statements to be exposed by EU today. Irish border may have to be in middle of Irish Sea
• Toys R Us & Maplin’s in administration. What price now the retail box? Property companies will be feeling the chill wind before long!
QUESTIONS, QUESTIONS (3):
• Are restaurant closures good for remaining restaurants, good for the industry as a whole? Well yes and no. Yes because they remove capacity – and every little helps – but less good because they are often accompanied by a pre-pack of some description, which will reduce rents and other costs for the ‘failed’ group’s remaining units. This ‘reward for failure’ is an unintended consequence of the restructuring process which, in part, is intended to look after jobs.
QUESTIONS, QUESTIONS (4):
• Is the closure of Toys R Us bad news for restaurants that operate on retail parks? Well it isn’t good news. Any move that reduces footfall will be negative as far as operators such as Restaurant Group are concerned. RTN reports full year numbers next Wednesday.
• Langton has got the keys to its new office. Triumph of persistence over bureaucracy. Decorators in at present. We should be in early next week but, for the moment, please communicate via email. MIFID II is now in operation.
START THE DAY WITH A SONG:
Yesterday’s song was Electric Feel by MGMT. Today, who sang:
It’s the edge of the world,
And all of western civilization
The sun may rise in the East
At least it settles in the final location
RETAIL NEWS WITH NICK BUBB:
• Carpetright: It is only 6 weeks or so since the last Carpetright profit warning on Jan 19th, but, almost unbelievably it has issued another profit warning today and flagged, ominously, that it is in discussions with its banks about to prop up the balance sheet…UK trading is said to have “improved” but remains negative and “although the important Easter trading period is still to come, UK like-for-like sales remain below management expectations and the Group now expects to report a small underlying pre-tax loss for the year ending 28 April”. Whether Carpetright needs to raise more equity remains unclear, as does the issue of how far its problems are to do with intense competition from its rival Tapi, but shareholders will fear the worst today…
• Howden: After the cautious noises from Travis Perkins yesterday about Wickes, the finals today from the kitchen joinery business Howden provide a further insight into the outlook for the ubiquitous “white van man”…and the news is surprisingly good. Oddly enough, the 53rd week last year made profits look a bit worse, as it added £8m in costs but no revenue (so overall PBT slipped from £237m to £232m), but the main news is that “we see the robust sales performance of the second half of 2017 continuing into 2018. We believe that current market conditions are stable, although we remain watchful given continuing economic uncertainties.”
• Steinhoff Watch: The embattled South African group Steinhoff International was due to issue its revised Accounts by the end of February, but although it announced yesterday evening, in a lengthy statement from the new Chairman Heather Sonn, that the well-publicised accounting irregularities appear to relate mainly to the Central European operations (which is a bit of a relief), the revised Accounts are still not ready, as the complex PwC investigation grinds on…Steinhoff was, however, able to say that it will continue to be a listed business and it issued a simple trading update for the 3 months to end December. In terms of its UK operations, Steinhoff said that Poundland sales were up as much as 5% LFL in Q4, after a strong Christmas, but the struggling Bensons/Harveys group was down 7% LFL, “in a challenging furniture market”…
• Toys R Us and Maplin Watch: The demise of both Toys R Us and Maplin yesterday attracted lots of press and TV interest, even though the writing has been on the wall for them for some time. And as both failed to provide a strong point of difference in their stores to withstand strong Online competition, we doubt if consumers will miss them when they’re gone…Maplin always had a rather odd sales mix (in electricals) and so did Toys R Us, with its heavy reliance on video games in the past. But one interesting aspect of the collapse of Toys R Us is that it was far more about market share shift within the toys market rather than any problem with the toy market in general, as evidenced by the continuing success of the toy specialist chain The Entertainer. The Retail research company Global Data yesterday highlighted the rapid growth of both Amazon and the Irish toys chain Smyths in recent
• Mothercare: The precipitous decline of the Mothercare share price has begun to attract attention, with both the FT Alphaville Markets Live column and the Bloomberg Gadfly column (via the Ian King Live programme on Sky TV) flagging up the 9% slump yesterday, to c28p, ostensibly on the back of worries about the impact of Toys R Us stock clearance. But the collapse of Mothercare has been developing for some time. The share price was c65p at year end, before the crash to c45p after the profit warning in early January…And the market cap now of this once proud company? Just £48m…
• FTSE Index Watch: As expected, last night’s quarterly FTSE index review saw the shopping centre giant Hammerson demoted to the FTSE 250 and replaced in the FTSE 100 index by Royal Mail. Within the FTSE 250 index, Dignity and N Brown, inter alia, suffered the “indignity” of being demoted to the Small Cap index, although mighty Games Workshop won promotion to the ranks of the mid-caps…