Langton Capital – 2018-03-14 – Overcapacity, Sportech, Gfinity, Goals, Everyman etc.:
Overcapacity, Sportech, Gfinity, Goals, Everyman etc.:
A DAY IN THE LIFE:
The flowers on our patio in London, we can’t call it a garden as it’s less than about 40 square feet in size, about the size of a small bathroom, have now bloomed.
And, described by the vendor as red…or maybe yellow, they’ve come out purple.
We still don’t know what they are, of course. They don’t have thorns, they do have bulbs and they don’t appear to be trees.
Or cactuses for that matter. And we’ve ruled out seaweed and the many tens of thousands of funguses so that may have narrowed the field.
The betting is on snowdrops, crocuses, daffs or tulips and the fact that they’re purple (and tiny) means that we’re going for crocuses. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Over-optimism, confirmatory bias and perhaps a little bit of greed and some bad luck behind High Street car crash?
• Corporate recovery firm Quantuma has said that there is a glut of casual dining restaurants on the High Street. There are too many for the market to support, it reports.
• Quantuma says mediocre casual diners have expanded too quickly and now, as demand falters and costs rise, the fallout is becoming more visible. Quantuma reports ‘we are increasingly witnessing market saturation, with the public’s disposable income just not increasing at a commensurate rate to match the number of eateries that have opened in the recent past. In addition to this, many restaurant chains are also facing sharp costs rises in the areas of rent, rates, wages and ingredients.’
• Quantuma continues ‘in some cases, landlords have offered ‘rent-free periods’ for new venues – typically out of town shopping centres – which while initially attractive can easily create a ‘false’ profit position in the short-term followed by a sudden cash-flow drain when those periods expire, and rent must be paid.’’
• Quantuma says costs are an issue, restaurants struggle to differentiate and some are failing to adapt. Not just poor restaurant chains are finding the going tough as new entrants (both good and bad) have created a more difficult environment for all players. Landlords are not blameless and, ultimately, as a property company cannot move its assets, they will pay a large part of the price.
• NRN in the US says that MOD Pizza and Blaze Fast Fire’d Pizza are now two of the fastest-growing pizza brands in the US.
• EI Group yesterday bought back another 286,284 of its own shares for cancellation at 122.6p per share.
• Government considering tax on coffee cups, crisp packets, chewing gum. Raises funds & deflects attention from economy etc.
• Sandwich maker Greencore yesterday warned on profits & said it was to restructure its US business. The shares fell by almost a third.
• Ireland-based UK forecourt company Applegreen has reported higher profits and revenues for the year to end-Dec. Gross profits increased by 24.6% to €181.7m from €145.8m on revenues up by 21% to €1.428 billion. Applegreen said that its UK operations increased revenue by 22.4% and gross profit rose by 19.7%, mainly due to the continued expansion of the business.
• The MCA’s Bakery and Sandwich Tracker has registered bakery purchases down in the second half of the year to 1.35bn in Q4 compared to 1.43bn in Q1. The fall has mainly been attributed to a decline in the sale of sweet breakfast and snack purchases.
• The Consejo Regulador de Rioja has announced that the region’s wines saw growth across its key export markets in 2017, with white wines performing particularly well. Total volume increased 4% year-on-year. Markets experiencing the most elevated growth were; the UK (+3.2%), Canada (+6.7%), the US (+5.8%), Russia (+39.7%) and China (+17.3%).
• The BBPA has credited the government for bringing forward business rates revaluations from 2022 to 2021, bringing forward the following revaluation to 2024, meaning that ‘what amounts to a very burdensome tax on pubs better reflects the realities of their trading environment.’ Other moves seen as beneficial to the Hospitality industry include a call for evidence on the impact of VAT and APD rates on the hospitality sector in Northern Ireland, increased funding for apprenticeships, and a consultation on reducing the use of plastics.
• Chief executive of the newly created UKHospitality, meanwhile, was more critical of the Spring Budget: ‘There are some tentative steps here to support the sector but this is a missed opportunity to provide the decisive and positive action on business rates that hospitality desperately needs, and for which we have been calling. Bringing forward the revaluation will not provide the immediate support that businesses need unless it is accompanied by widescale reform beforehand. A focus on taxing digital businesses is welcome but it needs to also tackle inequalities in business rates between digital companies and high street operators.’
• Wasabi has secured a £30m revolving credit facility from HSBA in order to fund its growth, while appointing a new finance director, Mark O’Mahoney.
• The pub industry has been warned to treat figures released about Britain’s managed pub sales with ‘very cautious optimism’ according to the managing director of procurement firm Regency Purchasing Group, Alex Demetriou. Mr. Demetriou stated that the sector faces ‘its toughest year in a decade’ with regards to new levels of taxation, continuing pressures around minimum wage and rising food costs. The comments were made following the Coffer Peach Business Tracker stating that Britain’s managed pub and restaurant estates had seen a collective increase in LfL sales in January 2018.
• The vietnamese cuisine specialist, Pho has stated that the Deliveroo ‘dark kitchen’ concept is flawed and is not sustainable. The managing director of PHo, Mike Smith has stated ‘I think there may be a dark kitchen model where you use multi-operators but I can’t see Deliveroo Editions working as a model. And so what you’ve got now is the likes of Deliveroo – they will deny it – but they are looking at becoming operators in their own right. They start to become a competitor of ours. This is a big thing and if I was Deliveroo I would look at becoming an operator. It’s common sense’.
• The pub co, Oakman Inns has stated that there is opportunity in the current hospitality sector property scene. CEO of the group, Peter Borg-Neal explained: ‘I take no pleasure from seeing any business struggle, but the over-expansion by big-name brands did impact on prime and even secondary site rentals and in the current market those demands may and should ease. I suspect rent reviews over the next two years are going to be very different’.
• Heineken is believed to be in talks to sell its Chinese business to China Resources Beer in a deal valued over $1bn.
• Seneto, the casual dining group that operates across Europe and the US has been acquired by OpCapita from Change Capital for a reported €80m.
HOLIDAYS & LEISURE TRAVEL:
• InterContinental Hotels Group has announced that it has agreed to acquire a 51% stake in Regent Hotels and Resorts for $39 million in cash.
• IHG adds it ‘will have the right to acquire the remaining 49% interest in a phased manner from 2026.’ IHG says it ‘will bring Regent into its brand portfolio at the top end of the luxury segment and will accelerate its growth globally, supported by IHG’s powerful enterprise.’
• IHG CEO Keith Barr says ‘IHG is already one of the world leaders in luxury with our InterContinental Hotels and Resorts brand, but we see significant potential to further develop our global footprint in the fast-growing luxury segment.’
• Consumer magazine Which has said that airlines are failing to properly warn holidaymakers about the risk of post-Brexit flight cancellations. Many flight programmes for the period after 29 March next year will be released in the coming months. Which reports ‘this uncertainty for holidaymakers is just one of the many issues affecting people’s everyday lives that need to be resolved as we move closer to the date that the UK leaves the EU.’
• Thomas Cook Airlines will deploy an additional Airbus A321 at Gatwick this summer, flying to Turkey, Tunisia, the Canary Islands and Balearics. The additional aircraft will add 140,000 seats a year from May.
• American Express Global Business Travel reports spending in the European sector is set to increase in 2018 but that managers are trying to find a balance between policy and traveller satisfaction, according to the latest release of its European Business Travel Barometer. The business travel marketplace grew by 3.1% in 2017.
• Global Ports Holdings reports cruise revenue down 6.3% to $50.3m last year over 2016. Ebitda from cruise fell 12.7% to $32.2m leading the company to report an annual loss of $14.1m, down from a $4.4m profit in 2016. GPH said ‘Current trading in our cruise segment in our non-Turkish based ports remains strong. The weakness in Turkish cruise ports is expected to continue into 2018, although passengers and revenue are expected to stabilise compared to the decline experienced in 2017’
• International SOS and Control Risks reports travel security advice has grown by nearly 30% in the last two years, and over 800% in the last decade.
• Late snow brought a surge in 2017/18 winter bookings (+26% year-on-year) for all-inclusive resort operator Club Med. The data also shows 2017/18 bookings up 39% against winter 2015/16. Club Med said it expected the trend to continue until the end of the season as ‘unexpected snowfall in the UK has arguably given Brits a great taste of the slopes’.
• The Rail, Maritime and Transport (RMT) union has called for two 24-hour strikes on Northern Rail at the end of March.
• Minoan have signed an exclusivity agreement with an unnamed preferred buyer of its travel and leisure division. Minoan announced ‘The due diligence process has begun and is proceeding according to plan. Under the heads of terms, the sale, when completed, would leave the group substantially debt free’.
• London Stansted reports a record 1.7m passengers in February, up 4.8% yoy, taking the running annual total to over 26m.
• Heathrow handled a record 5.4m passengers in February, up 2.4% yoy, but CEO John Holland-Kaye said ‘Today’s figures show that Heathrow is filling up fast – if we don’t act soon to expand our nation’s global gateway, the UK will only fall further behind our European rivals.’
• The IPO of Novaturas, a Baltic travel operator, has seen Enterprise Investors partially exit out of the stock which was listed on the Warsaw Stock Exchange and Nasdaq Vilnius. Enterprise retained a 49% stake after selling 22% of the business during the IPO which generated gross proceeds of €17.8m.
GOALS SOCCER – FULL YEAR ANALYSTS’ MEETING:
Following its full year update this morning, Goals Soccer Centres hosted a presentation for analysts and our comments thereon are set out below:
• Underlying sales broadly flat at £33.1m and underlying like-for-likes being down 0.3%, in part disrupted by refurbishment at various sites. Invested site revenue up by an average of 5.3%.
• Underlying EBITDA down 9.4% to £10m and club EBITDA down 3.5% to £13.3m driven mainly by increased overheads in the UK. This includes business rates and National Living Wage increases.
• Underlying profit before tax down some 20.3% to £6.2m. Underlying EPS of 6.3p puts the group’s shares on just over ten times earnings.
• Depreciation and amortisation up 21.4% to £3.6m due to the increased capex seen in the last two years.
• Goals Soccer has continued to develop its core UK estate via its ‘Arena’ modernisation programme and CLUB 2020 format.
• 64 pitches were upgraded in the year to its Arenas format, making for a total of 248 converted pitches (53% of the group’s estate) and an average pitch age of 4.1 years (down from 7.0).
• These 28 clubs with five arenas or more have delivered an uplift in sales of 5.3%. Underinvested units, however, continue to see declining sales: those with four or fewer arenas upgraded have seen sales fall 2.8% and the remaining seven have seen a decline of 7.2%.
• Underlying free cash flow down 31% to £6.3m. Goals invested £11.6m (2016: £10.5m) in capital expenditure during the year. Of this, £3m (2016: £3.7m) was spent on new US centres and £7.6m (2016: £6.3m) was invested in mature units.
• An additional £200,000 was spent on IT and £800,000 was put into software development and call centre systems.
• Investing in tech should help it pull away from competitors and to differentiate its product. This includes an expansion of contactless payments via kiosks and growing its app engagement. Such moves stand to boost profitability and efficiency.
• Goals’ California joint venture now operates three units and is set to open two a year over the next two years, taking its total to seven by then end of FY 2019.
• Since the establishment of its joint venture with City Football Group (CFG) in July 2017, CFG has provided $16m of initial committed expansion capital. This will go some way to developing the North America business.
• The group is optimistic that potential partners looking at other overseas markets might come to Goals in the near future looking to set up similar joint ventures. China and the Middle East spring to mind.
• A second site was set up at Pomona, Los Angeles in Q1 2017 and a third at Rancho Cucamonga, Los Angeles in January 2018.
• A fourth is being constructed at Covina, also in Los Angeles and is expected to begin trading in the second quarter of 2018 and the group says it is in negotiations with others.
• Development costs have been coming down and Goals now expects future units to cost c$3.3m each.
• The balance sheet is strong, with net assets of £98.4m and a long term non-amortising bank facility with RBS of £42.5m. Investment in the US by CFG decreases Goals’ need for capital investment here.
• Net debt at 31 December 2017 stood at £29.8m (2016: £24.1m) and current leverage of net debt to EBITDA is 2.97 times (2016: 2.1 times).
• The company wants to get this down in the first half of FY 2018 and will reduce capex to ‘essential items only’.
• Goals continues to talk up its international ambitions and is optimistic about the scale of the opportunity provided by its joint venture foray into California with City Football Group. This venture should have seven sites by the end of FY 2019, up from its current total of three.
• There remain 18 underinvested units that Goals will focus on upgrading in the year ahead. It remains to be seen whether these improvements will match the 5.3% sales uplift seen at other modernised sites. At the very least, management will be hoping to reverse sales declines.
• ‘Clubhouse 2020’ shows how the group can add non-football sales — during H2, LfLs at the three clubs completed in H1 were 7.6% higher (football sales +5.2%, non-football sales +14.6%).
• The group has also launched Goals Junior Academy, which aims to drive sales from the junior and youth markets. It is still early days but feedback has been positive and the concept will be rolled out in 2018.
• Goals Soccer is cash-generative and boasts good locations close to high density population areas in a significant structural growth market. That said, its shares have trended downwards for much of the past two years as it grappled with an under-invested estate and a revolving door of senior management.
• It is now a year and a half since the group set upon its current strategy and, though the hard work does appear to be bearing fruit, investment has yet to translate into profitability.
• With a new senior line-up announced, the group is excited about the potential sales growth that can come from modernising its core UK market and further developing its market-leading position in California — a market with ‘unbelievable’ potential.
• Goals will spend a good chunk of the coming year modernising the rest of its UK estate along the same lines that has brought a 5.3% lift in revenue to existing upgraded sites. It therefore appears logical to assume a similar degree of total sales growth in the coming year.
• Everyman Media reports FY numbers saying revenue +37% to £40.6m with adjusted EBITDA +67% at at £6.6m.
• Everyman reports admissions were +32% last year and it opened a further three new venues.
• Everyman has ‘exchanged contracts on 9 further sites in Newcastle, Glasgow, Liverpool, Altrincham, Lincoln, Cirencester, London’s Borough Market, Tunbridge Wells and Crystal Palace since January 2017.’
• Everyman reports it ‘continues to evolve into a trusted and highly regarded brand within the cinema and leisure industry with 22 venues and 69 screens.’ The group says ‘since the year end trading has been in line with expectations and the film release schedule for 2018 looks both strong and diverse.’
• Sportech updates on trading, says ‘trading in the first ten weeks of the current financial year has been fairly challenging’.
• Sportech blames the weather in the US for challenging trading. Says ‘offsetting this, the Racing and Digital business…has secured new long-term contracts and, as such, the Board sees no reason currently to change its expectations for 2018.’
• Sportech has ‘identified a number of write-offs and restatements which require to be made to the Group’s financial statements for the year ended 31 December 2017.’ It says this could amount to around £6.5m.
• Sportech points to ‘a non-cash accelerated option charge of £4.3 million; restructuring costs and associated provisions arising from the Strategic Review [which] are expected to be £2.5 million; and the sale of the NYX shares for cash consideration of £2.3 million resulted in a book loss of £1.6 million.’
• Sportech reports that its sale process has come to an end. It has ‘terminated all discussions with interested parties. Accordingly, the Company is no longer in an “Offer Period” as defined in the Takeover Code.’
• Sportech has appointed Andrew Gaughan as CEO with immediate effect. Sportech chairman Richard McGuire comments the group still has ‘the potential to deliver significant long-term value to shareholders, especially if the US sports betting market is liberalised and also from further diversification strategies.’ He says ‘we have a strong balance sheet.’
• Gfinity has announced that acquisition of RealSM Limited and its RealSport platform. The company has acquired the ‘share capital of RealSM Limited, owner of the fan-oriented digital sports media platform, RealSport, for a total consideration for approximately £2.4 million to be settled wholly in new shares in Gfinity.’
• Gfinity CEO Neville Upton reports ‘RealSport has done a great job of building a “go-to” hub for the esports community.’ He says ‘we believe this [acquisition] will accelerate Gfinity’s plans to monetise our digital assets and will greatly increase the value of our proposition to our prospective commercial partners.”
FINANCE & MARKETS:
• Chancellor Hammond reports sluggish growth to be a feature of the UK economy for the next 5yrs. UK should grow 1.5% this year.
• Chancellor says growth to average around half the pace of the period before the financial crisis.
• Spring statement says nothing much new. Chancellor says Labour promises another train-wreck. Suggests Brexit path might be a lesser evil.
• OECD reports UK to grow slowest across all G20 countries. Expects UK to grow by 1.3% this year (UK gov. says 1.5%). World should grow 3.9%.
• OECD says UK will suffer from weak business investment on back of Brexit uncertainty
• Government may scrap 1p and 2p coins (along with £50 note).
• Sterling up a cent or so vs dollar at $1.399 and marginally up vs Euro at €1.127
• Oil down at $64.57
• UK 10yr gilt yield down 2bps at 1.48%
• World markets: UK down yesterday with Europe & US also lower. Asia mostly down in Wednesday trade
• Brexit etc.:
o Brexit white noise relatively subdued at present
o Chancellor Hammond says uncertainty to cause another 5yrs of slow growth. OECD says UK to grow at slowest rate across G20.
o German business, which employs 000s in UK, says UK should stay in Customs Union. Nissan etc. likewise. We will not stay in the Customs Union says PM May.
PRIOR DAY LATER TWEETS:
• Later tweets: Tasty cuts openings to zero. Was quick off the mark dumping sites. Industry still needs more capacity to come out
• Expectations are everything. Fevertree shares down 5% on sparkling numbers, Goals up 4% on perhaps the reverse. Tasty unchanged.
• British Pie Awards now, well, awarded. No prizes for speed eating, this was the manufacturers
• STR has London hotel industry drop occupancy 0.4% in Feb. Rate up 1.2%, REVPAR +0.8%. Brexit bubble deflating, numbers << inflation
• Wet led outperforming food. One main reason to go to the restaurant. To eat. Several reasons for pub trip, mates, food, sport, drink etc.
• Wet led > food led at present. Where was the massive expansion? And where are the massive discounts (a.k.a. distress) now to be found?
• Hint. More discounts. Café Rouge 40%, Prezzo 35%, Beefeater 33%, ASK 30%, Pizza Express 25%. Where’s the road back
• Langton has got the keys to its new office. Some furniture is in. Some isn’t and has apparently gone to heaven. Telecoms delayed (‘we’re in no rush, mate’). We’ll be occupying rooms 80-81, no65 London Wall, EC2M 5TU. No telephone number yet so for the moment, please communicate via email. MIFID II is now in operation.
START THE DAY WITH A SONG:
Yesterday’s song was the classic ‘Jonny B. Goode’ by Chuck Berry. Today, who sang:
You know he’s gonna take away your promised land,
Hey good lady he just wants what you got you know
He’ll never stop until he’s taken the lot
RETAIL NEWS WITH NICK BUBB:
• Dignity: The funeral services provider Dignity is under siege from Online/discount competition, but the business is not rolling over to die and the strategic update with today’s finals put a brave face on things, stating that, as indicated in January at the time of the profit warning and the announcement of big price cuts, “the Board believes that whilst the combination of action being taken will lead to substantially lower profits in 2018, it should create a new platform to allow many years of further stable growth”.
• Morrisons: The Morrisons share price never seems to move very far, but today’s finals show underlying PBT 9.5% up on a 52 week basis and group LFL sales were 2.8% up, with a positive outlook statement (“We are confident that a broader, stronger Morrisons will continue to grow”). Maybe shareholders will be cheered up by the news that net debt reduced by £221m to £973m, below the £1bn year-end target, and that they are to get a 4p special dividend…
• John Lewis Watch: After all the snow disruption in the previous week, John Lewis bounced back last week, with yesterday’s weekly sales update from JLP (for w/e March 10th) revealing that gross sales jumped by 11.6% (c11% up on a LFL basis, on our calculations), although this was mainly attributed to the earlier fall of Mother’s Day. Fashion sales were up by 17.9% gross, Electricals were up by 13.3% gross and Home sales were up by 3.9% gross. After the 6 weeks of H1 so far John Lewis is running down by 0.4% gross (c1% down LFL). Last week should have been helped by delayed deliveries of Online orders from the previous week, although John Lewis no longer see fit to reveal such information in this brave new multi-channel world (last year, however, we are told that Online sales were 10% up and reached 38% of total sales…).
• Waitrose Watch: Over at Waitrose, last week was also boosted by the earlier fall of Mother’s Day, with gross sales up by 14.2% in w/e March 10th (just under 14% up LFL, on our calculations). The cumulative outcome for the last 6 weeks is now +5.6% gross, which is over 5% up LFL.
• News Flow This Week: The Inditex finals are also out today in sunny Spain and at lunchtime the Signet Q4/finals will be published in the US. And tomorrow the embattled Philip Green will be able to take a break from his problems at Arcadia by celebrating his 66th birthday!
• White Day Watch: In 2018 March 14th marks the second day of the Cheltenham Festival for horse racing fans in the UK (see below), but in Japan (and other Asian countries) March 14th is White Day, exactly one month after Valentine’s Day. In Japan, Valentine’s Day is typically observed by girls/women presenting chocolate gifts to boys/men as an expression of love, courtesy or social obligation. On White Day, the reverse happens: men are expected to return the favour by giving gifts, usually on the basis that they cost two to three times the perceived worth of the Valentine’s Day gift! The likes of Hotel Chocolat would be delighted if the habit caught on in the UK, although they have other “gifting events” such as Mothering Sunday and Easter to focus on at this time of year…
• TIPS Watch: The great 4-day Cheltenham Festival jumps racing started today and our alter ego, “Honest Nick”, is bringing you his each-way Tips each day. And he was reasonably pleased with his efforts yesterday, as his Irish banker Footpad won the 2.10pm at 5-6 on, and he also picked another Willie Mullins trained winner, Benie des Dieux, at 9-2 in the 4.10. And although in the big race at 3.30pm (the Champion Hurdle), another Willie Mullins horse, the once mighty Faugheen, flopped badly for him, his two other e/w Tips were both only narrowly beaten: Kalashnikov was second in the 1.30 at 5-1 and Ms Parfois was second in the 4.50 at 11-2. As for today, the banker of the day is probably Altior in the big race at 3.30pm, the Champion Chase, whilst it will be interesting to see how The Last Samuri gets on in the amazing Cross-Country race at 4.10pm. But as our “Three to Follow” today, we’re