Langton Capital – 2018-04-12 – Greene King, City Pub Co, Saga, costs & other:
Greene King, City Pub Co, Saga, costs & other:
A DAY IN THE LIFE:
Bit busy this morning. Straight on to the news:
GREENE KING 49 WEEK TRADING UPDATE:
• Greene King has this morning updated on trading for the first 49wks of its current financial year being the period to the 8th April 2018 and our comments are set out below:
• Headline numbers:
• Greene King reports that it expects PBT in the year to end-April to be in the region of £240m to £245m. This is broadly in line with market estimates
• Greene King reports managed sales in the 49wks to 8 April were down by 1.8% on the same period last year.
• GNK says Pub Partners’ net revenue for the first 48wks of the year was down 0.3% on last year
• Brewing & Brands sales volumes were down by 0.7% (against an ale market thought to be down around 3.1%)
• Managed pubs:
• GNK says ‘the weather over the last 12 weeks impacted trading, particularly in our destination food-led pubs, and on an underlying basis, excluding the impact of snow, LFL sales in the year-to-date were -1.2%.’
• The 49wk period represents a slowdown on the 37wk period. Certainly 2018 does include the snow but it has Easter in it too, which was not the case for the first 49wks of 2017
• As this is only a trading update, there is no comment on margins.
• GNK says that food took the hit with ‘both drink and accommodation LFL sales were ahead of last year.’
• The company adds ‘trading over Easter was strong with LFL sales up 2.8% against the Easter weekend last year, helped by strong sporting fixtures, especially football and boxing.’
• GNK says that investment is paying off ‘despite the continued challenging market backdrop.’
• Momentum is clearly negative and, while 2018 numbers (though recently reduced) would appear to be in the bag, 2019 could be tough
• GNK says ‘we continue to reposition Pub Company to drive growth going forward; we will complete the exit from Fayre & Square by the financial year end; we opened nine new pubs over the year; and we invested core and brand conversion capex in 292 pubs.’
• Other trading data:
• GNK says ‘after 48 weeks, LFL net profit in Pub Partners was -0.3% while own-brewed volumes in Brewing & Brands were -0.7%, ahead of the UK ale market at -3.1%.’
• Both number represent a slowdown on week 37 data
• GNK adds ‘we remain on track to deliver targeted cost savings of £40-45m, we will have spent c. £160m in the full year in ensuring our estate remains well invested and our disposal proceeds are likely to be ahead of expectations at c. £120m following the sale of three high value leasehold pubs.’
• Overall, Greene King reports it expects profit before tax and exceptionals to be ‘in the range of £240-245m.’
• GNK concludes ‘with our high quality portfolio of pubs, excellent team, strong balance sheet and sustainable dividend, we remain well placed to withstand the external market challenges and deliver long-term value to our shareholders.’
• Langton Comment: Greene King has reassured on 2018 but 2019 may be tough.
• There are no comments today (and perhaps none were to be expected) on margins, debt or dividend.
• We believe GNK will hold or perhaps marginally increase its dividend in order to maintain its sterling record in that regard. However, with profits down some 11%, there may be some concerns here going forward.
• The weather has been unhelpful for 6mths or so.
• But GNK has been able to confirm that the bottom has not fallen out of its world. This is reassuring to say the least.
• Spirit was an ambitious acquisition. The group’s shares have not performed well since the purchase. Certainly other pub companies have also experienced tough conditions and GNK is addressing its issues re Fayre and Square but the SPRT purchase may, with hindsight, not have been the best of ideas.
• Uncertainty is unavoidable and this will extend to 2019 forecasts. These may be trimmed back.
• GNK is prima facie cheap at these levels. It is one of the UK’s better-positioned pub companies and, with its shares now trading at a single-digit multiple, this may be an attractive entry point.
• However, the direction of travel is negative and 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:
• City Pub Group has reported FY numbers for the 53wks to end-Dec 2017 saying that revenues rose 35% to £37.4m and EBITDA was up 51% at £6.1m
• City Pub Group chairman Clive Watson comments ‘2017 was a pivotal year in the evolution of the business.’ Mr Watson cautions ‘the sector continues to experience a number of well-trailed headwinds but we are positioned to meet these challenges and with our robust balance sheet, well invested estate and strong cash generation, we are confident of delivering continued strong progress and meeting our expectations for the year as a whole.’
• The MCA Consumer Dashboard has registered higher levels in all key eating out metrics in March 2017, albeit against weak comps. Breakfast average spend grew 10% with frequency up 7%.
• LEON the naturally fast food chain announced the launch of a new Thai fast food pop-up: Tuk Shop. LEON co-founder, John Vincent said: ‘Over the last fifteen years I have been fortunate enough to experience the culture and flavours of Thailand first-hand. And fortunate too to meet and learn from David Thompson (founder at Aylmer Aaharn), whose chefs have worked hard to make this happen. I hope that in the long-run Tuk Shop will allow everyone in the UK to experience the joy of this food. In the mean-time you will have to come to Shaftesbury Avenue. Grab a spoon and tuk in’.
• Brasserie Bar Co plans to open seven more hotel-based Brasserie Blanc restaurants by 2020, the MCA has reported.
• UK craft brewers have expressed fears that changes to tax reliefs to help smaller producers could, actually, lead to brewery closures and increased beer prices, the UK Publican’s Morning Advertiser. The current Small Breweries’ Relief scheme works by offering reduced duty rates on a sliding scale, with those producing under 5,000hl (880,000 pints) annually receiving a 50% discount.
• Heineken is committed to securing an extra £1bn of sales over the next 3yrs via the launch of its Greenpaper. The group says the research behind the paper is the largest piece ever undertaken by the beer brand. Heineken says ‘the six growth drivers are the starting point for all Heineken on-trade activations, so with the power of the best portfolio of ciders and beers, and our industry-leading expertise, we will be helping to bring the on trade back into growth.’
• Market Town Taverns, now owned by Heron and Brearly, increased its losses in the year to end-Jan 2018. The group drove revenue to over £10m from a little over £7m in the prior year.
• Buster Grant has resigned as SIBA chairman to dedicate more time to his business activities. Mike Benner, Chief Executive said, ‘I would like to thank Buster for his hard work, dedication and leadership since his election to the Chair in March 2017 and wish him the very best of luck for the future.’
• City Pantry, the office catering marketplace founded in 2013 by Stuart Sunderland, has raised a new £4m round led by Octopus Investments with participation from existing investors and Newable Private Investing. The money will go towards expansion into various UK cities over the next year and a half. ‘While we’ve all seen the phenomenal growth of online food delivery in B2C over the past few years, food to businesses lags significantly behind,’ said Sunderland, noting that legacy relationships with caterers and ‘the unique pressures of ordering for larger groups make innovation and progress slower’.
• Devonshire Terrace by Drake & Morgan has opened just a short walk from Liverpool Street Station and is ready to provide ‘business breakfasts, catch-up coffees, light lunches and late-night cocktails’.
• Waitrose will stop using disposable coffee cups in a bid to save 52m cups a year and promote sustainability.
• Shop Direct plans to close three distribution sites in Greater Manchester, affecting nearly 2,000 jobs. The decision comes after the centres no longer meet the group’s ‘operational ambitions’.
• TGI Friday’s is facing a strike regarding the proposal to redistribute 40% of card tips on credit and debit cards to back-of-house employees, avoiding a wage increase.
• Toys R Us has received multiple bids of more than $1bn for 85% of its Asian business, according to its lawyer Joshua Sussberg.
• Rural online shoppers will no longer be charged for ‘free UK delivery’ as advertising watchdogs tae action.
HOLIDAYS & LEISURE TRAVEL:
• Saga has reported full year numbers saying PBT from continuing operations fell by 7.6% to £178.7m with underlying EPS up 0.7% at 13.8p.
• Saga CEO Lance Batchelor says ‘in a challenging market we have delivered a set of full year results which is in line with the rebased profit expectations set at the end of 2017.’ Mr Batchelor says ‘I am confident that we have put in place the right investment to drive the Saga business forward.’
• The Local Data Company reports just 32 new travel agent stores opened in 2017, whereas more than 350 closed over the year.
• Booking.com has grown to 5 million listings of homes, apartments and other accommodation types, up 27% in the past year. Over a third of 57,000 travelers claimed they wanted to stay in an apartment, aparthotel or condo in 2018.
• The strike affecting Air France continued yesterday, leading to the company only running 70% of expected flights. The dispute is regarding pay increases and may continue in the coming weeks.
• US-based Carlyle and France-based Montefiore sell 40% of ‘glamping’ business European Camping Group for around €700m to Ontario Teachers’ Pension Plan.
• Mark Zuckerberg revealed his own data was harvested by Cambridge Analytica at his questioning by Congress yesterday.
FINANCE & MARKETS:
• The NIESR says ‘our monthly estimates of GDP suggest that output growth slowed to 0.2 per cent in the first quarter of 2018 from 0.4 per cent for the final quarter of 2017.’ It says ‘we estimate that economic growth nudged lower to 0.2 per cent in the first quarter of 2018. The main reason for the weakness was severe weather in March which is likely to have disrupted activity in all major sectors of the economy. There is a small offset in industrial production growth which recovered in the first quarter after the previous quarter was affected by the Fortis oil pipeline shutdown.’
• ONS reports UK manufacturing output fell 0.2% in February. This is the first decline in almost a year and down from revised growth of zero for January.
• Official data suggests that construction output in the UK fell in February on a month-on-month basis
• Fed minutes suggest the US governing body is agreed that the US is growing at a strong pace and that inflation has picked up.
• Data suggests that underlying inflation in the US is on the rise. This, at the moment, is seen as a good thing
• RICS says UK housing market activity has slowed. It says an increase in interest rates would worsen the situation
• Sterling down a shade at $1.4172 and Euro 1.1466
• Oil up over a dollar at $72.18
• UK 10yr gilt yields down 2bps at 1.30#9%
• World markets: UK down yesterday with Europe & US also down. Far East mixed in Thursday trade
PRIOR DAY LATER TWEETS:
• Later tweets: Pubs & weather. Has been an unfortunate 6mths or so for weather. Beast from East won’t have helped. But weather happens. Warm next week
• Casual Dining Group reports year to 28 May 2017 was a ‘difficult trading environment for the casual dining market’.
• EZH says H1 it ‘has continued to significantly outperform the budget market over the course of the period.’
• EZH says ‘has traded strongly’ but says ‘we are mindful that consumers in the UK will continue to be cautious’
• Escape Hunt net cash of £10.7m at end-Dec, now opening sites. Market bigger than it had initially hoped. Appealing ‘to content providers’
START THE DAY WITH A SONG:
Yesterday’s song was Grace by Jeff Buckley. Today, who sang:
Operator, number, please
It’s been so many years
Will she remember my old voice
While I fight the tears?
RETAIL NEWS WITH NICK BUBB:
• Yesterday’s News: We flagged yesterday ahead of the Tesco finals that although the Tesco core business seemed to be doing well, there was some doubt about the outlook for the Booker acquisition. In the event the City was more impressed with the news that Tesco is on track to hit the 3.5%-4.0% medium-term EBIT margin target and the share price shot up by over 7%. But ASOS came in a bit short on both H1 PBT and Q2 sales and although full-year expectations should be met, the shares dropped by c2% after the interims. As for the Hammerson/Intu bid situation, ahead of the so-called “PUSU” bid deadline on April 16th for the French shopping centre giant Klepierre to formally renew its interest in Hammerson, the French company announced a slightly higher indicative bid of 635p, but Hammerson repeated its insistence that even that significantly undervalued the company. That left the City
• News Flow This Week: This morning brings the WH Smith interims, the Dunelm Q3 update, the QUIZ pre-close and the Mothercare Q4.
• Quote of the Day: Here’s an insight from Richard Harding Davis (1864-1916), the American journalist and war correspondent: “The secret of good writing is to say an old thing in a new way or a new thing in an old way”.