Langton Capital – 2018-04-17 – Deliveroo, Visa, millennials, WTB, JDW, CPC etc.:
Deliveroo, Visa, millennials, WTB, JDW, CPC etc.:
A DAY IN THE LIFE:
Spying some sort of animal creeping around in our garden the other day, the Brumby family certainly showed its credentials when it came to nature watching.
It’s a fox, we heard.
No, it’s just a dog said a second.
Or a small donkey but no, said a third, it’s just a massive rabbit and, as it proved, it was a huge bunny that must have just hatched in an underground lair somewhere and that was now busying itself eating our plants, pulling up shrubs and frightening the local horses.
In fact it only stopped to pull a few horseshoes straight and rip up the odd phone book meaning that the dog, who certainly talks a good fight even if he spends most of his time asleep or eating, has his hands full if he’s to remain, well, top dog. On to the news:
60 SECONDS ON DELIVERY IN FOOD:
Digital disruptor needs operators to keep pace…
• Deliveroo’s 2016 results showed sales growth of some 600% to £128.6m, but this wasn’t the only thing growing — losses also increased from £30.1m to £129.1m
• The group is now encouraging restaurateurs and food business operators to open new ‘virtual brands’ as part of existing kitchens and Deliveroo-only Editions ‘dark kitchens’
• Is Deliveroo’s quest for volume and top-line growth the right tactic? At some point the profitability of its business model must be proven…
Playing the volume game
• In a synchronised bout of weekend laziness, three members of Langton HQ opted, separately, to order Deliveroo meals for the first time in six months or so
• This prompted two observations: one, the minimum order amount has tumbled from £15 to £5-6, making the experience more affordable
• And two, judging by the state of the burgers, the driver must have initially tried to deliver them by throwing them in our general direction
What does this mean?
• Deliveroo is rapidly becoming a part of the furniture for the modern UK consumer
• It is doing this by driving sales and volume and racking up hundreds of millions of pounds in losses
• Its decision to reduce the minimum order value is suggestive of an ultimate aim to have people order from Deliveroo almost every day
• And, looking at its losses, this might be necessary if the company is to work out a sustainable operating model
PUB, RESTAURANT & DRINK PRODUCERS:
• Visa has reported that consumer spending across UK households fell again in March.
• Visa says spending was down 2.1% in March after a 1% drop in February.
• Visa says spending for Q1 as a whole was 1.4% down on the same quarter last year, despite inflation of 2.5%.
• Visa says face-to-face spending in March was down 3% on last year whilst e-commerce was also down 1.2%. This is the first fall in ecommerce in almost 5yrs
• Visa reports transport spending was down 8.6% whilst food and drink spend was up by 5.7% and hotels, restaurants & bars was up 4.2%. The latter number seems to be at odds with recent negative CGA Peach data.
• Visa comments ‘the negative impact that the ‘Beast from the East’ had on UK economic activity last month has been widely reported, but this doesn’t entirely explain March’s lacklustre consumer spending.’
• Visa says ‘we are in the midst of a dip in consumer confidence and this – coupled with other economic factors – is causing shoppers to continue to restrain themselves.’ It continues ‘high street sales suffered once again, however it is also noteworthy that e-commerce spend fell for the first time in 10 months, and by its fastest rate since 2012. That said, it is too early to read a great deal into this year-on-year decline, which should be viewed in the context of high growth rates in early 2017.’
• Whitbread shares rose by almost 7% yesterday on news that activists on its share register were to push for the split of Costa and Premier Inn. The Telegraph says that the split is now all but inevitable. The idea, perhaps, had more traction two or three years ago as coffee is now slightly off the boil, UK capacity has risen massively and ambitions in China are taking a little longer to realise.
• The Resolution Foundation says that a third or millennials will never be able to afford to buy a house. It says ‘Britain’s housing problems have developed into a full-blown crisis over recent decades and young people are bearing the brunt.’ This is impacting decisions when it comes to deciding whether or not (or where and how) to eat and drink out.
• Mothership HQ, which owns iconic bars The Shoreditch Book Club and the Queen of Hoxton in its stable of four outlets, has reported numbers to end-July 2017 saying that ‘the group continued to perform well, with an increase in Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) due to an improved performance across the whole estate.’
• Mothership says revenue rose from £9.0m to £9.3m with EBITDA up from £1.0m to £1.2m. PBT rose from £171k to £585k.
• JD Wetherspoon has closed down its Twitter, Instagram and Facebook accounts, stating ‘the bad publicity surrounding social media, including the ‘trolling’ of MPs and others, especially those from religious or ethnic minorities’ as the reason for doing so. Chairman Tim Martin said: ‘We are going against conventional wisdom that these platforms are a vital component of a successful business. I don’t believe that closing these accounts will affect our business whatsoever, and this is the overwhelming view of our pub managers’.
• Discounts continuing. Prezzo 30% off, Jamie’s 40% off, Pizza Express up to 25% off, Bella Italia 30% off and now upmarket M&B brand Miller & Carter offering 20% off head-line prices.
• ETM, the London bar and restaurant operator, has secured a £10m funding package from HSBC in order to expand the group. Ed Martin, co-founder & CEO, ETM said: ‘We are very excited about the next phase of growth and, with HSBC’s support and financial backing, we will be able to develop and roll out new, innovative, experience-led concepts at a faster rate’.
• Diageo aims to invest £150m into Scotch whisky tourism by creating a Johnnie Walker immersive visitor experience in Edinburgh.
• Beds & Bars has reported revenue has climbed 9% in the year ended March 2018 exceeding £50m for the first time. Group EBITDA is expected to be in the region of £4.53m. The company stated that it is seeking investment opportunities in the new year as it looks to continue its expansion.
• Australian wine exports to China have skyrocketed 51% to AU$1bn in the past 12 months. China dropped import tariffs on Australian wines to 2.8% for bottled wine at the beginning of this year in line with the two countries’ FTA agreement.
• Shopping visits declined at their steepest rate since the end of 2010 in March with footfall down 6% year-on-year as bad weather compounded the high street’s existing troubles, according to BRC figures. Underlying the headline figure is an 8.6% decline on the high street, a 1.8% drop at retail parks and a 4.8% fall in shopping centres for March. At the same time, Visa data shows the biggest fall in quarterly consumer spending since the last three months of 2012, while the Bank of England expects the ‘Beast from the East’ to have knocked 0.1% off first quarter GDP growth.
• Greene King has announced that Clive Chesser, managing director of its Brewing & Brands division will be leaving the business on 31 May to become chief executive of Punch. Greene King chief executive Rooney Anand said: ‘Clive has been a strong presence in the business during his time with us, a valued member of the operating board and he leaves a strong legacy in both Pub Partners and Brewing & Brands. I am sorry to see him go but this is a great opportunity for Clive to take on a chief executive position; he leaves with our sincere thanks for all he has done and our best wishes’.
• The BBPA has welcomed the recent Government’s update to consumer protection in the package travel sector. Brigid Simmonds, Chief Executive of the BBPA, commented: ‘Pubs are a hugely important part of the UK tourism market, and in recent years more and more pubs have begun to offer rooms. It is important that local businesses are allowed to work together to create compelling domestic tourism offers. A timely review of the Package Travel Directive enables the Government to examine the cost burdens being placed on businesses’.
• Domino’s Pizza US is stepping up its food delivery wars with third party delivery ‘disruptors’ by adding online ordering from more than 150,000 new delivery ‘hotspots’ in parks, beaches and other destinations that do not have traditional addresses.
• Ahead of Earth Day this coming Sunday, Oakman Inns has announced its intention to eradicate the consumption of single use plastics within the group by Earth Day 2019. Oakman Inns CEO, Peter Borg Neal, commented: ‘So much of our ethos at Oakman Inns emanates from the wishes of our staff and our customers who are almost universal in their desire to end plastic consumption wherever possible. Oakman has a reputation for leading the way and, to a certain extent, it’s now up to us to show what can be done with the support of all our stakeholders, including our suppliers.’
Essex-based Big Bear Cider Mill will soon be going live on Crowdcube as it looks for investment to complete its production facility and to purchase a state of the art canning facility.
• Rum bar Laki Kane, co-founded by ex-Mahiki bar manager Georgi Radev, will open its doors this June in London. Customers will be able to sign up for rum making masterclasses as well as buy drinks at the bar.
CITY PUB GROUP FULL YEAR NUMBERS:
Fast-growing pub group City Pub Group (CPC) has released figures for the 53 weeks to 31 December 2017. Our comments are set out below:
• City Pub Group now operates 34 mostly freehold, wet-led pubs, with five units soon to begin trading and a further two completed. Eight pubs were opened in the year.
• Revenue increased 35% to £37.4m, driven in part by a 3.8% rise in like-for-like sales, with drinks and accommodation performing strongly.
• Adjusted EBITDA grew 51% to £6.1m, and adjusted profit before tax rose 102% to £3.2m, although IPO costs made for an overall reported loss of £0.7m.
• CPC’s dividend was bumped up 50% to 2.25p for a total yield of 1.4%.
• Net cash from operating activities grew 5% to £17.6m. Net cash outflow of £4.6m was driven primarily by £2.3m of new site acquisitions, £3.6m of capex, a £6.9m repayment of bank borrowings, and £4.3m of exceptional and one-off items (including £3.1m of IPO costs).
• City Pub Group operates clusters of pubs typically in cathedral cities, where it can demonstrate an operational edge and benefit from the custom of different markets including students and tourists.
• As with the rest of the pub industry, food sales have been weak. CPC is well insulated from this trend thanks to a predominantly wet-led estate. Management says drinks and accommodation have performed well.
Balance Sheet etc.:
• CPC has paid down its debt with the proceeds from its initial public offering in 2017 and has a healthy balance sheet backed by freehold assets.
• The board has adopted a gearing policy of c30% of asset value and hopes to use cash generated from existing operations to fund acquisitions.
• In the year ahead, City Pub Group aims to expand its accommodation and liquor sales. Its bedroom count is expected to more than double from 44 rooms to 100.
• CPC ended 2017 with 33 pubs. It aims to have more than doubled this to 65-70 trading pubs by mid-2021.
• The group says that sales were up 22% in the first 14 weeks of 2018, with 34 sites open and trading.
• City Pub Group is positioned in a growing part of a turbulent pub market. Sales momentum is good and site openings are on track.
• The group’s strategy — an EIS venture taken to c30 sites before IPOing, to eventually be sold to a larger pub operator — is reminiscent of Capital Pub Company some 10-15 years earlier — a group which shared some of the same management.
• With a healthy balance sheet, quality pubs, and an operating strategy of clusters of units in towns and cities with students, residents, and tourists, CPC is sufficiently differentiated from its competitors to warrant closer inspection.
• That said, valued at 20x adjusted EBITDA, we would argue that the group’s shares are up to date with events.
HOLIDAYS & LEISURE TRAVEL:
• International forward air bookings to London are 3.5% behind in the first half of 2018 and a 10.1% fall is projected in the second quarter, according to forward booking data. Flight booking analysts ForwardKeys found a ‘significant decline’ in the number of Chinese visitors to the UK capital, down 5.4% for the first half of this year, with a 13.3% drop during Chinese New Year. Data also showed that arrivals from the United States were lagging 7.2%.
• Global Infrastructure Partners (GIP) is considering selling its 42% stake in Gatwick, worth up to £10bn. GIP bought its stake in Gatwick in 2009 for £1.5 billion after the UK’s BAA airport monopoly was broken up.
• Getabed and roomsXML have agreed a merger which will create a B2B supplier with global reach.
• Orion Span, a Houston-based tech start-up, plans to open the first luxury space hotel in 2021 with the price of a 12-day stay at $9.5m. The hotel will be the size of a private jet cabin and will orbit the earth every 90 minutes.
• Per MA; Goose Island, a Chicago brewer, is set to open its first UK brewpub in Shoreditch. Goose Island was acquired by AB-InBev in 2011 and the Shoreditch site will be its sixth international site.
• Ford will launch its self-driving car division ‘at scale’ in 2021.
• Shares in Netflix fell 1% yesterday as the market anticipates the group’s quarterly report.
• Football fans face inflated prices for the World Cup tickets, that might not even be valid if they use secondary ticketing sites, Which? Has warned. The consumer group found some match tickets to the England Tunisia game priced at £11,237.
FINANCE & MARKETS:
• Acadata has said that the UK housing market remains ‘starkly divided’ between London, which is seeing prices fall, and the rest of the country.
• The IEA has said that socialism, which is in vogue, has not worked. It quotes proponents as saying ‘it has never been tried properly’. Mr Corbyn may get his chance as the government, which is currently playing its stronger hand on foreign policy and domestic security, struggles with the economic implications of the Brexit debacle.
• US consumer spending rose by 0.6% in March per the WSJ.
• Robert Kaplan, president of the Dallas Federal Reserve Bank, has said he expects “falling unemployment, rising wages and solid economic growth” in 2018. The Fed looks likely to raise interest rates twice more this calendar year.
• China’s economy grew 6.8% on an annualised basis between January to March per official data. This is slightly ahead of last year.
• Sterling continues its run at $1.4339 and €1.1581
• Oil down a shade at $71.65
• UK 10yr gilt yield up 3bps at 1.46%
• World markets: UK down yesterday with Europe also lower but US up. Far East mostly up in Tuesday trade
• Brexit, Western politics etc.:
o Poll by Opinium suggests solid support for second referendum with 52% for and 31% against
o Opinium suggests Labour voters are more likely to support a second referendum than are others
o Ex-FBI director James Comey has said President Trump is ‘morally unfit to be president’ and adds he lies constantly.
PRIOR DAY LATER TWEETS:
• Later tweets: Elliott takes 5.2% of Whitbread, pressures for Costa spin off. Isn’t it a bit late? Coffee off the boil, capacity up, China stuttering? Less upside now
• Luke Johnson on his Draft House exit. No reason for mourning. Rather rebasing portfolio, moving on etc.
• BBC says volume retailers may never expand to fill the gap currently being left by failed companies on the High Street
• High Street, our view: Ping pong, patisserie & budget shops too small (or sad) to fill gap. Need residential, artisanal & wider experiential
• High St rents. Well they ain’t going up. They may go sideways due to ‘upward only’ but overrenting will become a thing
• Coffee shops & ice cream parlours taking much of vacant former retail sites in UK per PwC. Won’t last long…
• Group of cross party MPs calls for public to be given a vote on whatever deal is struck by Super Dave David Davis with EU
• JDW quits social media (twitter, Instagram, Facebook). Chairman Tim says won’t affect business, concerned over ‘misuse of personal data’
• Lies & statistics. Correlation isn’t causation. ‘At least 1 drink shortens life’. Over-simplistic. Other lifestyle issues, amount drunk…
START THE DAY WITH A SONG:
Yesterday’s song was Hurricane by Bob Dylan. Today sang these lines:
I watched you suffer a dull aching pain
Now you’ve decided to show me the same
No sweeping exit or offstage lines
Could make me feel bitter or treat you unkind
RETAIL NEWS WITH NICK BUBB:
JD Sports: Today’s finals from JD Sports flag another year of significant progress for the group with headline PBT pre-exceptionals up by 26% to £307.4m and JD boss Peter Cowgill says “The Board remains confident in the robustness and international potential of the JD proposition and is excited by the major developments ahead”. There is a 9.30am analysts meeting
Majestic Wine: Ahead of the Capital Markets Day in the City this afternoon at 1.30pm, Majestic Wine has announced that it is moving its focus from transformation to growth and accelerating investment. Rowan Gormley, the CEO, and James Crawford, the CFO, will be sharing new data demonstrating the strength of the business and the high returns being made on investments in new customer acquisition, the potential to accelerate investment in new customer acquisition and the ambitions for growth.
Intu Properties: The French shopping centre giant Klepierre has abandoned its bid for Hammerson, but the Sunday Times flagged that the Hammerson agreed bid for Intu Properties is on a knife-edge and that Hammerson may soon renegotiate the deal or walk away, in response to shareholder criticism of the deal. The Intu share price slumped by 6.5% yesterday to 208p and is now well below the imputed value of the share offer, implying significant doubt about whether the bid will proceed, so the company has brought forward its scheduled Q1 update to reassure investors that it is on track for its full-year rental income growth forecast and that “Our prime shopping centres produced a strong first quarter with lettings at increased rents, high occupancy and footfall exceeding the comparable period last year, with footfall significantly and consistently outperforming the national retail