Langton Capital – 2018-05-17 – Thomas Cook, Fever Tree, more on MAB, MARS etc.:
Thomas Cook, Fever Tree, more on MAB, MARS etc.:
A DAY IN THE LIFE:
In a rush this morning as foolishly agree to a computer update.
The thing had been begging me for days.
No, I said. You know what happened last time.
Please, it whined. Pleeeeeaase?? It’ll be different this time, we promise. Promise.
OK, I said, go on then and, forty minutes later, still configuring updates. Grrr.
On to the news:
MARSTON’S H1 RESULTS:
Following the release of its H1 numbers this morning, Marston’s hosted a meeting for analysts and our comments are set out below:
Trading – historic:
• The group maintains that it has produced good results against a backdrop (snow, sunshine, early Easter, late May Bank Holiday) that has been hard to read.
• Turnover has been ‘strong’ and the beer business has been ‘excellent’. Some 90% of MARS’ beer now does not go to MARS pubs.
• Brewing margin is (and will be) down due to lower margin Charles Wells’ business. LfL margins are up across the division
• Taverns were good.
• Average profit per pub has risen by 52% over the last 6yrs. This reflects the impact of churn. Marston’s does not have a significant tail.
• Drive to pubs (Destination & Premium) lost around 1.5ppts in growth due to the snow
• Accommodation has been very good. A lodge adds perhaps £300k to a pub’s turnover & smooths this over day parts.
Trading & market – outlook:
• Revenue and profits for the full year will be higher. There are more shares in issue. Current forecasts have EPS up a little with a marginal rise in the dividend to 7.6p.
• The half year dividend was unchanged, and a full year increase is not an absolute certainty
• The market is tough, but the consumer is still spending. Supply is down in wet led (which is helpful) but is rising (albeit more slowly) in food
• Discounting is ‘embedded and endemic’. It is not worse than it was around 6mths ago but ‘is not sustainable’.
• Marston’s discounts only very selectively and has focused instead on quality & service in order to drive footfall.
• The group focuses on cash margin per visit – as this can be most easily correlated to the cost of providing the service.
• The World Cup is a Curate’s Egg. Net, net the impact should be positive. The fall of the England matches (Mon & Thurs) will be helpful but the Sunday lunch match will not be.
• There are some hopeful signs. Real wage growth is positive & unemployment is at 45yr lows.
Balance Sheet, Cash Flow & Debt:
• MARS will open 5-10 lodges p.a. for the foreseeable future.
• Capex will be slowed but the landbank will continue to build. When / if MARS decides to step up its opening programme, it will be able to do so. Returns on build are still in the 11% to 13% range
• Conversions away from the 2-for-1 format will continue.
• Marston’s shares have fallen a little on today’s news.
• New information comprised the held dividend and the reduced capex next year. The latter could lead to some small downgrades, but it will also reduce debt.
• The final dividend could yet be raised and, with real wages in positive territory and LfL sales up (ex the snow) across the company, trading is solid.
• Marston’s shares trade at around 7.5x earnings and yield around 7.2%.
• The group has an attractive, well-managed and well-maintained estate of largely freehold properties. Wet led units are currently performing well and lodging is a major growth segment.
• The company continues to sell product that the consumer would like to buy at a price he/she is prepared to pay. Leisure remains a growth industry and, certainly over the medium term, the group should perform well.
MITCHELLS & BUTLERS H1 RESULTS:
Following the release of its H1 numbers this morning, Mitchells & Butlers hosted a meeting for analysts and our comments are set out below:
Trading – historic:
• M&B is ‘really encouraged’ by its own performance. Admittedly the market is tough – but it is ‘no tougher than it has been for some time now’
• The group’s ‘initiatives are paying off’
• The snow cost around £12m in lost sales and £8m in profits. A lot of this, unhelpfully, fell on Sundays. On the other hand, the sunshine in April helped positively
• Sales increases are coming from increased spend. Footfall is still a small negative
• Costs are still rising ‘but they are no worse than they have been for some time’
• M&B has been ‘focusing on the guest’ and it says the positive impact of this is beginning to show
Trading – outlook & market:
• M&B will decide on its dividend policy at its final results. It would not be drawn to comment further.
• It is ‘envisaging tough trading and will protect its balance sheet’.
• Supply growth has slowed.
• Re new concepts, Chicken Society and Son of Steak are performing well – but they are still at a very early stage in their development
• EU talent is proving a little harder to source. The group stresses the importance of its apprenticeship programme
• Discounting (from competitors) is ‘more aggressive’
• Miller & Carter will be a focus of growth. But M&B does not want to spoil a good thing by building too many.
Balance Sheet, Debt etc.:
• The group has been very active in ‘managing its estate’. This is currently being manifested via conversions rather than disposals and new builds. Some 224 developments took place in H1
• Only ‘six or seven’ units will be sold this year.
• The group is ‘systematically de-gearing’
• The pension deficit should be gone by FY23
• M&B has continued with its programme of innovations (Ignite One) that have been designed to re-boot LfL sales growth.
• This appears to be happening but, as margins have fallen (not unforeseen) profits are lower.
• The dividend is uncertain and M&B’s shares have dropped on the back of today’s announcement.
• Nonetheless, we remain of the view that M&B has an extremely attractive estate. It has much still to do and the market is challenging but it has levers to pull and it is pulling them.
• Change takes time.
• M&B may have turned the corner but it may be doing so just as the market becomes somewhat more difficult. There is no real guidance as to the dividend. Or lack of it.
• Overall, however, eating & drinking out will remain a premium-to-GDP growth business and M&B has an estate that should benefit from this. The share price is not too demanding.
PUB, RESTAURANT & DRINK PRODUCERS:
• Marston’s and M&B both lower on reasonable numbers. Market running scared? CVAs to be announced by high street shops, Carluccio etc. not doing much to help sentiment.
• Carluccio’s is reported set to announce its rumoured CVA shortly. It is thought that KPMG, which is advising the group, has structured a CVA to be detailed today. Over 30 of the group’s c100 sites could close.
• Carluccio’s estate is likely to be split into two along similar lines to the CVA undertaken by Prezzo earlier this year. Landlords with either take a haircut on rent or be given back the keys to underperforming sites.
• Fever-Tree reports that it has seen growth across all regions and an ‘impressive rate of sale growth and market share gains across both the on and off trade’ in today’s AGM statement. The group’s chairman, Bill Ronald, credited the performance to strong progress in the UK, while its move into the US has also made ‘excellent progress’ and added that trading in the year to date has been in line with market expectations.
• Starbucks employees have been instructed to be more relaxed towards non-paying customers asking for access to store bathrooms following a recent racial discrimination incident in Philadelphia last month.
• Mothercare is set to re-appoint Mark Newton-Jones, who left in April after its profit warning and poor Christmas trading, as the group’s chief executive. Sky News also reports that the struggling retailer will announce the closure of 50 of its 137 stores when it releases its annual results as part of a ‘comprehensive restructuring and refinancing package to put the business on a stable and sustainable financial footing.’
• Pizza Hut will effectively double the number of its sites in selected geographical regions on the back of its tie up with Telepizza. Pizza Hut says ‘this ground-breaking deal is a major milestone in our journey to become the most loved, fastest-growing pizza brand in the world.’
• Research from real estate consultancy Cedar Dean Group concludes that almost 90% of restaurants in London will close down or move if commercial property rents continue to rise this year. The report, which surveyed 600 restaurant operators in the capital, comes after the latest CBRE Monthly Index found that rental values across all UK commercial property grew 0.2% in March 2018. Roger Payne, CEO of Camden Dining Group, said that landlords have ‘taken advantage’ of expansion-hungry operators. Where once rents were equivalent to around 12% of revenue, landlords are now charging close to 20%.
• The family behind Crabbie’s Ginger Beer, Halewood Wine & Spirits, are considering a sale of its business for £200m, according to analysts. The company’s CEO, Stewart Hainsworth said: “I can confirm that Rothschild has been appointed to explore strategic options for the shareholders of Halewood Wines & Spirits.
• Pizza Hut and Telepizza have announced a ‘long-term alliance’ that will double Pizza Hut’s footprint and see 1,300 stores opened over the next 10 years in Spain, Portugal, Latin America (excluding Brazil), the Caribbean and Switzerland. Telepizza Group will become a leading multi-country pizza operator worldwide and Pizza Hut’s largest master franchisee globally by unit count.
• The restaurant sector is merely working through a ‘period of adjustment’ after years of rapid expansion, according to peer-to-peer secured lending specialist Lendy. The high rents dragging many operators down must also be a cause for concern for commercial property landlords, the lender notes.
• Richoux is to trial a new restaurant and bar concept called The Broadwick in two of its sites, per MCA. The new format will feature ‘homemade global food’, steak on the stone, handmade burgers, cocktails and a gluten free menu.
• Casual Dining Group and Cineworld announce a new three-year partnership which will offer Unlimited cardholders a 25% discount on food and drink at the restaurant company’s brands.
• Beavertown, a London craft brewery, will brew two of its flagship beers in Belgium while it builds a larger facility in London, set to open in summer 2019.
• Amazon Prime members will receive discounts at Whole Foods as part of their membership. Amazon acquired the grocer for $13.7bn in 2017.
HOLIDAYS & LEISURE TRAVEL:
• Thomas Cook generally upbeat but sees margin pressure in UK.
• Thomas Cook reports H1 numbers saying revenues rose to £3.2bn with underlying EBIT of negative £169m, down from a H1 loss of £177m last year.
• TCG net debt is up to £886m from £794m.
• TCG reports it is seeing ‘strong customer demand’ and says that revenue is up due to ‘growth to Egypt and long-haul destinations.’ TCG says its ‘customer innovations [are] driving sustainable growth’.
• TCG CEO Peter Fankhauser says ‘Thomas Cook has had a good first six months of the year, delivering improved financial results combined with tangible strategic progress.’
• Mr Fankhauser continues ‘the work we’ve done in the past two years to improve customers’ experience of our flights and our holidays is bearing fruit with revenue growth of 5 per cent, and a positive booking position for the summer.’
• TCG says ‘customer demand for this summer is good in all our markets, particularly in our Nordic region. We continue to experience margin pressure in the UK tour operator due to a combination of hotel cost inflation in Spain, currency impact and capacity increases in the market.’
• TCG reports ‘our new partnerships in our complementary business are beginning to kick in: the transfer to Webjet has delivered a five-fold growth in bookings on last year, helping fuel a 51-per cent increase in overall bedbank bookings, in line with our strategy to increase automation in this part of our business. Meanwhile, we expect to launch Expedia in Belgium and the UK this summer, paving the way for further improvements in the online customer experience.’
• Overall, TCG CEO Fankhauser concludes ‘as we enter our busiest period, I see positive momentum across all of our markets to deliver the best possible holidays for our customers. Our continued progress on strategy to transform the business, together with the clear desire among customers for our modern, personalised package holidays and flights, mean we are on track to deliver a performance in line with current expectations for the full year, on a constant currency basis.’
• Club Med has reported a 29% surge in bookings from the UK market in its results for winter 2017/2018.
• Travelodge has reported accounts to end-Dec 2017 to Companies House showing that total revenue rose 6.2% to £624m with REVPAR +2.9%.
• Travelodge says calendar 2017 room rates rose by 2.8% and occupancy was maintained at 76.1%
• Travelodge reports 2017 EBITDA up £2.4m at £108.8m. The group reports ‘our continued focus on quality and service is delivering good results. Rising sales from business customers, boosted by our new SuperRooms, helped drive strong sales growth, with like-for-like RevPAR once again ahead of the competitive segment. This helped mitigate the significant macroeconomic and external cost pressures facing the sector and deliver another year of progress for the business.’
• Travelodge says ‘we delivered total revenue growth of 6.6% in 2017, with 2.9% like-for-like RevPAR growth and a significant contribution from new hotels opened since 2016.’ Travelodge says ‘this good revenue growth has helped to mitigate the impact of significant cost increases, particularly on regulated costs such as the National Living Wage and business rates, as well as general cost inflation with our full year EBITDA up 2.4m.’
• Travelodge says ‘we opened 15 new hotels in 2017, including sites at London Harrow, Bath City Centre, Redhill Town Centre and Newcastle Quayside in line with our target.’ It concludes ‘this continued good performance has allowed us to undertake a further re-financing in January 2018, following the April 2017 refinancing, further reducing our cost of debt as a result.’
• Administrators to Monarch Airlines KPMG have said that they have sold the group’s landing slots and tallied up bank accounts such that the group’s preferential creditors will be paid 100p in the pound for what they are owed. There is not likely to be any return to unsecured creditors.
• InterContinental Hotels & Resorts has opened a hotel in Sofia.
• STR data has indicated that the US hotel industry revenues were $208bn in 2017, a $10bn increase on 2016.
• China Lodging Group has reported revenue up 29.6%, with RevPAR climbing 13.7% and ADR up 13.9% during Q1 2018.
• The joint venture between Stagecoach and Virgin Trains East Coast is to had the operations of the lines back to the Government, as the venture failed to be profitable. In February, Stagecoach’s chief executive Martin Griffiths estimated the company’s total losses at £260m.
• The government is ready to introduce new rules reducing the maximum stake at fixed-odds betting terminals (FOBTs) to just £2. Bookmakers have warned that the clampdown on FOBTs, which currently allow people to bet up to £100 every 20 seconds on electronic casino games such as roulette, will lead to thousands of outlets closing.
• Chinese tech giant Tencent Holdings, owner of messaging app and China’s biggest social network WeChat, has posted a 61% year-on-year jump in profit, to 23.29bn yuan ($3.7bn; £2.73bn).
• Paddy Power Betfair has confirmed that it is in discussions with the Group’s US business and FanDuel, as the Group looks to increase its exposure to the US sports betting market.
FINANCE & MARKETS:
• Sterling up at $1.3543 and €1.1458
• Oil up over a dollar at $79.42
• UK 10yr gilt yield down 2bps at 1.50%
• World markets: UK, Europe & US all higher yesterday with Far East up in Thursday trading.
• Brexit, politics etc.:
o Little to report. Mrs May still trying to bring her Cabinet into line. UK growth still c150bps below trend etc.
PRIOR DAY LATER TWEETS:
• Later tweets: Marston’s shares down sharply on in-line numbers. But dividend only held & capex scaled back for next year. Sensible moves but…
• MARS & MAB both mention heavy discounting (by rivals) & say it’s not sustainable. Will impact the better players, though.
• Snow hits both MAB & MARS. Better weather mid-April a positive but destination units suffered in the snow.
• Discounts akimbo. Byron 50% off burgers, Toby 2-4-1. Frankie & Benny & Prezzo 40% off mains. Even Domino’s 30% off for orders over £20
• Real wages rising, unemployment down. NIESR says more EU workers left UK workforce & fewer had joined. Putting a squeeze on
START THE DAY WITH A SONG:
Yesterday’s song was Because the Night by Patti Smith. Today who sang:
The hip, hip a hop, and you don’t stop, a rock it out,
Bubba to the bang bang boogie, boobie to the boogie
To the rhythm of the boogie the beat
RETAIL NEWS WITH NICK BUBB:
Nick is back on Friday.