Langton Capital – 2018-07-12 – Dart Group, Ten, JDW, World Cup, EasyHotels etc.:
Dart Group, Ten, JDW, World Cup, EasyHotels etc.:
A DAY IN THE LIFE:
Bit busy last night and meetings this morning so better just to move on to the news:
WORLD CUP IMPACT:
• England had a good run but it’s over.
• It didn’t create money but rather distorted spending.
• Recipients (wet led pubs, primarily) will thank their lucky stars and bank the cash.
• Losers, holiday companies, shops, restaurants, indoor attractions etc. will now be considering how much of the spend they have missed has been lost and how much has been postponed.
• Lost spending:
o Spending on instantly-consumed goods and services will have been lost.
o If the family didn’t go out for a burger during any one of the England matches, they won’t go out for two next week.
o Similarly trips to the shopping centre, the bowling alley, cinema etc. won’t be doubled up.
o Most of these operators (retail parks, restaurants etc.) are also net losers in warm weather – and that is continuing.
• Postponed spending:
o Holidays haven’t been booked in the usual numbers from mid-June until now.
o This is usual during a major tournament but, as is also usual, some tour operators have begun to panic & have cut prices for the peak season, which is just about to start.
o The travel agents and online sites should now have a massive few days as holiday bookings, which were always going to be delayed rather than cancelled, are now actioned.
o Unfortunately for the tour operators, the warm weather in the UK, which is a net-negative at least for the overseas players, continues.
o This, of course, will be helpful to the (unlisted) UK caravan park operators, domestic hoteliers and the like.
JD WETHERSPOON – FY UPDATE CONFERENCE CALL:
Following its trading update this morning, JD Wetherspoon hosted a conference call for analysts and our comments thereon are set out below:
• Will margins fall next year? Answer to that is ‘yes’ per John Hutson. LfL sales may not be strong enough to mitigate cost increases.
• Costs. What are the moving parts? Utilities, perhaps duty, interest rate rises, wages, product costs. All in line with the industry.
• Group reiterates it needs 3% to 4% LfL growth in order for profits to stand still next year on this year. There could be some mitigation that might reduce this.
• Benefits from weather and World Cup? Say 1% to 1.5% is the uplift – just in the last 10wks. There is also some benefit in the last 10wks from the inclusion of a Sunday before a Bank Holiday.
• Lease accounting coming in from next year? Group is ‘preparing its thoughts’. Nothing to declare at present.
• The interest rate swaps will cost more. Yes, also the average level of borrowing will be higher. Furthermore, rates could / probably will rise. Interest will cost c£27m this year and £7m more next year.
• What are market expectations? JDW has been looking at Bloomberg & Investec on £105.5m and £106.7m respectively.
Balance sheet comments:
• JDW has confirmed that debt will be around £45m higher this year than last.
• More buy backs? No intention is being signalled.
Langton View: The conference call was extremely short.
• Current trading, albeit aided by the World Cup, the weather and the timing of Bank Holidays is good. JDW has cautioned, however, that margins could fall next year and interest charges will rise. It has said, nonetheless, that current market estimates are reasonable.
• Given its low margins, JDW is impacted more heavily by costs etc. at its bottom line than are some other operators.
• Against this background, and with the shares having recovered to now trade at c17x earnings, they have perhaps gone far enough for the time being.
PUB, RESTAURANT & DRINK PRODUCERS:
• M Restaurants, led by ex-Gaucho Group managing director Martin Williams, has reported a 15% increase in like-for-like sales in the year to end of May, per MCA.
• Prestige Purchasing chairman David Read has told MCA that the majority of foodservice businesses run supply chains that are between 5% and 12% (at cost) sub-optimal. Read added that more could be done to keep records of things such as product, supplier, volume and price in order to understand where savings might be made.
• Industry leaders have called for clarity on Brexit in the wake of this week’s political turbulence. UKHospitality chief executive Kate Nicholls demanded ministers ‘secure a Brexit deal that delivers our workforce and supply needs in order to avoid the ‘real and significant threats to our industry’.
• B&Q invests in price cuts to temper its reliance on promotions, cutting prices across 2,000 core products as part of a £100m investment.
• Soybean prices have fallen to their lowest since the financial crash as the trade war between the US and China steps up. In retaliation to fresh US sanctions, China said it would target US soyabeans, of which it is the biggest buyer, making the crop one of the key battlegrounds for the two large economies.
HOLIDAYS & LEISURE TRAVEL:
• Dart Group FY numbers. Revenue +38% at £2.4bn with PBT of £134.6m, up from £90.1m last year.
• Dart: group reports basic EPS of 74.6p (up 44%) with a dividend of 7.5p for the full year, up 42%.
• Dart says ‘looking further ahead, emerging cost pressures coupled with the overall uncertain UK economic outlook, particularly related to Brexit and how it may impact on consumer spending, means we remain unclear how demand will develop in the medium term.’
• Dart concludes ‘the Group dedicates significant resources to deliver an innovative and industry leading product and together with our scale, experience, competitiveness and customer focused approach, we believe we have a strong and resilient Leisure Travel business.’
• Holidays sales have slumped during the World Cup, but as the competition ends a deluge of pent-up demand is expected to pour out.
• EasyHotel has confirmed the acquisition of a Milton Keynes site and the purchase of the site for its Chester development. EZH says it ‘announced on 26 January 2018 the acquisition of a 125-year leasehold site in Milton Keynes. Planning permission for a 124-bedroom hotel has now been granted and the conversion works for the central site, which forms part of Norfolk House on Silbury Boulevard, has begun. The hotel is anticipated to open in 2019.’
• EZH adds that it ‘announced on 11th April 2018 the acquisition of a 109-bedroom hotel in Chester. The hotel is being delivered to easyHotel as a turnkey development, and the acquisition of the site represents the first stage of the hotel development which should also open in 2019.’ The group further updates that its hotel in ‘Maastricht opened at the beginning of July taking the total number of hotels in the Group to 28.’
• Expedia no longer accepts Bitcoin as a payment option for flights and hotel bookings, with the OTA not providing an explanation as to why it was doing so.
• Heathrow reports its busiest June on record with 7.125m passengers, an increase of 5.4% yoy. Heathrow also saw a 50% increase in the number of passengers travelling to Russia, thanks to the World Cup.
• Ten Entertainment Group has reported a 3.1% increase in like-for-like sales and 4.6% sales growth from net new centres in its first half, making for total sales growth of 7.7%. Alan Hand, Chief Executive Officer, commented: ‘The business has shown resilience to achieve good like-for-like sales growth and a very solid performance during the half. We are positioned well for the second half of the year and into 2019.’
• 21st Century Fox upped its offer for Sky to £24.5bn, leaving all eyes on bidding rival Comcast. Fox is expecting to get regulatory approval from Britain this week for the deal.
• Comcast subsequently has increased its offer to buy Sky to £14.75 per share, just hours after 21st Century Fox increased its own offer to £14. Comcast commented: ‘We have long admired Sky, which we believe is an outstanding company and a great fit with Comcast. Today’s announcement further underscores this belief and our commitment to owning Sky.’
FINANCE & MARKETS:
• RICS says properties are taking longer to sell in the UK than they were a year ago because of the “uninspiring” housing market.
• Beijing has branded US plans to impose tariffs on another $200bn of Chinese imports as ‘totally unacceptable’.
• Mr Trump has accused Germany of being a ‘captive’ of Russia. The President has demanded more NATO spending by the US’s allies.
• Sterling down at $1.3207 and steady at €1.1304
• Oil down sharply at $74.58
• UK 10yr gilt yield down 1bp at 1.29%
• World markets: UK, Europe & US down yesterday with Far East higher in Thursday trade.
o Dominic Raab to present Chequers’ proposals to Commons today. Mr Raab has previously been known as a supporter of a hard Brexit.
PRIOR DAY TWEETS:
• Langton Capital: JDW up 5.2% year to date. Says margins may fall next year. Nonetheless, some marginal upgrades & shares up 5%
• English fans to buy 10m extra pints tonight. Will divert £30m from other areas of the economy
• Weather, World Cup, falling retail footfall mean casual diners may be currently performing below expectations. Add in discounting and, well…
• STR reports London hotel occupancy up 2.2% to 86.1%. First rise in ages but daily rate down 0.6%
• Brexit fans still pushing a dream? A romantic dream but a dream nonetheless & not comparing one set of realistic outcomes with another
• UK GDP picking up a bit to 0.2% in quarter to May. Bit lopsided. Industrial, construction & exports under pressure, services up
START THE DAY WITH A SONG:
Yesterday’s song was The End by The Doors. Today, who sang:
Oh, your daddy’s rich and your ma is good-lookin’,
So hush, little baby, don’t you cry
RETAIL NEWS WITH NICK BUBB:
Dunelm: To their credit, Dunelm don’t mention the hot weather in today’s Q4 statement, but the heatwave has not exactly been conducive to sales of cushions and curtains, but weak footfall sent LFL store sales down by 4.6% in the 13 weeks to June 30th and resulted in unsold stock, leading to a £3m stock clearance provision. And so full-year PBT will be down from c£109m to c£102m pre-exceptionals.
DFS Furniture: We are not sure whether DFS was due to report today (some calendars had it in, although there was nothing about it on the corporate website), but the news is bad, with the company flagging that in Q4 to date “exceptionally hot weather, including over key trading weekends, has led to significantly lower than expected order intake” (with delivered sales down 3% LFL over the last 23 weeks in the core DFS business, despite a strong Q3). DFS has also reported that over the period “we have also experienced disruption outside of our control to ships bringing made-to-order products from the Far East” and that, despite some cost savings, full-year EBITDA for y/e July will be down on the prior year…
Cup Watch: Well, the dream has died, football is not coming home and waistcoat sales are about to slump at M&S…Despite dominating the first half, England lost the World Cup semi-final against Croatia last night by 2-1 in extra time and, as Roy Keane said on TV at half-time, they will be kicking themselves for not killing the game off when they had the chance. So rather than get beaten in the World Cup Final on Sunday afternoon by mighty France, England will now have to settle for being beaten by mighty Belgium in the third-place play-off match on Saturday afternoon…
News Flow This Week: Today also brings the Burberry AGM and the Pets at Home AGM and we have also had the ASOS Q3 and the B&M Q1 (both of which look OK).