Langton Capital – 2018-07-24 – Fuller’s, Britvic, Fever Tree, Fulham Shore & other:
Fuller’s, Britvic, Fever Tree, Fulham Shore & other:
A DAY IN THE LIFE:
I have to ask: why can’t kids have a hobby like keeping their bedroom tidy or doing the washing up rather than the drums, bagpipes or painting with indelible inks in rooms with white carpets?
I mean it would be so much more helpful, wouldn’t it?
And if they could have a word with the dog, while they’re at it, get the filthy beast to wipe his feet or at least not roll around in fox poo and then try to climb onto the furniture to share the love.
But meanwhile, on planet Earth, we have to accept that that’s not going to happen. On to the news:
FULHAM SHORE FULL YEAR NUMBERS:
• Fulham Shore, owner of the Franco Manca and Real Greek restaurant chains, has reported FY numbers to 25 March.
• FUL reports revenues of £54.7m v £40.4m last year with headline EBITDA up 2.1% at £7.4m. The group is announcing a ‘one-off impairment charge on property, plant and equipment of £867,000 (2017: £Nil)’ which takes the company to a loss of £142k for the year versus a profit last year of £1.2m.
• FUL: opened 9 Franco Mancas last year and 4 The Real Greeks. Since the year end, it has opened two further restaurants, in Bath and Cambridge. The group is closing one underperforming unit in Brighton Marina
• FUL reports ‘management initiatives have led to an improved revenue performance in the first quarter of the new financial year’.
• FUL reports its ‘increase in both revenue and Headline EBITDA by the Group was achieved against a backdrop of a very difficult environment for retailers and restaurant operators in the UK. The sound foundation upon which Fulham Shore has expanded Franco Manca and The Real Greek has stood the Group in good stead during this time.’
• Chairman David Page reports that a year ago, the group cautioned ‘that an unprecedented amount of capital had been invested in the UK restaurant sector during recent years. Restaurant supply has grown faster than demand across the country initially caused by the fall in demand for retail shop space. Landlords and agents have consequently actively sought to rent the vacant space to restaurant operators.’
• This has led to problems across the industry with a number of well-publicised CVAs, closures etc.
• FUL says that last year also saw a ‘fragility of consumer confidence and inflationary pressures in the UK’ but says ‘despite this backdrop, it has been a year of growth and strategic progress for the Group.’
• FUL confirms that its third brand, a Bukowski franchise, didn’t work, and it closed the one unit last year.
• FUL points out that, in the two years to March 2017, it increased the number of Franco Manca pizzeria in London from 10 to 33. It says ‘this was in response to enormous demand and queues at peak times in our restaurants. As previously reported and as anticipated at the time, the result of this rapid expansion was some sales erosion in the original branches caused by the effect of opening another Franco Manca in close proximity (sometimes less than quarter of a mile apart).’
• FUL reports ‘sales in the original branches have stabilised. We still have queues at peak times reflecting the quality and value of the offer, so we will look to open new sites where there is continued demand in particular areas.’
• FUL, which believes in ‘competitive everyday menu pricing – not discounting’ says its experience in Italy has ‘encouraged us to investigate, and respond to, the many enquiries we have received to open Franco Manca pizzeria outside the UK. We are now looking around the world for opportunities.’
• The Real Greek is performing well in the sunshine.
• More properties are becoming available at better prices. FUL maintains that it will not over-expand, saying landlord ‘incentives alone, however, are never the right reason to open in a particular location.’ The group says ‘we still intend to open a limited number of new restaurants this year and to fund these openings largely from our internally generated cash.’
• Re current trading, FUL reports ‘sales in the first quarter of our current financial year, April to June 2018, have been encouraging in both Franco Manca and The Real Greek.’
• FUL says ‘both businesses have shown overall like for like revenue increases during this quarter despite tough comparatives sales in 2017 as well as the continuous stream of poor UK economic data from the retail and restaurant sector.’
• Overall, FUL concludes ‘we will continue to approach expansion with caution. Our investment strategy will be much more circumspect than in ‘normal’ times.’ It says ‘the remainder of the financial year is difficult to predict. Costs will, in all likelihood, continue to rise but maybe not as much as they did during the past financial year.’
• FUL concludes ‘despite the challenging UK backdrop, we are confident that the Group will continue to perform well and we look forward to the current financial year as we continue to grow and develop our brands.’
• Langton: FUL is one of the better operators out there with a differentiated brand and it has authentic products in Franco Manca and The Real Greek.
• Its management has traded through tough times in the past and, looking at the wreckage apparent elsewhere in the industry, boy, does it show.
• Trading in Q1 has been ‘encouraging’ but the outlook is not clear.
• Furthermore, the macro picture remains clouded but FUL can only play the ball that it is bowled and, with that in mind, it is performing very well.
PUB, RESTAURANT & DRINK PRODUCERS:
• Fever Tree H1 numbers. Revenues +45% at £104.2m with adjusted EBITDA u p35% at £34.0m.
• Fever Tree diluted EPS +36% at 22.7p with a H1 dividend +40% at 4.22p.
• Fever Tree reports it has seen ‘further strong growth in UK, extending our position as the No 1 mixer brand in the UK Off-Trade’.
• CEO Tim Warrillow comments ‘the first half of 2018 has been one of major progress for Fever-Tree. The Group delivered a strong performance, most notably in the UK, as we continue to drive and lead the evolution of the wider mixer category. Furthermore, our relationships with key customers and spirits partners mean we are increasingly well positioned as the growing move to premiumisation and long mixed drinks continues to develop across the globe.’
• Fever Tree concludes ‘given the strong performance in the first half of the year, the Board anticipates that the outcome for the full year will be comfortably ahead of its expectations.’
• Fuller’s AGM statement: Group says ‘the Company has made a good start to the new financial year with like for like sales in our Managed Pubs and Hotels rising 4.0%, particularly pleasing against a strong comparative of 6.6% for the same period in the prior year. Like for like profits in our Tenanted Inns were up 4% and total beer and cider volumes in The Fuller’s Beer Company were flat.’
• FSTA CEO Simon Emeny comments ‘our core business has performed well, with the prolonged summer weather benefiting our pubs with outside space and our latest acquisitions are bedding in well and performing to plan.
• FSTA says ‘although we have undoubtedly benefited from the feel-good factor of England’s World Cup performance and good summer weather, it is important to remember that the underlying economic and political situation, particularly the UK’s position with regards to Europe, creates uncertainty and it is difficult to predict the nature of any potential impact on the sector.’
• Britvic Q3: Group says it has seen a ‘strong underlying Q3 performance [and it is] confident in full year expectations’.
• Britvic reports Q3 sales of £366.9m (up 3.4%) saying ‘Britvic has delivered a strong underlying performance in the third quarter, through continuing outstanding execution of no sugar carbonates and substantial growth from our stills brands.’
• Britvic concludes ‘we remain confident of achieving market expectations for the full year.’
• Will Shu, CEO of Deliveroo, is urging the government to draw up a ‘gig economy charter’ to allow the company to offer sick pay and holidays without formally employing its workers.
• Insolvency specialist Begbies Traynor reports the number of companies suffering ‘significant’ financial distress up 9% in the last year to 470,000. London was the worst performing region with the number of companies facing serious financial difficulty up 17% compared with June last year. The research found that it was the real estate, telecoms and support services sectors which had the biggest year-on-year increases of distress.
• Mission Mars, the group behind hospitality concepts including Albert’s Schloss, has secured £10m from the BGF in order to continue its expansion plans. Joint founder Roy Ellis stated: ‘Our mission is to create world-class food, drink, entertainment and hospitality experiences through innovation, people and sustainability. The business has grown quickly to date and our venues are increasing in popularity and reputation across the North West’.
• Shipments of beer and quasi-beer in Japan have dropped to record lows in the first half of the year. Total beer shipments were down 3.6% to 183.37m cases.
• The Canadian start-up, Province Brand has developed the first beer brewed with cannabis.
• Very hot weather is expected to persist across eastern and south-eastern parts of the UK through this working week. Temperatures are expected to reach 32-34 °C in eastern England.
• Beyond Meat has opened a new 26,000 sq ft innovation centre in Los Angeles.
• NRN in the US reports that, after a couple of years of declining LfL sales, there appears to be light at the end of the tunnel for the restaurant industry.
• NRN reports ‘restaurant industry sales trends improved in the second quarter, which, combined with the improving economy and other factors, has created a positive outlook for the year overall.’
• NRN says Q2 LfL sales rose by 1.4% according to MillerPulse data. Miller suggests that same store sales for the year as a whole could be up by around 1%. It says ‘progressively, things have gotten better since the start of the year. We started out sluggishly in the beginning of year, and we added a whole point of growth between the beginning of the first quarter and the end of the second.’
• UK overcapacity is still plaguing the casual dining market this side of the pond. US population growth has a way of salving overcapacity issues. There is less of a drive in the UK where restaurants may have to be ‘taken out of the market’ (i.e. shut down) in order to help LfL sales.
HOLIDAYS & LEISURE TRAVEL:
• Business travel prices are set to rise sharply in 2019, with hotel rates expected to go up 3.7% and flights by 2.6%. The hotel outlook for 2019 is driven by the overall increase in air travel, which will fuel demand for rooms.
• Inbound tourist numbers to the UK were up 4% in 2017 to a new high of 39.2m, with spending up 9% to £24.5bn.
• Bourne Leisure, which owns Butlin’s, Haven and Warner Leisure Hotels, is reported to have taken more than £97m in dividends since the start of last year. Bourne reported profits up 7.7% to £155m, with sales up 3.9% to £1bn for the year to 31 December. Bourne Leisure is the UK’s biggest leisure company, employing almost 14,000 people at peak periods.
• AccorHotels and Katara Hospitality partner to create new $1bn African investment fund targeting hospitality opportunities in Sub-Saharan Africa with a plan to open around 40 hotels.
• Per Pragma, HospitalityNet figures show an increase in luxury travel trips of 18% since 2014, nearly twice as much as international trips in general. Most luxury travellers are coming from the USA and China, with millennials starting to enter the segment. The research suggests millennials are willing to splurge on exclusive experiences that can be instantly shared on social media platforms, with sports, adventure, health and self-discovery tourism rising in popularity.
• Premier Inn owner Whitbread has secured planning permission for a 294-bedroom hotel in between Paddington and Marylebone stations, set to open in 2021. The hotel will be branded as a ‘hub by Premier Inn’ with seven ‘hubs’ already operational in London.
• Hollywood Bowl has completed the rebrand of its Peterborough site at a cost of £300k. Steve Burns, CEO, said ‘The transformation of this AMF Bowling into a Hollywood Bowl is our fourth major investment this year, and demonstrates our commitment to creating new generation entertainment centres.’
• Alphabet, parent co of Google, reports Q2 revenue up 26% yoy to $32.7bn with net income of $3.2bn following a €4.34bn EU fine. Without the fine net income would have been almost $8.3bn, according to the firm. The results sent Alphabet’s share price up 5% in after-hours trading .
FINANCE & MARKETS:
• Bank of England Deputy Governor Ben Broadbent has said that he has not yet decided how he will vote at the BoE’s August Monetary Policy Committee meeting next week. The betting on a rate rise is about 70% in favour.
• The Bank of England’s Ben Broadbent has said that interest rates, which are admittedly somewhat blunt, will be the main Bank tool when dealing with the unwind of QE.
• Sky has reported that the British government is looking at new powers to block foreign takeovers that pose a potential risk to national security. Too late for companies such as ARM, Fenner etc.
• The government is to scrap its public sector pay cap.
• The IEA has said that ‘the reticence (even cowardice) of politicians from all parties in dealing with the housing crisis’ has been partly responsible for the dissatisfaction that led to the Brexit vote.
• Sterling mixed at $1.3087 and €1.1204
• Oil down a shade at $72.82
• UK 10yr gilt yield up 4bps at 1.27%
• World markets: UK, Europe & US down yesterday but Far East up today.
• Brexit etc.:
o After dithering for two years the PM has said it is time to ‘get on’ with Brexit.
o Dominic Raab, all of a week into the job, has said that a deal can be struck by October if both sides show ;energy, ambition and pragmatism’.
o Jeremy Hunt has warned there is a real risk that the UK will not achieve a deal by March next year.
o Brussels has rejected the UK’s proposals on how services should be dealt with post March next year saying the EU needs to be able to make its own decisions. The UK has acknowledged that it will lose its single market “passport” post Brexit.
PRIOR DAY TWEETS:
• Later tweets: Stonegate IPO on the cards as co bulks up with purchase of 33-strong Be At One and 15 units rom Novus??
• Stonegate. Got lots of brands (having added an 8th). That’s hard work but smaller chain sizes may be the way forward
• Landlords shake the rope with CVAs as they challenge H of Fraser. HM Gov. asked to investigate the process in general in case of ‘misuse’
• Holidaymakers being offered Euro 89c per Pound at Stansted. London visitor numbers up on back of weak currency. Cloud, silver lining etc.
• Escape Hunt reports slippage in opening plans mean trading below earlier estimates. But does deal to bring Dr Who to its sites
• ESC: Missing early targets is rarely a good look & ESC may have to go further to prove its concept. TripAdvisor scores etc. are good
• YouGov: Most voters dislike Chequers’ plan. Boris still widely liked. Over 1/3 want a new Brexit poll. HMG ‘stockpiling medicines & food’
• ‘70% chance of rate rise in Aug’. Seems a little high to us. With Oct Brexit deadline looming, would be a seller of that for choice.
• Tesco to go discount route. Pragma says luxury travel booming. Barbell economy, polarising to both ends??
START THE DAY WITH A SONG:
Yesterday’s song was Superstition by Stevie Wonder. Today, who sang:
hell bent or heaven sent,
listen to the propaganda,
listen to the latest slander.
RETAIL NEWS WITH NICK BUBB:
Hammerson: The weekend press highlighted the investor pressure on the embattled CEO of the shopping centre giant Hammerson, David Atkins, to come up with a credible plan with the interim results today to get the share price up, and the first announcement we saw today was headlined “Directorate Change”, as if he had given the ghost…But all that was simply the news that the Executive Directors are being cut from 4 to 2, to speed up decision-making. And the man himself is ploughing on with a new strategy to give up on retail parks and focus only on flagship shopping centres and the lucrative Premium Outlets business of Bicester Village, supported by a £300m share buyback. Amazingly, NAV per share has held at £7.76, despite all the gloom, but one tell-tale sign is the news that the Brent Cross extension is to be deferred in the current climate…
Retail Sales Watch: As the heatwave goes on…all the focus in the sector now is on how well July (the 4 weeks to July 28th) turns out on the High Street, but we haven’t seen the final word yet on how good the outcome was for June (on the back of the start of the World Cup and the hot weather)…The Office of National Statistics (ie the ONS or what we mockingly call the “Planet ONS”) reported that non-seasonally adjusted total Retail Sales by value were up by 4.4% last month (ex-petrol). But the BRC-KPMG measure of gross sales (which focuses on Large Retailers) was only up by 2.3% (up by 1.1% LFL). So, who was right? The ONS or the BRC? Well, the consultancy group, Retail Economics (RE), which was founded by Richard Lim (who used to run the monthly BRC-KPMG Retail Sales survey) has just come out with its own detailed overview and their estimate is that gross Retail sales rose in value
News Flow This Week: The latest monthly Kantar/Nielsen grocery sales data is out at 8am (for the 4/12 weeks to July 14th/15th) and the Halfords AGM is at 11.30am (albeit with no update scheduled). Tomorrow brings the Joules finals and, in the Retail Property world, the CapCo interims. Thursday then brings the Howden interims, the Inchcape interims, the Bonmarche AGM update, the Mothercare EGM, the Intu Properties interims and the Amazon Q2 results.