Langton Capital – 2018-07-25 – Marston’s, Gfinity, Caffe Nero, Thwaites, weather & other:
Marston’s, Gfinity, Caffe Nero, Thwaites, weather & other:
A DAY IN THE LIFE:
Dashing around a bit for the next few days but just time to say that I made the mistake of using the M6 yesterday and I won’t be doing that again for a while.
Because it seems as though the new game is to try to get as many 50mph sections as possible into a 50 mile stretch of road and then take copious pictures of people as they either drive along at 53 or 54 miles an hour in order to gouge them out of a few quid or create plenty of footage for those whoopsie shows that show dozy drivers smacking into each other as one slows down and another doesn’t.
Anyway, it’s sunny in Shropshire this morning & heading further south later in the day. On to the news:
MARSTON’S Q3 TRADING UPDATE – TRADING IMPROVED & IN LINE
Q3 Trading Update – 42wks to 21 July 2018:
Marston’s has this morning updated on trading for its Q3, being the 42wks to 21 July 2018 and our comments are set out below:
Trading – Overall:
• Marston’s reassures that trading is in line with expectations.
• The implication is that forecasts need not be adjusted and that the dividend, where the group remains committed to a progressive policy, will be raised for the full year.
• Total LfL sales across the group are now up 0.3% versus flat at the half year.
• The last 16wks are +0.9%. This includes benefits recently from the World Cup and the weather but it also includes April, which was a tough month
• The last 12wks are up around 2%
• Leased pubs are up around 2% in terms of LfL EBITDA contribution and all divisions have improved trading Q on Q
• No further news on margin. Earlier comments had margins down around 50bps for the full year
Trading – Destination & Premium:
• Total managed sales, as mentioned above, are now +0.3%. LfL sales were up by 0.9% in the last 16wks
• Destination & Premium is now down 1.5% (to w42) versus down 1.8% at the half year
• The World Cup has been an overall positive but its impact has been polarising. Wet led pubs performed more strongly than hoped whilst food led units found the going difficult.
• The 6 England games amount to a week’s trade.
• Drink sales in destination pubs have been strong. Food is less good.
Trading – Taverns:
• Taverns are +3.8%, having been +2.9% at H1. The last 12wks are up by around 5.0%
• Comps from Q3 last year were not easy. They become considerably less challenging in Q4 (the quarter to end-Sept)
Trading – Leased Pubs:
• Leased income is up by 2% LfL
Trading – Beer Company:
• Marston’s beer company has performed strongly. Driven by the continued integration of the Charles Wells Brewing company, sales are up 61% compared with +79% at the time of the H1 statement.
• The underlying business is in growth. Beer sales have benefited from both the World Cup and from the continuing warm weather
• Marston’s says ‘we continue to realise benefits from the acquisition of Charles Wells Brewing and Beer Business. Our portfolio, which includes an outstanding range of premium ales, World Lagers and Craft Beers, increased market share.’
Balance Sheet, Cash Flow & Debt:
• The group does not comment on debt
• Marston’s reports ‘we remain on track to meet our openings growth targets for 15 pub restaurants and bars, and six lodges, in the current financial year.’
Conclusion & Outlook:
• Marston’s has reassured that trading is in line.
• Comps are somewhat softer in Q4 (to September) and the warm weather has continued for at least the first 3wks of the group’s final quarter
• Many observers will conclude from this that the final dividend will be increased with CEO Ralph Findlay commenting ‘we are encouraged by our stronger trading performance in the second half-year, including the benefit of recent good weather and the impact of the World Cup in our Taverns estate and in Marston’s Beer Company.’
• Mr Findlay reports ‘we have a strong pipeline of sites which will contribute to continued growth in pubs, and see further opportunity in brewing following the acquisition and successful integration of Charles Wells Brewing and Beer business in 2017.’
• The group’s CEO concludes ‘our strategic objectives and progressive dividend policy remain appropriate for current market conditions and we remain confident of delivering underlying earnings in line with expectations for the full year.’
• Marston’s has confirmed that trading is in line with expectations.
• The World Cup and the warm weather have been, overall, helpful.
• But it is clear that the balanced model has smoothed trading for Marston’s as food has been tough and wet sales have been strong.
• Food led operators could be gnashing their teeth and it will be interesting to see what Restaurant Group tells investors in a month’s time. The latter will be impacted by the hot weather, reduced retail footfall, delayed holiday departures at its travel hubs because of the World Cup and the World Cup itself.
• Wet led operators such as Stonegate will be performing strongly. Stonegate has been rumoured to be considering an IPO but next year it will find 2018 comps hard to beat.
• Marston’s shares trade on a PER of little more than 7x with a yield of nearly 8%. The shares appear cheap as the group, which has an attractive, well-managed and well-maintained estate of largely freehold properties, is selling product that the consumer would like to buy at a price they are prepared to pay.
• Lodges, craft brewing and food (at least in the longer term) remain growth areas and Marston’s is well-placed to grow and to create further value for its shareholders.
PUB, RESTAURANT & DRINK PRODUCERS:
• Domino’s partners up with eSports company in order to target a hard-to-get to demographic. See details below:
• The heatwave in June and celebrations around the World Cup have increased consumer activity, with the biggest rise in eating out for 12 months, the MCA has reported. The MCA reported that there was an increase of 8% in breakfast sales and 4% rise in dinner, compared to June 2017.
• Consumers spent more on eating out and long holidays in Q2 2018, as confidence increased, Deloitte has stated. ‘The positive leisure consumer outlook is in contrast with news about the struggling high street and political uncertainty’, commented Simon Oaten, partner for hospitality and leisure at Deloitte.
• Deloitte also stated that the boom ‘looks set to continue through the summer, driven by warmer weather’.
• Caffè Nero has reported LfL sales growth of 2.5% for the year to 31 May, with group sales up 10%. Nero has now achieved 82 consecutive quarters of positive growth
• Brewer & pub company Daniel Thwaites has reported full year numbers to Companies’ House saying that revenues in the year rose by 9.2% to £92.2m and that operating profit rose by 6.6% to £0.8m. EPS was up by 79% at 13.8p.
• Daniel Thwaites reports ‘during the year we have continued our strategy of investing in our core pub estate’. The group’s chair, Ann Yerburgh, says ‘the weather throughout the sprig and into April has been some of the worst that I can remember and this has had an impact across all areas of the business, meaning that we have got off to a slightly slower start than we would have liked’.
• The weather has clearly picked up and Thwaites chair says, however ‘I am hopeful that we will once more make progress in the year to come’.
• Lettuce supplies could be in trouble following the recent heatwave across the nation. The price of lettuce could be set to increase 25%, according to purchasing company Beacon.
• Albion & East, the operator of Martello Hall in Hackney and Canova Hall in Brixton, will open its third site in October. The site, called Cattivo, will be located in Brixton operating as a casual Italian cafe and late-night bar. Albion & East managing director, Sarah Weir, said the site ‘complements our sister bar Canova Hall but offers something different and continues to add to the energetic Brixton night life and restaurant scene.’
• In an attempt to appease activist shareholder Elliott, Hammerson will sell £1.1bn of properties by the end of 2019 and buy back up to £300m of shares. The shopping centre landlord plans to increase its non-UK exposure above half of its portfolio with a focus on its ‘flagship’ shopping centres.
• Arc Inspirations, owner of Banyan, Manhatta and The Box, reports sales up 8.6% to £24.2m with LfL sales up 1%. EBITDA rose 33% to £3.2m with three new bars set to open in the coming months. Martin Wolstencroft, Chief Executive, said ‘We have enjoyed an exceptional year given the prevailing market conditions which puts us in a sound financial position to open more sites, and to continue to develop and grow the business in 2019 and beyond.’
• Kantar Worldpanel data shows supermarket sales growing at their fastest rate this year in the 12 weeks to July 15, up 3.6% yoy. Aldi, Lidl and the Co-op all saw their market share grow. Aldi now has a record market share of 7.5%, up from 7% last year, while Lidl has a share of 5.4%, up from 5.1%. However, Tesco saw its market share down slightly to 27.6%. Home delivery food service Ocado saw its market share grow to 1.2%.
HOLIDAYS & LEISURE TRAVEL:
• Holiday giant TUI is offering between £50 and £100 off holidays via website vouchercodes.co.uk. Bookings have bounced back post the World Cup but the shares of UK tour operators have remained weak around fears that flying could be problematic from 29 March next year.
• The Department for Transport reports a fall in the number of daily rail passengers in Leeds, Liverpool, London and Manchester between autumn 2016 and autumn 2017. Overcrowding, using a “passengers in excess of capacity” measure, was worst in London (5.4%), followed by Cambridge (4.8%) and Manchester (4.3%).
• STR reports the 100th consecutive month of US hotel RevPAR growth, up by 4.6% in June yoy. Jan Freitag, SVP of lodging insights at STR, said ‘this clearly points at very healthy group, business transient and leisure demand, supported by still undeterred GDP growth and low unemployment numbers.’
• Bhavish Aggarwal, CEO of Indian ride-hailing app Ola, says the company may IPO within four years. Ola was valued at $7bn in its latest funding round in 2017.
• Donald Trump’s company has submitted plans to invest a further £150m in one of his golf resorts near Aberdeen, in Scotland.
• Ryanair has hit back at striking pilots, publishing their pay and benefit details online which outlines monthly and annual salaries. The airline claimed the pilots earned between €190,000 and €220,000 year. Ryanair cancelled 16 flights from Ireland on Tuesday, affecting 2,500 passengers.
• Esports company Gfinity plc has announced a ‘multi-season agreement with Domino’s to become Presenting Partner of the Gfinity Challenger and Elite Series UK.’ It says ‘the significant investment into the Gfinity Challenger and Elite Series UK enables Domino’s to connect and engage within one of the fastest-growing entertainment sectors and target the young adult demographic that consumes gaming and esports content daily via digital platforms.’
• Gfinity says the deal ‘represents the biggest commercial deal in the Company’s history and is further evidence of the world’s leading brands being attracted to both esports and Gfinity, with previous partners including Unilever (Lynx), HP Omen and Turtle Beach.’
• Gfinity says ‘Domino’s will receive bespoke content, broadcast and digital assets, player shirt sleeve branding, social media activations, customer relationship management, ticketing and hospitality. Domino’s will also use its extensive channels to promote both the Gfinity Challenger and Elite Series UK plus the player stories that emerge and share them with its loyal consumer base.’ Garry Cook, Executive Chairman of Gfinity, comments ‘we are delighted to have entered into a multi-year strategic partnership with Domino’s. It is a testament to the continued growth of esports and the quality of the Gfinity Elite Series.’ Mr Cook says ‘esports has become the entertainment of choice for brands looking to connect with young adult consumers.’
• Alisher Usmanov, Russian billionaire stakeholder in Arsenal, is exploring a sale of his stake in the football club following a realisation that Kroenke will never sell a control of the club to him. Mr Usmanov owns 30% of the English Premier League club.
FINANCE & MARKETS:
• Sterling up at $1.3143 and 1.1251
• Oil up at $73.95
• UK 10yr gilt yield up 1bp at 1.28%
• World markets: All up yesterday & Far East up today
• Labour wants to bring some manufacturing back to the UK. The Tories are considering banning some foreign takeovers of UK firms. Both moves seem a little late in the day
• Brexit etc.:
o Contingency plans are being drawn up to stop lorries stacking up at the border as they try to move to Europe next year reports Sky. Sky says lorries could be stopped at an ‘approved location’ in Europe where border checks could take place.
PRIOR DAY TWEETS:
• Later tweets: Fulham Shore. Trading improved in calendar Q2. Comps get softer. Some write-offs drive the group to FY (3/18) small loss
• FUL was early to caution on overcapacity. Says now ‘sales in the original branches have stabilised.’ Current sales ‘encouraging’
• Fuller’s Q1. LfL up 4% in the sun & against W Cup background. Deemed not quite good enough by market as shares slip a little
• Begbies Traynor reports companies suffering ‘significant’ financial distress +9% in last year to 470,000. London is worst area
START THE DAY WITH A SONG:
Yesterday’s song was Pump It Up by Elvis Costello. Today, who sang:
Rode down the highway,
Broke the limit, we hit the town
Went through to Texas, yeah Texas, and we had some fun
RETAIL NEWS WITH NICK BUBB:
• Joules: The lifestyle brand Joules feels well suited to outdoor life in the summer and indeed today’s finals for y/e May report “The brand has strong momentum and we have seen good growth in the first few weeks of our new financial year with positive early feedback on our Spring/Summer 2019 ranges from our wholesale customers”. Underlying PBT increased by c29% to £13.0m, on the back of a c19% jump in revenue to £186m. Online is now up to 38% of total Retail sales, but Joules is still expanding its store presence, with FY19 to bring 29 new concessions (“as we transition our existing wholesale partnership with John Lewis to a retail concession model for the womenswear category”), and around six new stores.
• Covent Garden Watch: in the Retail Property world, attention moves on today from Hammerson to the owners of Covent Garden, CapCo, and todays interims report that “The valuation of Covent Garden has risen by 1.6% to £2.6bn, driven by ERV growth of 1.9% achieved over the period. The equivalent yield remains broadly unchanged at 3.6% reflecting the valuer’s view of the strength of demand for central London retail investments”.
• Superdry: We must confess that we missed yesterday’s overnight news of the big share placing in Superdry by the founder Julian Dunkerton, partly because the announcement at 7am came not from the company but from the placing broker, UBS…to say that he had sold 5.5m shares in Superdry to institutional investors by way of an accelerated bookbuilding process at a price of 1285p (a 6% discount to Monday night’s close), raising gross proceeds of c£71m. Having killed the recent rally in the stock (the shares closed at 1236p last night…), investors will be pleased to hear that Mr Dunkerton has agreed to a 90-day lock-up on his remaining 18.5% stake…
• Grocery Market Share Watch: We flagged yesterday that the Nielsen survey reported that grocery sales volume sales accelerated to +2.2% over the 4 weeks to July 14th, the best volume growth outside of Christmas and Easter since July 2013 (with sales up 4.5% by value).The rival Kantar survey reported growth of only 3.1% over the 4 weeks on a “Total Till” basis (including Non-Food), but in pure Grocery terms they reported growth of 4.6%, led by 11.4% growth at Aldi/Lidl. In the “Big 4”, Asda was the big winner, with gross sales up by 5.1%, well ahead of Tesco on +3.1% and Morrisons on 2.7%. Sainsbury’s trailed behind, on +2.1%, but they did at least perform better than M&S Food, which saw gross sales only 1.4% up (which brings to mind ex-CEO Stuart Rose’s old complaint that M&S always missed out on bulk “beer and pizza” buying by TV football watchers…).
• Waitrose Watch: Conditions remained highly favourable for sales of picnic and barbecue fare last week, but yesterday’s weekly sales overview from JLP flagged that, as the heatwave continued, gross sales at Waitrose were only 2.9% up in w/e July 21st (c2.8% up LFL). The cumulative sales picture for the last 25 weeks is still +2.1% gross for Waitrose (c2% up LFL), which is not bad and the business remains confident about recovering gross margin after last year’s slump.
• John Lewis Watch: Over at John Lewis, trade recovered a bit as the heatwave continued last week and World Cup distractions faded…w/e July 21st saw gross sales edge up by 0.7% up (c1% down on a LFL basis, on our calculations). Home sales were down by 6.3% gross, but Fashion sales were up by 4.5% gross and Electricals were up by 4.9% gross, helped by good sales of Womenswear and electric fans…With one week to go of the first half, over the last 25 weeks, John Lewis is now running up cumulatively by only 0.4% gross (nearly 1.5% down LFL), which is still disappointing, given the pounding that gross margins have taken (through price-matching rival’s Sale promotions).
• News Flow This Week: Tomorrow brings the Howden interims, the Inchcape interims, the Bonmarche AGM update, the Mothercare EGM, the Intu Properties interims and the Amazon Q2 results.