Langton Capital – 2018-10-08 – EasyHotel, Soho House, Roo Foods, pub closures & other:
EasyHotel, Soho House, Roo Foods, pub closures & other:
A DAY IN THE LIFE:
Bit busy with reports this morning. On to the news:
EASYHOTEL UPDATES ON FULL YEAR TRADING:
• Easyhotel has said that it has had a ‘transformational year delivering 42% increase in the Group’s room portfolio and accelerated pipeline growth’
• The co says ‘the progress achieved in the first six months of the financial year, underpinned by our successful fund raising in March, has continued through to the second half with trading for the full year in line with the Board’s expectations’
• System sales are up 25% to £37.2m
• Owned hotels REVPAR is up by 11% with LfL sales across franchised hotels up by some 12%
• EZH says ‘this strong performance across the portfolio reflects the growing momentum in the business. We continue to benefit from our recent strategic initiatives which are enabling us to accelerate our growth plans.’
• During the year, EZH opened five new owned hotels (610 rooms) in Liverpool, Newcastle, Leeds, Sheffield and Barcelona. The group says ‘these hotels have performed particularly well, mirroring the strong performance of our Birmingham and Manchester hotels opened last year.’
• Four new franchise hotels have joined the group.
• The group’s Old St hotel will shut for refurbishment in December this year. The refurb will cost around £7m and ‘the Board is confident that this investment will maximise the value from the property for the long-term benefit of shareholders.’
• The development pipelines, both managed and franchised, remain strong. Some 686 rooms have been added to the owned-pipeline with 955 being added to the franchised list awaiting opening.
• The group is to push ahead more in Europe. It says ‘the Group will initially focus on Spain, France and Germany, where the Board believes there is potential for the brand to target 10 to 15 cities in each of these three countries.’
• CEO Guy Parsons says ‘whilst we are mindful of the current economic uncertainty facing the UK, our simple, stylish and highly affordable customer proposition resonates well with today’s cost-conscious traveller and has underpinned strong RevPar growth over the period.’ Mr Parsons concludes ‘we are focussed on expanding our developments as well as balancing our strong UK pipeline with a growing number of exciting European opportunities, creating value for our shareholders and underpinning the long-term growth of the brand.’
• Langton comment: EZH’s brand is instantly recognisable and, as Travelodge and Premier Inn almost inevitably allow ‘facility creep’ to push up their prices, there is space in the market for EZH to expand.
• Europe offers a major opportunity and, with Barcelona performing well, the group will focus more on the continent moving forward.
RASH OF COMPANY REPORTS FOR YEAR TO END-DEC 2017:
• Accounts need to be put in a maximum of 9mths after a company’s year end. Hence these companies are just a tad late in many cases.
• Soho House has reported full year numbers to Dec 2017 Companies House saying that sales rose by 6% to £125.7m with adjusted EBITDA of £13.2m (2016: £10.1m). Soho House points out that the NED ‘opened to critical acclaim in April 2017’ with 9 restaurants, 252 bedrooms and a private members’ club. Soho House reported a loss before tax of £6.4m (2016: loss £1.6m) and, though in a growth phase, it has now wiped out virtually all its profits earned since incorporation.
• Roo Foods, parent co of Deliveroo, has reported full year numbers to Dec 2017 Companies House saying that revenue rose to £277m from £129m and losses increased to £184m from £129m. The group has now lost £344m since it was incorporated. Successive share placings ensure that the rapidly growing company still has (or had at December 2017) some £372m in positive shareholders’ funds. The group says it ‘successfully completed a series F funding round raising $493m during the year giving it a valuation in excess of $2bn’.
• Frederic Robinson has reported full year numbers to Dec 2017 Companies House saying sales increased to £71.1m from £68.3m with PBT falling to £3.2m from £4.1m.
• Hush Brasseries has reported full year numbers to Dec 2017 Companies House saying sales rose to £8.2m from £4.5m but losses before tax widened to £993k from £279k last year. The group has accumulated losses of £3.9m.
• Chipotle Mexican Grill has reported full year numbers to Dec 2017 Companies House saying it generated revenues of £4.5m in the year up from £3.9m last year. It made a PBT of £275k.
• Papa John’s GB has reported full year numbers to Dec 2017 Companies House saying it generated revenues of £67m (2016: £57m) with a solid PBT of £6.4m vs £5.3m.
• All Star Lanes has reported full year numbers to Dec 2017 Companies House saying sales grew by 1.1% to £15.5m. EBITDA fell by 33.8%. The company reports a loss before tax of £313k.
PUBS & RESTAURANTS:
• CGA’s Market Growth Monitor has suggested that drink led pubs are performing well but ‘Britain’s pubs and bars closed at a rate of more than three a day in the year to June 2018.’
• CGA says the number of pubs & bars in the UK fell by 2.4% in the year to June. Some 1,211 pubs are said to have disappeared (net of new openings).
• CGA points out that, whilst drink-led venues bore the brunt of the closures over the last five years (down 17.2%), this trend had slowed in the last 12mths as the ‘last man standing’ benefited from the weather and the World Cup. Only part of both fell into the year being surveyed.
• CGA reports branded food pub numbers have risen by 18.7% in the last five years. This area has been suffering recently. Premiumisation has helped some drink operators as the amount of alcohol consumed by customers has continued to fall.
CGA says ‘the popular narrative around Britain’s pubs and bars tends to be about decline—but as our new Market Growth Monitor shows, the true story is much more complex. Community pubs and town-centre circuit bars have undoubtedly undergone a clear-out over the last few years, but changes in consumers’ tastes and habits are now boosting many drink-led licensed premises—especially in the managed sector.’
• KerbEdge, the Hull-based better burger concept, has received a winding up petition from Matthew Clark Bibendum, the MCA has reported. A glance at Companies’ House tells us that Kerbedge was dissolved, at least as a limited liability company, on 29 May 2018.
• Research from Hoshizaki UK has found that operators want to see a return on premium energy efficient equipment within two thirds of the product’s lifecycle.
• UKHospitality fears that increases to recorded music tariffs under consultation could have a significant impact on the hospitality sector, with Chief Executive Kate Nicholls stating: ‘Under some of the proposed changes, venues could expect to shoulder a three-figure percentage increase on the basic per person fee level at a minimum. Additionally, PPL is also proposing a change in structure that is based on a venue’s capacity, rather than actual attendance. This means that pubs, bars or nightclubs could be charged for a full venue even if they are over half empty, which could raise costs even higher’.
• An MCA report has found that 24.2% of visits to branded restaurants was to pizza operators.
• The dry summer has shrunk the British potato yields, threatening to result in a shortage of chips! The National Federation of Fish Friers has commented: ‘We have to cover our costs. Prices will go up and many will reduce the size of a portion. A lot of small shops will probably sell up’.
• Intu shares gapped up almost 30% last Friday on reports that a consortium lead by John Whittaker’s Peel Group could launch a takeover of the shopping centre owner. Whittaker has been Intu’s deputy chairman since 2011 and Peel Group already owns around 26% to the firm. The rise in share price on Friday gives Intu a value of about £2.5bn.
• Pret a Manger announced a second customer may have died from an allergic reaction after eating a ‘super-veg rainbow flatbread’ in December last year. Pret said it was mis-sold to the company as dairy-free yoghurt by supplier Coyo with the cafe chain withdrawing all affected products as soon as it was made aware.
• UK landlords are having a hard time letting out properties in shopping centres and retail parks with at least £2.5bn of retail properties currently being marketed, according to the FT. One agent was reported saying ‘Everything is for sale. Nobody wants to own this stuff’.
• Per Telegraph, the Chancellor is being urged to tackle the ‘crisis in hospitality and the high street’ by a coalition of restaurant and pub owners. The coalition also suggests a ‘root-and-branch reform’ of the tax system including a levy on tech giants and a freeze on business rates.
• Per Sunday Times, ETM Group are looking to raise more than £10m from private equity in exchange for a minority stake in the business. The 14-strong pub and restaurant chain is said to have sales of £30m last year.
HOLIDAYS & LEISURE TRAVEL:
• Jet2holidays has announced its biggest ever winter sun programme for winter 2019/20, which includes a 44% increase in seats to Antalya, Turkey, Almost 200,000 seats on sale to Paphos and Larnaca in Cyprus and a 25% rise in seats to Malta. The Canary Islands and the Balearic Islands will also see an increase in capacity.
• The Civil Aviation Authority was reportedly rebuffed when it proposed a joint no-deal transition plan with its EU counterpart, the European Aviation Safety Agency (EASA). THe two bodies are yet to begin formal discussions and the EASA has said technical talks cannot pre-empt political agreement on Brexit.
• Club 18-30 holidays will be wound up by owner Thomas Cook at the end of the month, after unsuccessfully trying to find a buyer. Ingo Burmester, Thomas Cook’s UK chief executive said ‘We are increasingly focused on our core own-brand hotel portfolio and feel that the Club 18-30 brand no longer fits in with our wider programme.’
• Amadeus completes its $1.52bn acquisition of TravelClick, a US-based global hospitality technology provider that serves more than 25,000 customers across 176 countries.
• STR reports US hotel occupancy up 1.7% to 71.5%, ADR up 7.3% to $137.31 and RevPAR up 9.1% to $98.15 for the week 23-29 September. The Canadian hotel industry reported occupancy increasing by 2.1% to 80.3%, ADR rising 4.3% to CA$174.52 and RevPAR rising 6.5% to CA$140.06 for the same week.
60 SECONDS – LIFE IN THE SLOW LANE: THE CONSEQUENCES OF SLOWER GROWTH:
A worked example…
• Persistent lower growth has a major impact on wealth over time
• Langton visited Greece for the first time on holiday in 1983
• It’s been to Spain many times since & has seen motorways, bridges, hospitals & airports spring up all over the place in the intervening years
• It revisited Greece in 2017. Little had changed since 1983
How did this happen?
• In 1983, Greece was richer than Spain per capita and 2x as rich as Portugal.
• In 2016, it was poorer than both
• 33yr growth in constant $ terms in Greece was 1.7% p.a., 1.73x over the whole period
• Portugal turned in 3.9% p.a. & rose by 3.48x over the period
• Spain managed 3.2% p.a. & increased $ income per capita by 2.86x
• What seemed like minor reductions in growth p.a. had a material compound impact
• For comparison purposes, the UK raised income by 2.19x over the period
Is the UK in the slow lane?
• At the moment, yes, it is. Maybe this will change but DEXEU has no calcs as to how Brexit will impact the UK economy
• Include boost from lower Sterling, UK GDP was +1.6% in 2017. So far in 2018 it has been +0.5% in H1 followed by an estimated +0.4% in Q3, coming to +0.9% in the first three quarters and looking like 2018 growth will slow yoy. Eurozone growth was 2.3% in 2017
• UK exports helped industrial production but, at +2.5%, this was below Eurozone’s 3.7%
• The UK needs to manufacture more, consume less; save more, spend less
• Selling art, treasure and companies to pay for imports might help for now, but it is not a viable long-term solution
LEADING FROM THE REAR:
• Conviction politicians are thin on the ground. They are regarded, often rightly, with suspicion.
• But at the moment, most politicians, particularly those with a modicum of sense re the economy, are seaking to lead us from the rear.
• They work out what the British Public Has Voted for and seek to enact it without regard to principle or belief. Or the future.
• Perhaps that’s democracy.
FINANCE & ECONOMICS:
• BCC says UK economy is “stuck in a rut” because of uncertainty over Brexit and weaker confidence.
• Sky News has reported that the growth of the UK economy in the last 10yrs has been lower than that in the US in the 10yrs following the Great Depression.
• Tory government claims that austerity is over and that the economy will perform well after Brexit.
• UK labour productivity rose in Q2 per ONS but still remains below average.
• Halifax says house prices fell by 1.4% in September but they are up by 2.5% in the year to that date. The Halifax says that fewer homes are being put up for sale now than at any time in the last 10yrs.
• Us unemployment fell to 3.7% in September, the lowest level in nearly 50yrs.
• Sterling up at $1.3111 and €1.1386
• Oil down a buck and a half at $83.36
• UK 10yr gilt yield up 6bps to a 3yr high of 1.73%.
• World markets all down Friday, Far East down in Monday trade.
• Brexit etc.:
o Chances of a deal said by Jean Claude Juncker to have grown, Mrs May silent on ‘concessions’. DUP says its red lines remain very red. Labour to vote against deal unless it satisfies ‘six tests’.
o Leading car execs at Paris Motor Show call for certainty.
o Outgoing CEO of Lloyd’s of London, Inga Beale, said Lloyds is accelerating Brexit contingency plans to transfer contracts to a Brussels subsidiary
PRIOR DAY LATER TWEETS:
• Later tweets: Almost half Britons are less likely to holiday in Europe after Brexit. Various worries holding back bookings. Not so good for tour operators
• Bond yields at 7yr highs in US, 3yr highs in UK. Will help companies with pension deficits. Less good news for borrowers
• Intu bid approach, shares higher. Fundamentally, shift to online continues. BDO has online sales running +15%
• Halifax house price index +2.5% in year to Sept after a 1.4% drop in that month. Annual rate had been 3.7% in August
START THE DAY WITH A SONG:
Last Friday’s song was Personal Jesus by Depeche Mode. Today, who sang:
The ghost I love the most,
Hiding from the sun
Waiting for the night to come
RETAIL NEWS WITH NICK BUBB:
• Saturday Press and News (1): The main focus in the Saturday papers was on the news that Unilever has bowed to UK shareholder pressure and decided to scrap its plans to move its listing to the Netherlands, with Lex column in the FT thundering that most investors would be happy if Unilever now “stopped scrubbing up a messy corporate structure and concentrated on how best to sell shampoo”. The other big story was that the share price of Intu Properties shot up on Friday on the back of the planned bid by the property mogul John Whittaker, with both the Guardian and the Daily Mail quoting our view that down at this level buying Intu looks a pretty cheap way into its two flagship assets, the Trafford centre and Lakeside, whilst the Business editorial in the Times flagged that this looks a good time to take Intu private, as it manages its way through its debt pile and rental value
• Saturday Press and News (2): The shock profit warning from the fashion chain QUIZ on FRiday afternoon didn’t get much coverage, but there was a good write-up in the Times (“Profit warning leaves Quiz seeking answers”) and a snippet in the Daily Mail. The Times also noted the Sky News story that Sports Direct is in talks to buy the struggling American Golf chain, as well as the reassuring trading update from the second-hand car dealer Motorpoint and the news that B&Q is scrapping night-shift work on re-stocking. The FT highlighted that BHS is making another comeback, via concessions in Beales department stores. And the Guardian flagged on its News pages that the embattled Philip Green is in trouble, after axing a feminist book display by Penguin in Top Shop at Oxford Circus. Finally, the Evening Standard on Friday had an interview with Mark Newton-Jones on his return to Mothercare
• Sunday Press and News (1): The main focus in the Sunday papers was on the beleaguered French Connection fashion chain, after the Sky News scoop that the veteran founder and boss Stephen Marks has put his 42% stake up for sale: as flagged by the Sunday Times, Sunday Telegraph and Mail on Sunday. The Sunday Times also flagged that EY, the administrators of House of Fraser, are being sued by a small supplier and that WH Smith will report yet another profit rise with its finals on Thursday. The Sunday Times also had an article on the pressure on new car dealers to move upmarket (“Struggling car dealers give the forecourt a makeover”).
• Sunday Press and News (2): The other big focus was on Amazon, with the Chancellor still said to be weighing up a Digital Sales Tax. The Mail on Sunday continued its new campaign for “Fair play on Tax” by making its main Business story the news that the boss of Tesco, Dave Lewis, has backed the call for an “Amazon tax” to relieve the pressure on Business Rates. The Sunday Times flagged that Amazon is said to be looking at UK sites for its till-free Amazon Go convenience stores. And the Observer had an article about the recent rise in Amazon’s minimum wage rate, noting that it doesn’t mean that it is a good place to work for.
• News Flow This Week: Things are busy again this week, kicking off with the BRC-KPMG Retail Sales figures for September first thing tomorrow (with another flattish LFL sales outcome likely, despite the problems of Fashion retailers), closely followed by the Greggs Q3 and the MySale finals. The Vertu Motors interims on Wednesday will be interesting in the light of the very weak SMMT new car sales figures for September. Then Thursday brings the WH Smith finals, the Dunelm Q1 update and the N Brown interims.