Langton Capital – 2018-10-10 – Pat Val irregularities, Marston’s, Hollywood Bowl & other:
Pat Val irregularities, Marston’s, Hollywood Bowl & other:A DAY IN THE LIFE: Bit tied up with other things. On to the news: MARSTON’S UPDATES ON FULL YEAR TRADING: Marston’s has this morning updated on trading for its Q4 and full year, being the 52wks to 29 September 2018 and our comments are set out below: Trading – Overall: • Marston’s reassures that operating profits are broadly in line with market estimates (up c5%), all divisions are in growth and trading in the last 10wks has seen some improvement over trading at the 42wk point. • Margins will be down by perhaps 50bps (in line with earlier guidance) and finance charges will be slightly higher than earlier forecast meaning that estimates are likely to be pulled back from around £107m PBT this year to around £104m. • Total pub sales are up by 3.3% for the year with LfL sales (across Taverns and Destination & Premium units) up by 0.6% • LfL sales were up 0.3% at the 42wk stage suggesting that they were around 1,6% up in the last 10wks of the year. • Leased pubs are up around 2% in terms of LfL EBITDA, the same as the figure reported for 42wks. • Margin is likely to be down around 50bps for the full year. Whilst lower, this performance is better than that of most other managed pub companies Trading – Destination & Premium: • Destination & Premium sales are down 1.2% in the year as a whole having been down 1.5% to w42 and down 1.8% at the half year • D&P sales were +0.1% LfL in the last 10wks. Food sales and accommodation are down LfL but wet sales are higher • 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. • Marston’s reports ‘in Premium pubs and bars, Pitcher & Piano and Revere Country traded well.’ Trading – Taverns: • Taverns are +3.8% LfL for the year, the same as they were at week 42 • The World Cup & the hot weather have been helpful but momentum has continued into the autumn. • Capacity has been reduced in this sector of the market and remaining operators have some grounds for guarded optimism Trading – Leased Pubs: • As mentioned above, leased income is up by 2% LfL, the same as at week 42 Trading – Beer Company: • Marston’s beer company has performed strongly. Driven by the continued integration of the Charles Wells Brewing company, sales are up 47% 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 • MARS says it ‘now distributes to one in four of the UK’s 46,000 pubs nationwide. Sales of own and licensed brand volumes exceeded one million barrels for the first time this year, and we distributed around 2.5 million composite barrels of drinks to the on and off trade sectors. Around 90% of ‘own brand’ volume is now sold outside Marston’s own pubs.’ Balance Sheet, Cash Flow & Debt: • The group has not comment on debt though, on most estimates, this will be up year on year. • Marston’s has reported that it is buying 15 of the wet-led pubs sold last year by M&B to Aprirose on a sale & leaseback basis. • The pubs will require a spend of some £4m but should contribute around £0.5m to EBITDA in FY19 and perhaps £1m in FY20 • In addition, MARS reports ‘we continue to grow our estate, opening 14 pub restaurants and bars and seven lodges in the year. As previously reported, we plan to open 10 pub restaurants and bars and five lodges in 2019.’ Conclusion & Outlook: • Marston’s has reassured that trading is broadly in line and has improved relative to last year during Q4. • However, numbers will be shaved back by between 2% and 3% for this year and next. • We estimate that the final dividend will be increased by 0.1% both this year (FY18) and next. • Around £50m will be spent via expansionary capex in FY19 and, with the recent Aprirose and Charles Wells purchases as examples, MARS has illustrated that it is prepared to spend on D&P, taverns and brewing, wherever opportunities arise. • CEO Ralph Findlay says ‘’2018 was a strong year for our Taverns and Beer businesses. We have seen clear benefit from our balanced portfolio having achieved good growth in wet-led pubs and from brewing, maximising the trading opportunities provided by the good summer weather and World Cup.’ • Mr Findlay adds ‘this year has been transformational for our market-leading beer business, with the benefits of the acquisition of CWBB and the new distribution contracts delivering strong profit growth.’ • The group comments ‘although trading in Destination food-led pubs was weaker, this predominantly reflects issues beyond our control relating to unseasonal weather extremes and the World Cup.’ • CEO Mr Findlay concludes ‘we are encouraged that our dining pubs are now seeing improving momentum and we expect to make further progress in 2019. We are meeting the demands of our customers and continue to manage the inflationary cost environment well, which gives us confidence for the future.’ Langton Comment: • Marston’s has confirmed that trading at the operating profit line is broadly in line with expectations but PBT estimates will be pulled back a little. • The World Cup and the warm weather have been, overall, helpful. But margins have fallen a shade and interest costs have risen. Drink has performed well but food sales were impacted earlier in the year by hot weather and by the World Cup (and earlier still by the Beast from the East). • What remains clear is clear that the balanced model has smoothed trading for Marston’s given the swing in trading performance (food has been tough and wet sales have been strong.) • Marston’s shares trade on a PER of little more than 7x with a yield of around 7.5% and rising. 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 (in the longer term) remain growth areas. Marston’s is a major brewer and has a large wet-led element to its estate and is well-placed to grow and to create further value for its shareholders. PAT VAL FINDS FINANCIAL IRREGULARITIES: • Sky has reported that Patisserie Holdings has ‘found a multimillion pound black hole in its accounts.’ It mentions £20m. • It says the group ‘is likely to have its shares suspended as a result of the discovery of financial irregularities.’ • Sky says ‘the situation will create a huge headache for Luke Johnson, one of Britain’s best-known and most successful entrepreneurs, who is Patisserie Holdings’ executive chairman and largest shareholder.’ It suggests that the CFO, Chris Marsh, could be ‘suspended or temporarily step aside during an investigation into events at the company.’ • The Sky source said ‘directors had found “a series of apparent financial irregularities”, although there was no suggestion that Mr Marsh was being accused of any wrongdoing.’ • Sky reports ‘Mr Johnson, who sits on a number of company boards, is particularly attached to Patisserie Holdings, having bought a 70% stake in Patisserie Valerie in 2006.’ Risk Capital has recently sold a number of its other leisure holdings. • Langton Comment: At the time of writing, CAKE has made no comment on the above. If the shares are to be suspended, an announcement must be made in the next few minutes. • This is clearly not what the doctor ordered and £20m is a not-inconsiderable sum. • Best case, the growth projections for the company may have been based on incorrect information. These will need to be assessed and, for a company with a fan club and a PER of 23x or so (based on what may be wrong numbers) that has certain implications for the share price. PUBS & RESTAURANTS: • City Pub Group announced yesterday that it was to place up to £6.2m worth of new shares in the company at 220p in order to fund growth. The company says ‘net proceeds of the Placing will increase the available cash reserves of the Group to enable it to capitalise on opportunities to selectively acquire more pubs and take advantage of softer pricing in the current market.’ • City Pub Group says that ‘the Group has made strong progress and built momentum since its admission to AIM.’ It says ‘the rate of acquisition is ahead of plan at the time of IPO, in part due to capitalising on the opportunity to acquire high quality assets at competitive prices in the current market. The Company is undertaking the Placing to provide it with a strong platform to finance further acquisition opportunities at attractive prices and continue to expand its portfolio at the current rate. The Company’s revised strategy is to grow its estate to 75 pubs by mid-2021.’ • Re current trading, City Pub Group says ‘as announced in our interim results on 20 September 2018, the Company continues to trade in line with market expectations. In the 13 weeks since 1 July 2018 revenue has increased by 24% over the prior period.’ • Crowd-funded & Leeds-based Burningnight Group has been placed in administration reports MCA. The journal says that Begbies Traynor has been appointed as administrator. • Burningnight said to have been brought down by cost headwinds. Funder Crowdstacker is reported to have told investors a sale will be sought for the venues. The MCA reports a number of potential buyers are in talks about buying the estate. Revenues for the Burning Night group are understood to have increased from £17m to over £25m. The last accounts lodged by Burningnight Limited with Companies House (to 31 July 2017) showed a loss that year of £1.7m. This came after a loss of £14k in the year to July 2016. • Meatliquor has opened site no12 in Battersea on Northcote Road. The site was formerly a Fixed restaurant & is located next to a Franco Manca. • Research conducted by Ignite Economics on behalf of UKHospitality has indicated that the sector’s economic contribution will decline 5% and its workforce will fall by 10% by 2020, due to rising external pressures. • Stock Spirits Group reported half-year results in line with expectations, with the group stating that sales in Poland performed well, increasing in both market share and value share. • Amber taverns, has secured its first site in Scotland in Causeyside, Paisley. The c140-strong wet-led community pub operator is looking to stretch its geographical reach, the MCA has reported. • The alcohol education charity Drinkaware has urged pubs and bars to prepare for the festive season. A spokesperson for the group commented: ‘the sheer number of people coming into pubs, clubs and bars over the festive season inevitably means a heightened risk of alcohol harms. Responsible operators will tackle this by both helping their customers to drink in moderation, and being alert and ready to support those who may be vulnerable after drinking too much’. • BrewDog has announced it will create a bar franchise in the UK, as part of its BrewDog Blueprint of 30 initiatives to drive growth, the MCA has reported. The Scottish brewer and operator will host a franchise open day next month. • The Newcastle drinks brand, Noveltea, has stated that it will launch a whisky-infused tea. • Honest Burgers sales grew from £15.6m to £22.3m in the financial year ended January 2018, with restaurant EBITDA rising from £3.3m to £5.1m. Group EBITDA rose from £2.2m to £2.9m after a £1.1m increase in head office costs as the popular burger chain made key senior appointments to help grow the business. A total of seven new restaurants were opened in the year, including the group’s first locations outside of London (Reading and Cambridge). David Foulis, the company’s FD, said that the current financial year was shaping up to be an exciting one with a further 7 new openings, including 2 more sites outside of London and added that YTD Revenue has seen healthy LFL growth. • MCA Insight reports that sales growth in managed, branded and franchised pubs will be 3.9% in 2018, compared to just 3.7% growth in branded restaurants. Steve Gotham, MCA director of insight, said ‘This is the first time in five years that we have seen managed, branded and franchised pubs have a higher rate of sales growth than branded restaurants.’ • Members of Regency Purchasing Group have ‘serious fears’ about food shortages after a ‘no-deal’ Brexit. Regency Purchasing Group managing director Alex Demetriou said the uncertainty ‘means food and beverage businesses cannot plan and commit to a strategy.’ • Living ventures puts Artisan and Manchester House Bar & Restaurants into administration saying it has ‘struggled with balancing rising costs and high rents’. • Cafe Nero is giving away 10,000 free coffees in October to celebrate 10m stamps on its loyalty payment app. • GMB union discovers Amazon has reported more than 440 health and safety incidents at UK warehouses since 2015. Amazon responds that it has 43% fewer injuries on average than other transportation and warehousing companies in the UK. • Bohem Brewery has launched a canned lager range comprising four of its ‘authentic Czech-style lagers.’ • Food equipment supplier Nisbets has beefed up its online information resource in order to become a “solutions provider” for the F&B industry. • Non-alcoholic drinks range Seedlip is to be sold through some branches of M&S. • Welsh gin distillery Aber Falls is to distill gin at the top of Snowdon. HOLIDAYS & LEISURE TRAVEL: • More consumers are ‘confused and concerned’ about how Brexit will affect their travel plans after March 2019, according to new Abta research. The proportion of people who said they were confused about how Brexit will affect their holidays increased from 36% to 43% year on year. The figures were released in Abta’s latest Holiday Habits report, which surveyed 2,000 consumers on their travel habits and plans in the last 12 months. • Attractions management company Adventure Forest Group, which trades as Go Ape, has reported 31 Dec 2017 numbers to Companies’ House saying that revenue slipped to £31.7m from £33.8m. The group generated a loss before tax of £3.8m versus a profit in the prior year of £1.4m. During the year, the group discontinued its trampoline business, Air Space, and concentrated on its treetop adventures in the UK and the USA. Excluding closure and discontinued costs, the group made a 2017 profit of some £316k before tax. • Millennials are ditching review sites and turning to travel agents to book ‘better’ holiday experiences, according to Abta’s Holiday Habits report. Trust in review sites for information and inspiration has fallen by 14% in the last year for 25-34 year-olds, from 53% to 39%. • AccorHotels has acquired a 50% stake in hospitality company sbe Entertainment Group as it looks to expand its offering in the luxury lifestyle hospitality segment across North America. Sébastien Bazin, chairman and chief executive of AccorHotels, said: ‘I am very proud of this unique partnership. It combines the best of both groups by offering all our guests lifestyle concepts in the luxury segment. With sbe’s brand portfolio, AccorHotels is also taking a significant step forward in its group’s expansion in key gateway cities in the US.’ • Unite will ballot more than 250 Gatwick Airport workers employed by logistics company Wilson James about possible strike action on 15 October in a row over pay. OTHER LEISURE: • Hollywood Bowl Group has updated on FY trading saying that it has seen ‘continued revenue and profit growth delivered through successful execution of strategy.’ • Hollywood Bowl says trading to 30 Sept has been in line with market expectations. It says ‘the Group has continued to trade well driven by the successful execution of its strategy to invest in its centre refurbishment and rebrand programme and innovation of the customer experience.’ • BOWL says ‘total revenue grew 5.8% with like-for-like revenue growth of +1.8%, and the Group expects to report profit before tax growth of 10% for the year to 30 September 2018, in line with market expectations.’ • BOWL comments that ‘the Board remains committed to continuing to invest in the business through its ongoing cash generation, in addition to considering the appropriate use of surplus cash to enhance shareholder returns. Therefore, in line with the capital structure and cash allocation priorities outlined in the Group’s FY2017 results announcement, the Board is considering returning additional capital to the Group’s shareholders.’ • BOWL CEO Stephen Burns says ‘we are very pleased with our full year performance. We have delivered good results in line with expectations, through the effective execution of our customer led strategy which is underpinned by our capital expenditure programme.’ • World Wheel Company plans to build Europe’s tallest observation wheel on Newcastle Quayside nicknamed ‘The Whey Aye’. The project will see around £100m invested in the city and up to 550 jobs created. • Comcast has now taken full control of Sky. FINANCE & ECONOMICS: • The IMF has downgraded its estimates for world growth to 3.7% this year and next from 3.9% in both years previously. • Sterling up at $1.3158 and €1.1434 • Oil up at $84.76 • UK 10yr gilt yield up 4bps at 1.72% • World markets: UK & Europe higher yesterday. US down and Far East up in Wednesday trading PRIOR DAY LATER TWEETS: • Later tweets: Gregg’s good v hot weather & tough comps. Sees ‘improved sales in challenging conditions.’ FY expectations unchanged. PER a bit stretched • 150 hospitality business call for digital tax, lower business rates etc. Could push on open door, politicians looking for a cause etc. • Property agent remains optimistic. No surprise there. Fleurets says ‘Q3 2018 witnessed buoyant M&A activity’ • BCC says UK economy ‘stuck in a rut.’ Blames Brexit uncertainty & weak confidence. Others say will bounce back next year • Stock Spirits updates on trading saying it has been in line. Czech & Polish markets (c75% of revenue) continue to grow START THE DAY WITH A SONG: Yesterday’s song was Sunny Afternoon by The Kinks. Today, who sang: So, I pull over to the side of the road, I heard “Son, do you know why I’m stopping you for?” Cause I’m young and I’m black and my hat’s real low RETAIL NEWS WITH NICK BUBB: Vertu Motors: Today’s interims from the fast-growing Vertu Motors are interesting in the light of the very weak SMMT new car sales figures for September and although the message is that “the Board anticipates that the Group’s full year results will be in line with expectations, as recently revised by the market” the fact is that first half profits were well down (despite the “robust” description) and the market expects full year adjusted PBT to be down to c£22m from £28.6m last year. Still, Vertu claim to be outperforming the overall new car market and have launched a 2m share buyback programme. John Lewis Trading Watch: Despite the continued buzz about a pick-up in the Homewares/Furniture market, John Lewis continues to struggle, according to yesterday’s weekly sales overview from JLP. W/e Oct 6th saw gross sales only up a tad (ie c2% down on a LFL basis, ex new stores), with Electricals up by 1.3% in gross terms and Fashion sales up 4.4% gross, but with Home sales down by 6.5% gross, despite “an increase in customers committing to future purchases of sofas and beds”. Overall gross sales are still running flat over the last 10 weeks combined (c2% down LFL), pulled back by a 4.3% drop in Home sales. Waitrose Watch: Over at Waitrose last week was a bit better, with gross sales 1.1% up, ex-petrol, in w/e Oct 6th (c1% up LFL), helped by good sales of root vegetables for “hearty autumn dishes” and strong sales of early Christmas lines like mince pies (!). However, the last 10 weeks overall have been down by c0.5% gross, despite the strong start to August for Waitrose, with the “Home and General Merchandise” category running 3.4% down. If October also turns out to be disappointing then questions would have to be asked about the recent range reviews, albeit the Kantar/Nielsen grocery sales figures next week (for the 4 weeks to Oct 6th) are likely to show that Waitrose has not been alone in the industry in finding things a bit weak since the end of the heatwave in mid-August… News Flow This Week: Tomorrow brings the WH Smith finals, the Dunelm Q1 update and the N Brown interims. |
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