Langton Capital – 2018-10-23 – Whitbread, CAKE options, pubs, plastics & other:
Whitbread, CAKE options, pubs, plastics & other:
A DAY IN THE LIFE:
Dashing to the Whitbread meeting shortly, on to the news:
WHITBREAD H1 NUMBERS OK. SOME CAUTION…
Whitbread has this morning reported H1 numbers to 30 August 2018 and our comments are set out below:
• Whitbread has reported revenues +2.6% at £1.079bn with underlying operating profit of £286m vs £277m last year
• Underlying PBT is £270m vs £263m last year, with underlying EPS of 118.2p (2017: 115.4p) and a H1 dividend of 32.7p (2017: 31.4p)
• Whitbread reports discretionary cashflow down £10m at $283m with a return on capital of 12.4% (2017: 12.6%) from continuing operations
• Whitbread highlights that the sale of Costa to The Coca-Cola Company for £3.9 billion has been approved by shareholders
Premier Inn & Restaurants:
• Whitbread reports Premier Inn has increased its bedroom stock to 74k rooms with a pipeline of 13k
• It says there is a ‘strong pipeline in Germany with around 6,000 rooms to be delivered by 2021’
• The group is seeing a ‘solid financial performance supported by tight cost control, maintaining strong return on capital’
• Overall, the group is ‘on-plan to deliver full-year results from continuing operations’
• Premier Inn total sales rose 4.8% with LfL sales +0.2% (Q2 + 0.7%)
• It says this was ‘impacted by weaker consumer demand.’
• Premier Inn Q1 was down 0.3% and Q2 +0.7%
• Restaurants have worsened a little. They were down 1.0% in Q1 and down 3.3% in Q2 to give a H1 average of down 2.6%. Costa Coffee:
• Whitbread now reports Costa as a discontinued operation & has not given trading details.
Company overall, demerger etc.:
• Whitbread Chief Executive Alison Brittain says ‘the highlight of the first half was the announcement of our agreement for the sale of Costa to The Coca-Cola Company for £3.9 billion, which received the overwhelming approval of our shareholders in October.’
• Whitbread says ‘we intend to return a significant majority of the net cash proceeds to shareholders, although the exact amount, timing and method will be determined following discussions with stakeholders, including our shareholders, pension fund and debt providers.’
• Ms Brittain says ‘the sale of Costa now requires Coca-Cola to obtain regulatory approval in the EU and China. Much work still remains to be done to ensure a smooth and successful separation from Whitbread at completion and during the following transitional service period, which we are confident in our ability to execute efficiently.’
• Re the future, WTB says ‘following the sale of Costa, Whitbread will be a focused hotel business with operations in the UK, Germany and the Middle East. In the first half of the year, Premier Inn delivered total UK accommodation sales growth of 4.8%.’
• The group says ‘although we have seen some weakness in consumer demand over the summer, we have made further encouraging progress with our efficiency programme, ensuring we remain on track with our plans for the current year.’
• CEO Ms Brittain concludes ‘we are now looking forward to dedicating our focus to the significant structural growth opportunities available to Premier Inn in the UK and internationally.’
• The group will hold an investor day in February at which it will provide further details on its optimal capital structure and ‘property strategy to support our growth plans.’ Some may take this as a nod to further sale-and-leasebacks.
• Whitbread’s shares rose strongly post its Costa disposal announcement.
• The sale will be dilutive and forecasts, post the disposal, will be for lower EPS. The dividend remains a question mark and will doubtless be addressed both today and at the group’s open day in February.
• The group remains cautious on trading in the medium term.
• The shares’ rating has risen to around 18x with a yield of 2.3% or so. The hotel industry is in long term growth but there are short and medium term concerns re demand and overbuilding.
• Germany is both an opportunity and a challenge.
• WTB has an impressive freehold estate, good brands and international ambitions but, with trading uncertain, the shares may pause for breath.
PUBS & RESTAURANTS:
• The FT comments on the fact that Patisserie Holdings CEO Paul May and CFO Chris Marsh exercised options in the company twice in the last year. There was no mention of a second grant of options. The FT says that CAKE did not respond to its questions as to how this could have happened.
• The Pubs Code Adjudicator has said that, in its second audit since the code was put in place, there has been general compliance with the regulations. The Pub Code Governing Body Ltd says ‘the Board is pleased to see that the second annual report once again shows there is a high level of compliance’.
• Sir Peter Luff, Chairman of the Pub Governing Body, says ‘we are pleased to see strong levels of compliance from the companies governed by these Codes and we will continue to monitor and review the codes themselves to ensure they remain relevant to both companies and tenants.’
• The British Beer & Pub Association has claimed that 3,788 pubs are at risk of closure if the Chancellor does not extend the £1k sector relief rate for pubs. Brigid Simmonds, Chief Executive of BBPA, said: ‘The number of pubs in the UK is still falling; three close their doors for good each day. They are facing increasing and considerable tax pressures from a range of sources; particularly high beer duty, unfair business rates and VAT. This is deeply concerning because pubs are a great British institution and are often the social hub of their community’.
• Single-use plastic straws and stirrers may be banned as early as next October after Environment Secretary Michael Gove held a consultation focused on scrapping such items.
• The BBPA CEO Brigid Simmonds responded to a government consultation on single use plastic straws by saying ‘The BBPA has given guidance to members on alternatives to plastic straws and supported an industry-wide campaign to cut the amount of single-use plastic being used in pubs, in partnership with the BII, UKHospitality and The Morning Advertiser.’
• The increased demand for limited edition small batch beers has led to 20% rise in new beer trademarks being registered in 2017 to 2,372, according to data from City law firm RPC.
• Deliveroo has announced that it intends to give its restaurant partners access to the huge volume of data it has captured, in order to improve efficiency and gain a greater understanding of kitchen performance.
• London’s first fully vegan and alcohol-free restaurant is set to open in Seven Dials and will operate under the name Redemption.
HOLIDAYS & LEISURE TRAVEL:
• Premier Inn opens its first Zip budget hotel in Cardiff in February, with rooms costing from £19 per night. The rooms will be roughly half the size of a standard Premier Inn room at 8.5 sq m.
• A report by the Business Research & Economic Advisors has found that the cruise industry generated more than €10bn for the UK economy in 2017. The report was commissioned by Cruise Lines International Association.
• ABTA urges its members to push MPs for a cut to Air Passenger Duty in the autumn budget, with UK travellers currently paying double the tax compared to Germans.
• Around 400 holidaymakers are taking legal action against Tui after falling ill in Riviera Maya, Mexico. The claimants say the tour operator failed to tell them the area was subject to a public health warning from Public Health England.
• STR reports US hotel occupancy down 0.4% yoy in Q3 2018, with ADR up 2.1% to $131.86 and RevPAR up 1.7% to $93.65.
• The World Travel & Tourism Council reports the top 72 tourism cities generated more than $625bn in global GDP last year with Shanghai top with a market size of $35bn. Four of the five fastest growing cities over the last ten years were in China.
• Brittany Ferries admits 2019 has been hurt by Brexit uncertainty, warning of ‘serious consequences’ for international tourism. The company recently announced three new ships worth €450m.
• Netflix plans to raise another $2bn bond, investing heavily in original productions and content acquisition. The move sent shares down as investors grew concerned over the company’s growing costs.
FINANCE & ECONOMICS:
• Sterling down at $1.2958 and €1.1311
• Oil down at $79.53
• UK 10yr gilt yield down 7bps at 1.52%
• World markets down yesterday (small) with Far East lower in Tuesday trade
• Brexit etc.:
o Mrs May says Brexit almost agreed.
o Dominc Raab says MPs’ vote will be meaningful & timely but will not offer the House of Commons the chance to delay or prevent Brexit
o Liam Fox says President Trump ‘keen’ to do a trade deal/
o O2 said to be postponing its IPO on Brexit uncertainties. Aston Martin fears port disruption. CBRE says London will remain a financial hub.
PRIOR DAY LATER TWEETS:
• Later tweets: CAKE – Telegraph reports ‘doubts persist about whether the emergency funding…is sufficient.’
• CAKE share places believed group’s shares would re-list last week. Lawyers trying to drum up class action against company
• Coffee price edging up after period of decline. Will be interesting to see if coffee shops put prices up with this as excuse…
• Whitbread (H1 numbers tomorrow) introduces low cost ‘Zip’ rooms as it realises ‘facility-creep’ means its headline prices are edging up
• Facility creep is what’s consistently created a gap in value market for likes of Tune, Easy Hotel etc. WTB tries to provide a product
START THE DAY WITH A SONG:
Yesterday’s song was With or Without You by U2. Today, who sang:
Have you noticed, I’ve never been impressed,
By your friends from New York and London
But really this all seems quite meaningless
RETAIL NEWS WITH NICK BUBB:
• Intu Properties: On Friday, the embattled shopping centre giant Intu announced that it had received an indicative c210p cash offer from the Brookfield/John Whittaker consortium, but did not say what the Board thought of the offer, pending the publication today of the Q3 trading update and the Sept 30th property revaluation… And Intu has come out fighting, highlighting “a strong and resilient operational performance through a period which has been particularly challenging for UK retailers, demonstrating the clear differentiation between winning destinations such as intu owns and the rest. We agreed 84 long-term leases in the period at rental levels 8% above previous passing rent and have increased occupancy by 0.4% to 97%”. And NAV per share is only 3% down from 362p to 344p. Analyst’s call at 8am.
• Travis Perkins (Wickes): The giant builder’s merchant business Travis Perkins has a good reputation as a forward indicator of the UK economy, so today’s Q3 trading update is worth a look and the news is solid overall, with trading in line with expectations, even though “Challenging UK DIY market environment continues for the Wickes business, although pricing pressure has begun to moderate”.
• ASOS: Nick Beighton, the CEO, flagged at last week’s analyst’s presentation that he expected to announce a new CFO shortly (to replace Helen Ashton, who left the Board at the end of April) and , lo and behold, today has brought the news that Mathew Dunn from Britvic will take up the role in the spring of 2019.
• Retail Sales Watch: Given the continuing warm weather, all the focus in the sector now is on how badly October (the 4 weeks to Oct 27th) turns out on the High Street , but we haven’t seen the final word yet on how good the outcome was for September…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 4.2% last month (ex-petrol), boosted again by surprisingly good Small Retailers growth. But the BRC-KPMG measure of gross sales (which focuses on Large Retailers, but doesn’t capture the likes of Amazon) was only up by 0.7% (down by 0.2% LFL). So, who was right? The ONS? Or the BRC-KPMG? 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
• News Flow This Week: The much-awaited Debenhams finals are on Thursday and there is a Pendragon Q3 update on Friday.