Langton Capital – 2018-11-20 – EI Group FY numbers, Compass, Patisserie Holdings…
EI Group FY numbers, Compass, Patisserie Holdings…
A DAY IN THE LIFE:
Busy with results this morning. On to the news:
EI GROUP FULL YEAR NUMBERS:
EI Group has this morning released full year numbers for the year to end-September 2018 and our comments are set out below:
• EI Group reports it has seen ‘further growth in net asset value to £3.34 per share (2017: £3.13 per share).’
• The group says underlying EBITDA is level at £287m (2017: £287m)
• Trading was ‘in line with expectations and assisted by a great summer for pubs given the success of the England football team at the FIFA World Cup and some prolonged periods of good weather.’
• Underlying PBT was £122m versus £121m last year
• Non-recurring costs drove statutory profits down to £72m (2017: £54m)
• Underlying EPS is 21.2p (2017: 20.5p) and, in line with expectations, there is no dividend
• The group is announcing a further share buyback programme of up to £20m commencing immediately
• Pub Partnerships’ LfL net income is +1.2% (it was up 2.3% last year) with ‘growth across all geographic regions’
• Average income per pub was +2.3% showing the impact of the churn of the group’s estate.
• Average net income per pub was £81.4k
• Commercial Properties now total 412 units (2017: 331), which generated net annualised rental income of £29 million (2017: £23 million)
• Average net income per property here is +8.2% at £72,300 (2017: £66,800)
• The group says it is ‘exploring monetisation of the commercial property portfolio which may include the disposal of all or part of the portfolio’
• Managed Pubs reported LfL sales growth of 7.1% (2017: up 2.4%) ‘across our largely wet-led managed house businesses’
• This is a particularly strong number but, as the group reports it is predominantly wet-led, it will have been aided by the World Cup and by the weather
• Re its managed operations, EIG says it is ‘building scale and performance; growth on track with 308 (2017: 226) pubs trading within our 100% owned Managed Operations division with 54 (2017: 48) trading within our Bermondsey operation and 254 (2017: 178) within our drinks-led Craft Union operation.’
• Managed Investments, where the group partners with external operators, saw ‘continued progress with 47 (2017: 30) pubs trading within our Managed Investments division with 11 specialist partners.’
Balance Sheet, Debt etc.:
• EI Group reports it has a ‘stable and robust balance sheet and cash flows.’
• The group says its property valuation has been ‘stable for third consecutive year’
• Disposal proceeds during the year totalled £66m
• Net debt was ‘reduced to £2.0 billion (2017: £2.1 billion), equivalent to loan-to-value of 56%.’
• The group has ‘sufficient available bank facilities to repay the £100.5 million corporate bonds due 6 December 2018.’
Company comments on performance:
• CEO Simon Townsend reports ‘2018 has been a notable year for the Group, as the strategic plan we launched in 2015 has evolved and matured to the extent that our implementation of the strategy is now “business as usual”.’
• The group is ‘very pleased to have maintained positive momentum in our leased and tenanted business whilst at the same time transitioning selected assets into the alternative formats and operating models of our other business units.’
• Managed Operations’ momentum has ‘been maintained’ and the ‘commercial property estate has grown substantially in quality and scale and, consistent with our objective to consider monetising the value of all or part of this business.’
• EI Group concludes ‘our strategic plan is on track and we remain focussed on driving long-term growth in shareholder value.’
• EIG is delivering on its strategy and maintains that it is on track.
• The summer weather and the World Cup will have helped the group’s operations but these are nonetheless solid figures.
• The group’s evolution continues.
• Running a managed business is materially more hands-on, and this process will take time.
• Wet led units have traded more strongly than food-led outlets and this will continue to support EIG’s leased and tenanted units.
• EIG’s plan appears solid. Execution remains a challenge and there are some external concerns, Brexit, the pubs code etc. but trading is in line with expectations.
• This would appear, though these are early days, to be working. Despite recent share price rises, the group’s shares are cheap but normalisation is critical. Buy-backs are useful but a dividend would be helpful as a gesture of commitment going forward.
PUBS & RESTAURANTS:
• Patisserie Holdings yesterday updated on its banking situation saying ‘it has agreed with its principal lenders, to extend the period it has to enter into a consolidated, syndicated facility structure for all its outstanding indebtedness, until 18 January 2019.’
• Patisserie Holdings’ shares have been suspended since accounting irregularities were discovered last month. The group has since raised money at 50p and it has received a loan from chairman Luke Johnson but its shares remain suspended.
• The group originally had 45 days from 12 October to agree a loan facility but this deadline has now been pushed into the new year. Patisserie Holdings, which always maintained that it had cash balances rather than debt, has not made its covenants known. However, the restating of figures could mean that lenders have additional rights. The company has reported the departure of both its CEO and its CFO. The latter remains under investigation by the SFO.
• The US plant based meat startup, Beyond Meat is aiming for further international expansion as it prepares itself for a listing on the Nasdaq.
• Crussh has stated its intentions to move into workplace catering.
• Per MCA, Restaurant Group ends talks to acquire Peach Pub Company to instead focus on its proposal to acquire Wagamama for £559m. The MCA reports that Restaurant Group may try to acquire Peach after the Wagamama deal, but face competition from Vine and Core Capital.
• UHY Hacker Young research shows the number of distillery businesses in the UK grew by 30% last year, with demand largely coming from young consumers. Distilleries rose in number from 131 in 2016 to 170 in 2017.
• UK consumers believe low or no alcohol beer is becoming more socially acceptable, according to a study by Carlsberg UK. The study found 59% of respondents had tried a low or no alcohol drink with 52% saying the drinks have become more socially acceptable.
• The MCA reports a 4% monthly fall yoy in lunch frequencies in its Eating Out panel. Dinner levels fell by 1% but breakfast frequencies rose by 4%.
• The leading US technology stocks have seen more than $100bn wiped off their market caps, as fears rise over Apple’s iPhone production figures. Apple was down 4% after a report in the Wall Street Journal stated it had cut production of its iPhone handsets.
COMPASS GROUP FULL YEAR NUMBERS:
• Compass Group has reported full year numbers to end-September saying revenues rose by 5.5% to £23.24bn and operating profit was 7.1% higher at £1.74bn.
• Compass Group has reported EPS of 77.6p (2017: 69.0p) and a full year dividend of 37.7p versus 33.5p last year.
• Compass says it has seen ‘excellent growth in North America with organic revenue up 7.8%.’ The group adds ‘in Europe organic revenue grew by 2.1% driven by strong net new business in the UK.’ It says in the UK, costs have been an issue.
• CPG says the ‘Rest of World was up by 2.9% due to good growth in Turkey and Spanish speaking Latin America.’ CPG’s operating margin was 7.4% ‘up slightly as expected.’
• CPG CEO Dominic Blakemore comments ‘Compass had another very strong year. Revenue growth was healthy, driven by excellent growth in North America, an acceleration in Europe and good progress in Rest of World.’ Mr Blakemore says ‘we continue to drive operating efficiencies around the business and were able to move the margin slightly forward, with improvements in Rest of World offsetting a more difficult volume and cost environment in Europe, especially the UK.’
• CPG says ‘our expectations for FY2019 are positive. The pipeline of new contracts is strong and our focus on organic growth, efficiencies and cash gives us confidence in achieving another year of progress. We expect organic growth to be in the middle of our 4-6% range with modest margin progression.’
• Overall, CPG concludes ‘in the longer term, we remain excited about the significant structural growth opportunities globally, the potential for further revenue growth and margin improvement, combined with further returns to shareholders.’
HOLIDAYS & LEISURE TRAVEL:
• UKinbound backs prime minister Theresa May’s Brexit deal, with chairman Mark McVay saying ‘The Brexit withdrawal agreement provides some reassurance for our members that progress is being made about the shape of our future relationship with the EU, which we welcome.’
• Omega Travel appoints Begbies Traynor as liquidators just two months after its Atol licence was suspended. The £300m revenue company owes more than £20m to creditors.
FINANCE & ECONOMICS:
• Rightmove has reported that house prices fell by 1.7% in October. Prices slid fastest in the South East (down 2.1%). The fall is the largest since 2012. Rightmove reports ‘higher-end, former hotspot towns are now among the biggest annual fallers with Rickmansworth (-7.1%), Esher (-6.4%) and Gerrards Cross (-6.0%) now cold spots following price rises of nearly 40% over the seven preceding years.’
• The value of Bitcoin has fallen below $5,000.
• Sterling up vs dollar at $1.2856 but down vs Euro at €1.1229
• Oil down at $66.53
• UK 10yr gilt yield 3bps lower at 1.38%
• World markets all lower yesterday. Far East down in Tuesday trade.
o PM says she will push on in what will be a crucial week. The DUP abstained in a vote on a number of amendments to the Finance Bill yesterday.
o Mrs May tells CBI her deal is better than no deal.
o The government is to produce analysis comparing the ‘costs and benefits’ of leving the EU both with and without a deal. The details will be released before the House of Commons has a ‘meaningful vote’ on Mrs May’s proposed exit deal.
o Spain is reported to have said it will not agree the Brexit withdrawal treaty unless it has a say over how the future of Gibraltar is to be decided.
o The FT has reported that France is pushing for further concessions from the UK in agreeing a Brexit deal
PRIOR DAY LATER TWEETS:
• Later tweets: Oct Tracker has LfL +0.2%. Against CPI of around 2.2% & hospitality cost inflation of more than that, 0.2% is insufficient to hold margins.
• Rightmove has reported that house prices fell by 1.7% in October. Prices slid fastest in the South East (down 2.1%)
START THE DAY WITH A SONG:
Yesterday’s song was C.R.E.A.M. by Wu-Tang Clan. Today, who sang:
We were so sure,
We were so wrong
But there’s no one left to see
And there’s no one left to die
RETAIL NEWS WITH NICK BUBB:
• AO World (aka AO.com): On the back of the acquisition of Mobile Phones Direct on Nov 9th, AO gave a detailed trading update for the 6 months to end Sept, flagging that the core MDA (aka whitegoods) market in the UK had been challenging and that full year results would be more second half weighted than previously anticipated. So the detailed interim results today (which show group adjusted EBITDA loss slightly reduced at £5.4m) don’t add a great deal, but CEO Steve Caunce, says “we take encouragement that we are at least maintaining market share in the core MDA category in the UK” and that having launched “our biggest ever Black Friday”, “we expect full year results to fall within the range of Board expectations”.
• Bonmarche: The struggling fashion retailer Bonmarche issued a profit warning at the end of September, on the back of very weak Store sales in Q2 and it remains cautious, but it has held its revised ful-year guidance and has flagged that it expects to maintain the full-year dividend: “Whilst online sales have continued to show strong year on year growth, as reported, store LFLs have remained weak, and traditional autumn/winter categories have had a slow start to the season. Providing that sales during the key Black Friday through to Christmas trading period meet expectations, the Board maintains the guidance published in September, being that the underlying PBT for the Group for FY19 will be c£5.5m”.
• News Flow This Week: Tomorrow brings the Kingfisher Q3 update and then on Thursday we get the Majestic Wine interims and the Mothercare interims. The much revised “PUSU” deadline for the John Whittaker consortium over its bid for Intu Properties is on Thursday afternoon. Then Friday (the day after Thanksgiving in the US) is…“Black Friday”.