Langton Capital – 2018-11-29 – Greene King, Restaurant Group, T Cook, Britvic & other:
Greene King, Restaurant Group, T Cook, Britvic & other:
A DAY IN THE LIFE:
So, do you think cluttered desks, a rather frazzled expression and more coffee stains on your invoices, contracts and paperwork in general are the true signs of an SME.
Because the description fits the facts, at least in our experience and, if we’re doing little else, we’re living up to type.
Bit busy with yet more number releases this morning so we’ll move straight on to the news:
GREENE KING H1 NUMBERS:
Greene King has this morning released H1 numbers for the 24wks to 14 October and our comments are set out below:
• Greene King reports revenues up 1.9% at £1.05bn with adjusted PBT up by 0.2% at £128.2m
• The company reports adjusted EPS up 0.3% at 33.1p with the dividend held at 8.8p at the half year stage
• Debt has been held at 4.2x EBITDA
• The group reports ‘continued LFL sales momentum in [its] Pub Company’ with LfL sales +2.7%. This is slightly down on the 2.8% reported at week 18
• Pub Partners LfL income is up
• Brewing & Brands revenue is 7.5% higher
• GNK reports LfL sales +2.7% at week 24 compared with +2.8% at week 18. Little should be read into the apparent marginal slowdown
• GNK says its LfL sales increase has been ‘driven by the ongoing benefits from our investment in value, service and quality (VSQ), our strategic focus on four core brands, and boosted by good weather and the World Cup’
• Pub Company sales were up by 1.6% in total at £850.3m as the group had 2.4% fewer pubs
• GNK says ‘average weekly take per pub was £20.6k, up 4.0%, reflecting the programmes in place to improve underlying sales, as well as the good weather and the successful World Cup.’
• Drink outperformed food. Operating profit in the division was down 2.0% ‘due to cost inflation, the implementation of the VSQ investment programme in the second half of last year and the phasing of cost mitigation plans during the year.’
• GNK reports pub partners LfL net income was higher but total revenue was down 1.3% ‘due to 4.6% fewer pubs trading year-on-year.’
• LfL net income was higher, though the number was not given. Growth ‘was ahead of last year, driven by higher LFL rental income as well as increased LFL drink sales.’
• The group reports ‘Pub Partners operating profit margin was down 1.8%pts and LFL net profit was down 1.0%, due to higher central costs, including one-off legal costs.’
Brewing & Brands:
• GNK reports ‘Brewing & Brands revenue was up 7.5% to £110.0m following the good summer weather and the World Cup.’
• Divisional operating profit ‘was up 1.4%, while the operating profit margin was down 0.9% due to mix, with an increased sales contribution coming from third party beers.’
Balance sheet & other:
• GNK reports it has demonstrated ‘consistent cash generation, disciplined capital allocation & [has an] attractive property valuation
• Free cash flow before disposal proceeds was £25.4m, up £14.8m due to reduced tax and interest payments
• The group reports ‘proceeds from the disposal of 40 pubs and 13 other properties were £30.7m, from which we funded three new builds and two single site acquisitions.’
• GNK reports ‘further steps [have been] taken to refinance Spirit debenture, reducing cost and increasing flexibility of our debt; to date annualised cash interest saving c.£13m and net present value benefit c.£45m.’
• GNK’s pub estate is valued at £4.5bn
• CEO Rooney Anand reports ‘we have seen continued positive momentum in Pub Company, which was sustained beyond the boost of the World Cup and the summer weather.’
• Mr Anand reports ‘we remain highly cash generative, meeting our debt repayment requirements, investing in our pubs and paying an attractive, sustainable dividend out of operating free cashflow. Good progress was made refinancing the Spirit debenture, which will reduce the cost of our debt and increase the strength and flexibility of our balance sheet.’
• GNK concludes ‘looking forward, Christmas bookings are up on last year and we look forward to ensuring customers have a great time celebrating the festive season in our pubs.’
• It cautions ‘ongoing uncertainty around Brexit may impact on consumer confidence, but as a team we are focused on our key strategic priorities and remain confident of our outlook for the financial year.’
• Greene King remains on track to deliver full year numbers. The dividend has been held and the group has made progress in Pub Company although rising costs have held back profits.
• The group says ‘the positive momentum at the start of the financial year continued through the first half’ and GNK, along with other pub companies, benefited from the hot weather and the World Cup – at least with regard to wet sales.
• Costs will remain an issue going forward. Integrating Spirit will continue to provide the group with both challenges and opportunities.
• Capacity increases in the market as a whole are moderating with restaurant numbers down 1% in Q2 this year versus last.
• Consumer confidence has declined recently and Brexit uncertainty remains but these are industry (and economy) wide issues and Greene King is pulling the levers available to it.
• The group is cheap on most measures. The asset backing is substantial, the shares trade on a PER of a little over 8x and offer a yield of 6.5%%. The group has a multi-decade record of not cutting its dividend and it will no-doubt strive to keep that record intact.
RESTAURANT GROUP AGREES WAGAMAMA ACQUISITION & RIGHTS ISSUE:
• Restaurant Group yesterday redefined the word ‘victory’ as its shares fell to an eight-and-a-half year low on news that its management had gained shareholder approval to buy noodle chain Wagamama for £4m per leasehold restaurant or £559m in total.
• Some 40% of the group’s voting shareholders opposed the deal & the group’s shares fell by around 15% to 200p.
• The deeply discounted £315m Rights Issue on a 13 for 9 basis at 108.5p, along with a cut in the dividend payout will now go ahead.
• At 200p, the Theoretical Ex Rights Price is 146p suggesting that the nil paid shares, which commence trading this morning, should trade at 37.5p.
• The n/ps trade until around 13 December and they should move penny-for-penny in line with the ordinaries.
• Dissenting shareholders who do not take up their rights will either sell their nil paid stock in the market or wait for JP Morgan to sell them when they cease trading.
• CEO Any McCue says the acquisition will provide RTN with a ‘multi-pronged’ growth opportunities. Chair Debbie Hewitt says the company is ‘incredibly grateful to those (shareholders) who have supported us’.
• Langton View: Proposing and pushing through a deal opposed by 40% of your share register is a bold move.
• All that remains for Restaurant Group to do now is deal with the indigestion caused by such a heavy Rights Issue and execute on its strategy, thereby proving that paying £4m per site for an almost-mature chain of leasehold noodle restaurants was not a folly.
• The existing RTN estate (excluding its excellent concessions and pubs businesses) will also need attention. Footfall is under pressure on retail parks & discounting remains a feature. The dividend cut will come as a relief to management but may cause income funds some distress.
PUBS & RESTAURANTS:
• Britvic has released its 52 week results for the period ended 30 September 2018, showing revenue up 5.1% to £1.5bn and adjusted EBIT rising 4% to £206m. Simon Litherland, CEO of the group, commented: ‘I am delighted that we have grown our stills brands, demonstrating that our investment in innovation and marketing is beginning to pay off. The investment in the transformational business capability programme is now nearing completion and is already delivering significant efficiency and commercial benefits’.
• Per MCA, the food-to-go segment grew in visit frequency by 2.4% yoy whilst the wider market experienced a 0.5% drop. Growth in average spend in food-to-go increased by 6.2% to £6.84 over the past year.
• James Quincey, CEO of Coca-Cola claims the Costa acquisition will create a ‘massive opportunity’ to sell more ‘high-quality barista coffee, in someone else’s store.’
• La Martiniquaise has acquired the Cutty Sark scotch whiskey brand from Edrington for an undisclosed sum.
• Wet led pub company Stonegate has reported Q3 LfL sales up by 6.1%. Food sales were up 3.6% with wet sales up 7.1%. The group acquired Be at One and a number of assets from Novus in Q4. It remains willing to make more purchases when opportunities present themselves.
• Loke CEO Matthew Khoury claims the use of robots, ordering and pay-at-table technology should only be offered if it can enhance diners’ customer experience.
• Food and Drink Federation director general Ian Wright claims Britain has a shortage of food warehousing facilities needed by retailers to stockpile goods pre-Brexit. There is speculation in the industry that Amazon has booked the space as it looks to enter the food market in the next few months.
• BRITAProfessional reports nearly 46% of consumers do not believe the quality of tea is better at cafés than at home.
• The ONS reports UK-made gin sales now account for 72% of EU gin, with sales worth around £461m last year. The next biggest manufacturer of gin was Spain at 11% of EU gin.
• An IWSR study commissioned by SudVinBio and Millésime Bio reports that almost 10% of all wine sold in the UK will be made organically by 2022.
• Edinburgh University has concluded that one in six pints of milk produced is lost or wasted, globally. Some analysts believe dairy waste figures could be as high as 30% if further inefficiencies such as flooding foreign markets, using milk as animal feed and overconsumption, are taken into account.
• Amazon reveals Cyber Monday was its biggest shopping day in its history with more than 100m products sold.
• In the US, Cracker Barrel Old Country Store reports Q1 traffic down 1.6% but same-store sales up 1.4%, driven by menu price increases.
HOLIDAYS & LEISURE TRAVEL
• Having pre-released headling numbers on Tuesday, Thomas Cook has published its fuller full year results showing group revenue up 6% on a LfL basis to £9.6bn, however, EBIT was down £58m to £250m due to discounting and weak UK sales. The delay in booking has led net debt to increase to £389m and the group have decided to suspend the Full Year 2018 dividend.
• CEO of Thomas Cook, Peter Frankhauser commented on the group’s FY18 results: ‘2018 was a disappointing year for Thomas Cook, despite achieving some important milestones in our strategy for transforming the business. After a good start to the year, we experienced a larger-than-anticipated decline in gross margin following the prolonged period of hot weather in our key summer trading period‘.
• Thomas Cook commented on current trading in their FY18 results: ‘UK bookings are broadly flat, albeit at lower margins due to increased capacity in the wider market. In Northern Europe, where as previously advised we have reduced winter capacity by 5%, the knock-on impact of the summer heatwave and continued mild weather is leading customers to delay booking their winter holiday, resulting in 8% lower bookings year on year’.
• Accor has restated their aims to double EBITDA to $1.35bn by 2022. Chairman and CEO of the group, Sébastien Bazin commented: ‘Our targets are ambitious yet achievable. AccorHotels is more agile, more profitable, and more global, with a well-balanced brand portfolio’.
• Jet2Holidays CEO Steve Heapy calls for government to stop the demise of the high street in the UK by saying ‘I want to see the high street reinstated as the hub of every community which support local businesses, but there needs to be a co-ordinated strategy from government’.
• Efforts made to stamp out fraudulent holiday sickness claims by Jet2Holidays have led to an 84% decrease in claims yoy. CEO Heapy said ‘We have won a major battle, but the war isn’t won yet. We are still fighting for the industry.’
• North Yorkshire has been asked to commit to the Tour de Yorkshire cycle race until 2020. An independent study estimated that this year’s race boosted the Yorkshire economy by £98m.
FINANCE & ECONOMICS:
• Sterling up vs dollar at $1.2838 but down vs Euro at €1.1274
• Oil down at $58.72
• UK 10yr gilt yield unchanged at 1.38%
• World markets: UK down yesterday, Europe also. US sharply higher on slower-rate-rise hopes. Far East mixed.
o UK economy will be 3.9% smaller than it would otherwise have been in 15yrs if we execute Mrs May’s partial Brexit reports the Treasury. It will undershoot by 9.3% in the event of a Hard Brexit.
o Chancellor Phillip Hammond reports the economy will be smaller but says there is no alternative on the table.
o A No-deal Brexit would see sterling fall sharply and trigger a recession reports the Bank of England. The economy would shrink by 8% in the short term and still be 9% below potential in 15yrs time. House prices could drop by more than 30%.
o We’re sick of experts, says Michael Gove. Hopefully Mrs Gove has ensured that this mantra is not extended to the family doctor, educators, dentists, car mechanics and the like. The ‘hell, let’s see if this works’ approach is not likely to cut much ice there.
o Mrs May has said that Donald Trump is not correct when he says that her deal is a good one for the EU.
o The House of Commons votes on Mrs May’s partial-Brexit and moves to shrink the UK economy on 11 December.
o Shadow chancellor John McDonnell has said it is “inevitable” another EU referendum will be called if Labour cannot force a general election.
o Bank Governor Mark Carney has said that large parts of the British economy are not ready for a no-deal Brexit.
o Brexit press suggest this is project fear mark two
o Sky poll reveals most Britons do not want to Brexit if it will make them worse off. Only 19% would take Mrs May’s partial Brexit under current circumstances. Some 63% oppose it
o Sky says 51% want to stay in the EU with 41% wanting to leave (17% soft, 24% hard)
PRIOR DAY LATER TWEETS:
• Later tweets: Discounts: M&B brand Harvester offering 40% off food. Prezzo and Giraffe also 40% off food and Pizza Express up to 25% off.
• Sky says ‘ailing Patisserie Valerie seeks new auditor after scandal.’ Grant Thornton to be replaced. CEO, CFO also gone. Chairman staying
• William Hill shares are now around a third of the level they stood at in 2016. They have nearly halved in the last 12mths.
• Philip Hammond says Mrs May’s semi-Brexit will leave UK worse off. But says it’s all that there is available
• Former Cabinet Minister Sir Michael Fallon has said that Theresa May’s half Brexit deal is “doomed” & is “worst of all worlds”
• Stonegate reports Q3 LfL sales +6.1%. Was +7.1% wet and +3.6% food. Purchase of Be at One & Novus assets came in Q4
START THE DAY WITH A SONG:
Yesterday’s song was Smalltown Boy by Bronski Beat. Today who sang:
I don’t ever want to feel,
Like I did that day
Take me to the place I love
Take me all the way
RETAIL NEWS WITH NICK BUBB:
• Intu Properties: Ahead of tomorrow’s much revised “PUSU” deadline from the Takeover Panel for the John Whittaker consortium over its bid for the beleaguered Intu Properties, it may not be a big surprise that the company has announced today that the consortium has walked away, given all the recent PR about Mike Ashley, although the share price (at c193p) has been trading reasonably close to the indicative c210p bid. The reason given for the is “the uncertainty around current macroeconomic conditions and the potential near-term volatility across markets”, but the company notes that the loss of the “underperforming space” of House of Fraser in its centres will cost it c1% of next year’s rental income, although it does not refer to the likely loss of all the Sports Direct shops as well over time. The management team put a brave face on things (“whilst market sentiment towards retail and
• Black Friday Watch: We flagged yesterday that although LFL sales were c5.5% up last week at John Lewis, after two very bad weeks, given a huge boost from “Black Friday” deals and promotions, the issue will be how much pressure gross margins were under. And that won’t be clear until the rebates from Electricals suppliers are settled at the end of next month, but in terms of Fashion discounting activity the dust has yet to clear. According to an excellent analysis yesterday from the Fashion pricing experts Retailmap, of the 60 High Street retailers they audit, 73% had some form of promotion on Black Friday this year, including Next. Despite its “VAT free” promotion on Beauty, the Debenhams “up to 50% off” mantra was no worse than last year and House of Fraser may have done a bit less, but across the Fashion market Black Friday looks to have been more promotional than last year, despite
• Drapers Awards Watch: Over 800 of “fashions finest” will be at the prestigious annual Awards ceremony tonight hosted by Drapers magazine, at the iconic Roundhouse in North London. According to the short list, the “Fashion Retail Business of the Year (Between £101m and £500m turnover)” Award will go to Boden, Joules or Quiz Clothing. And the “Fashion Retail Business of the Year (over £500m turnover)” Award is between John Lewis, Matalan, N Brown, Primark and Tommy Hilfiger. Arcadia chains are conspicuous by their absence from the various short-lists and it’s safe to say that the embattled Philip Green will not be named “Fashion Leader of the Year” or be nominated for “Lifetime Achievement”…
• News Flow This Week: The ASOS AGM, the Dunelm AGM, the Hotel Chocolat AGM and the AO.com EGM are being held later today. Then tomorrow brings the DFS AGM and the monthly GFK Consumer Confidence index.