Langton Capital – 2019-01-10 – M&B, C&C, Brighton Pier, Gfinity, various retailers &c:
M&B, C&C, Brighton Pier, Gfinity, various retailers &c:
A DAY IN THE LIFE:
Bit of a rush this morning. On to the news:
MITCHELLS & BUTLERS UPDATES ON STRONG CHRISTMAS:
Mitchells & Butlers has this morning updated on Q1 trading and our comments are set out below:
• M&B reports that ‘trading through the festive season was strong with like-for-like sales growth over the three week festive period of 9.8%.’
• The company reports ‘growth was achieved on all key dates supported by good underlying trade.’
• M&B says ‘our sales performance has also strengthened over the full 7 week period since our last update with like-for-like growth of 6.9%, balanced more evenly between food and drink.’
• Drink sales in the 7wks to 17 Nov were +2.7% with food sales +1.8%. In the 7wks to 5 Jan, drink sales had accelerated to a LfL increase of 6.6% with food picking up to plus 6.9%
• The group reports total sales have increased by 5.1% over the 14 week period.
• There is no comment on margins.
Balance Sheet, Debt etc.:
• M&B says ‘we continue to focus on investment in the estate, premiumising where possible as well as improving amenity.’
• The group says ‘in the year to date we have already completed 114 conversions and remodels and opened 2 new sites. We remain encouraged by the returns being generated.’
• M&B CEO Phil Urban comments ‘we are delighted with our performance over the festive trading season, with record trading on all key festive dates, including sales of over £12m on Christmas Day, and like-for-like sales growth of 12.3% over the core two week period.’
• Mr Urban says ‘the weather was milder than last year but the results were also due to the months of planning put in by our teams, and to several of our Ignite initiatives beginning to bear fruit.’
• M&B’s CEO concludes ‘we now enter our toughest quarter and, given the success of the festive trading period, we would expect trade to be quiet at least until people get paid again.’
• Mr Urban continues ‘the ongoing uncertainty around Brexit will continue so we remain cautious about the outlook until the political and macroeconomic landscape becomes clearer. That said, we have made a good start to the year.’
• M&B has confirmed that it traded strongly over Christmas.
• Food sales have picked up and the group has performed well over the strongest weeks of the year.
• That said, there is no comment on margin and, as the group says, January could be tough until people are paid again at the end of the month.
• There may be some mild upward pressure on forecasts but cost headwinds remain a problem and margins will be lower this year than they were last.
• In recent years, M&B has expended a great deal on capital spending. The returns here will have shored up the overall numbers which, in the absence of capex, would have been worse. The group will also have benefited from its extensive estate in London.
• M&B is getting stuck in both in terms of discounting and in evolving its offer in line with changing consumer tastes.
• As mentioned earlier, the group has a large estate and all changes will take time to come through. Competitors will not stand still. Smaller operators will be more nimble but other, larger players, are facing much the same challenges as M&B.
• Christmas was clearly good but trading is tough. Discounting is getting worse and costs are rising. It is to be hoped that M&B may have turned the corner but it may be doing so just as the market becomes somewhat more challenging. There is no real guidance as to the dividend or indeed whether there will be a dividend this year (or next) at all.
• However, the group is optically cheap and, though operating is not easy, it is pulling what levers it can.
PUBS & RESTAURANTS:
• C&C has updated on trading for the 4mths to end-Dec saying ‘operational delivery and customer service at both Matthew Clark and Bibendum have been very strong and ahead of plan.’
• C&C reports ‘we therefore anticipate that their combined financial contribution will be as guided at our half year results on 25 October 2018.’ C&C says ‘across the rest of the Group, positive trading momentum has continued into the second half, with revenues tracking mid-single digit ahead of last year.’ Results should be ‘in line with the Board’s expectations.’
• C&C CEO Stephen Glancey comments ‘despite the current political uncertainty the Group is increasingly well positioned going into 2019.’ He says ‘with a strong balance sheet and normalised cash flow conversion of 60-70% of EBITDA we are poised to provide enhanced shareholder returns.’
• Xmas sales are looking good for the pub (and perhaps to a lesser extent restaurant) companies but there has been little or no comment on margins
• Brighton Pier Group warns it will not hit targets. The group has updated on trading for the 6mth period ended 31 December 2018, stating that Christmas trading across its bars was broadly flat and warning that the earnings from its Bars division will be lower than previously expected for the period. The group have predicted that the company’s profit before tax for the year will be c.18% lower than current market expectations.
• Fleurets has found that the average price of a Freehold pub in the UK has increased 6.9% to £445,537 in 2018, while leasehold volumes were down 21.6%.
• The same Fleurets report found particularly strong demand for high quality sites suitable for managed operations alongside city centre sites. Pubs that were in lower demand were Mid-sized owner-operated sites and leasehold assignments at a premium.
• Oakman Inns & Restaurants has reported full year numbers to 1 April to Companies’ House showing that turnover rose by 19.5% to £27.9m with LfL sales +6.8%.
• Oakman reports site EBITDA +23.8% at £5.3m with group EBITDA after head office up 43.5% at £2.4m.
• Oakman says it achieved a ‘year of significant progress across the group’ and adds that the ‘group continued to successfully execute its longer-term strategy’. The group is making moves to simplify its structure.
• Oakman has reported exceptional costs of £2.5m and interest charges of £1.5m to give a loss before tax for the year of £3.8m (2018: loss £200k). Oakman has accumulated losses since incorporation of £12m with positive shareholders funds after cash raisings of £1.7m.
• Black Eagle Brewery Ltd, which brews Truman’s beers, has reported full year numbers to end-March 2018 to Companies’ House showing that accumulated losses increased by £217k during the year to take the P&L since incorporation to a loss during the group’s build up phase of some £876k. The group has positive shareholders’ funds of £1.01m (2017: £1,23m) as a result of earlier share issuance.
• Soft drink manufacturer Nichols yesterday updated on full year trading to end-Dec 2018 saying group sales totalled £142.0m, an increase of 6.9% compared to the prior year. Nichols says ‘this increase was driven by an excellent performance in our UK business where sales grew by 12.6% to £114.6m.’
• Nichols says sales to the Middle Easet were down on last year with international sales as a whole hitting £27.4m vs £31.0m in the prior year. Nichols reports ‘in summary, the Board is very pleased with the 2018 Group sales performance and expects full year profit to be ahead of the prior year and at least in line with current market expectations’.
• 139-café-bar strong chain Loungers has reported LfL sales up 11% for the 5wks to 6 Jan. The group says it ‘continues to trade well in the current economic environment.’
• Constellation Brands’ shares fell sharply as it missed Q3 numbers and cut forecasts for the year as a whole. Beer sales were up 7.8% in the quarter (against estimates of +9.2%). The group says its wine & spirits businesses will be less profitable, interest costs will rise and higher transportation & marketing costs will ve negative over the medium term.
• Pret a Manger has tweeted that, having doubled its reusable cup discount to 50p last year, usage of reusable cups rose 15-fold. The group last year saved 4.7m paper cups.
• The Tongham-based Hogs Back Brewery has invested £700k into a new hop kiln. This is believed to be the first traditional style kiln to be constructed in the country for over 100 years.
• The Lakes Distillery in Cumbria is set to nearly double its production capacity as it invests into eight new washbacks. Dhavall Gandhi, the chief whisky maker at the distillery, said: ‘Right now we are at full capacity and our bottleneck is fermentation. We have a very long fermentation time – 96 hours – and the only way to ensure we maintain the quality and the character of our spirit is to increase our washback capacity’.
• Chameleon Bar & Dining have announced that they have sold their three remaining freehold sites to Greene King.
• Retailers have had their worst December since the recession, as shoppers avoided the high street in order to search for bargains online, data from KPMG has found.
• Debenhams’ lenders have hired FTI Consulting for advise ahead of a make-or-break restructuring that will determine the fate of the department store chain, Sky news has reported.
• Amazon has become the world’s most valuable company, over taking Microsoft with a 3.4% share price rise, taking the value of the company to $789bn.
HOLIDAYS & LEISURE TRAVEL:
• Travel Weekly has reported that David Hope, senior client director of GfK has commented on the flat holiday market: ‘The market is flat. Year to date we are ahead, [but] January is on a par with last year’.
• UK Hospitality has denied claims by City of Edinburgh Council that accommodation providers in the city approve of the introduction of a tourist tax. UK Hospitality boss in Scotland, William Macleod, says ‘UKHospitality is concerned at the assertion by City of Edinburgh Council that 51% of accommodation providers in the city are supportive of a tourist tax or transient visitor levy being introduced in the city. UKH is in no doubt that the vast majority of accommodation businesses in the city (including hotels, serviced apartments, B&B’s, hostels and self-catering properties) are opposed to a TVL. This is clear from among the independent operators and larger chains in UKH membership and from the membership of the Edinburgh Hotels Association.’
• UK Hospitality says it ‘opposes the introduction of a TVL in Edinburgh, or for that matter anywhere in Scotland, primarily on grounds of price-competitiveness. The UK is one of only three EU countries which do not apply a reduced rate of VAT to accommodation and tourism services (on average, the rate of VAT on accommodation in the EU is around half of that in the UK). Moreover, while it is true that many EU countries do impose some form of tourist or bed tax, this is done against a much lower rate of VAT.’
• Reuters has reported that the Chinese conglomerate HNA Group has open discussions with banks ‘to tout the latest assets that the sprawling conglomerate is putting on the block as it looks to raise funds and stave off an intensifying cash crunch’. The group began to unwind their $50bn acquisition spree over a year ago with the sale of the Northern China hotel Harbin.
• APT Travel reports sales for a 15-day Amsterdam to Budapest trip have doubled since December, with the firm saying Brexit uncertainty is not holding holidaymakers back.
• VisitBritain expects visit numbers from Japan to grow to 270,000 in 2019, a 9% increase on 2017. Spending by Japanese visitors in the UK is expected to reach £285m this year, up from £250m in 2017. Japanese passengers will be able to use ePassport gates from summer 2019.
• A TripAdvisor poll reports culture is a more important factor than weather when deciding where to travel to. One third choose a destination based on culture compared to 25% who base their decision on good weather.
• IATA reports global passenger capacity grew by 6.8% yoy in November, with load factor down 0.4% to 80%. Revenue passenger kilometres increased by 6.2% yoy.
• Norwegian Cruise Line appoints Eamonn Ferrin as vice-president and managing director of NCL’s UK, Ireland, Israel, South Africa and ME markets.
• IAG has been warned by Brussels that it may not be able to fly freely in the event of a no-deal Brexit. European carriers will have to show they are more than 50% EU-owned in order to guarantee free flight in such a situation.
• The Chicago based law firm Corboy & Demetrio has filed a lawsuit against Tesla Inc alleging that the 2014 Model S sedan had a defective battery pack that caused the death of an 18-year old passenger in an accident last year.
• Gfinity, the London based esports group, has announced it will host the ES FUT Champions Cup this April. Over 20m players across 60 countries participated in the challenge last year. Executive Chairman for the group, Garry Cook commented: ‘We enjoy an incredibly strong relationship with EA SPORTS and are delighted to have extended our partnership with the latest EA FUT Champions Cup tournament. Through the delivery of the Global Series events and the upcoming ePremier League, Gfinity continues to be at the forefront of FIFA competitive gaming tournaments’.
FINANCE & ECONOMICS:
• Halifax has reported that house prices in the UK in the three months to December were 1.3% higher than in the same three months a year earlier – up from the 0.3% annual growth rate recorded in November.
• Halifax says ‘in 2019, we’re expecting continued stability in house prices with between 2% and 4% price inflation…however, this expectation will clearly be dependent on the Brexit outcome, with risks to both sides of our forecast.’
• Car sales in China fell last year for the first time in 20yrs.
• OECD reports that the UK worker has reduced the productivity gap with American, French & German workers. However, it reports that productivity is currently only 0.2% higher than it was at the end of 2017.
• Sterling up vs dollar at $1.2783 but down vs Euro at €1.106
• Oil up at $60.85
• UK 10yr gilt yield down 2bps at 1.25%
• World markets: UK, Europe & US up yesterday, Far East down today.
o Government suffers defeat and will have to come back to Commons with new plans within 3dys if it loses next Tuesday’s vote
o Sir Keir Starmer suggests that it will not be logistically possible to be ready for Brexit by 29 March. An extension of Article 50 may be possible in the event of a People’s Vote
o Sky reports HMG has awarded £75m of Brexit related contracts to some of the world’s largest consultancy firms, mostly American. The contracts are for ‘the supply of Cabinet Office consultancy support for EU Exit’.
PRIOR DAY LATER TWEETS:
• Later tweets: Gregg’s has ‘strong finish to a year of significant strategic progress.’ Q4 LfL sales +5.2%. Good sales & margins wider on mix change
• Majestic Wine says Naked good but ‘Christmas trading period was more challenging than expected for Retail’
• Beer 35p / pint in 1980 (eq. 2018 price of £1.45). Beer now is c£3.20 nationally, plus 120% real. Taxes, labour, wider margin etc.
• Milk cost 17p a pint in 1980. That’s around 71p in 2018 money. The actual cost (albeit in a 4pt bottle) is 28p.
• Halifax points to house price pick up. Prices up 1.3% on a year earlier. Expects ‘continued stability in house prices’ w. 2% to 4% growth
START THE DAY WITH A SONG:
Yesterday’s song was Personality Crisis my the New York City Dolls. Today who sang:
My baby’s drama mama, don’t like me,
She be doing things like having them boys come from her neighborhood
To the studio trying to fight me
RETAIL NEWS WITH NICK BUBB:
• BRC-KPMG Retail Sales figures for December (the 5 weeks to Dec 29th): We flagged yesterday that the outcome was likely to be flat at best LFL, despite a big late spending run at Christmas, and we were close to the mark, as the outcome was -0.7% (after -0.2% LFL in September, +0.1% LFL in October and -0.5% LFL in November), which was called “a muted end to a tough year”. The key Food/Non-Food LFL sales split is, as usual, buried in the 3-month moving averages (of +0.6% and -1.2% respectively), but the Food Retailers probably saw modest LFL growth in November, in line with that +0.6% 3-month average, which would imply that Non-Food dropped back further last month, with LFL sales well over 1.5% down overall. That weak Non-Food performance overall last month came despite surprisingly good sales in Computing/Mobile Phones and in Toys (despite the moaning from Sainsbury yesterday about how
• Marks & Spencer: Talking of legacy High Street retailers…we flagged on Monday, ahead of the much-awaited Marks & Spencer Q3 update today, that the estimable house broker, Shore Capital thought that Marks & Spencer would report LFL sales for the last quarter (the 13 weeks to Dec 29th) down by 2.5%-3.0% in both Food and Clothing/Home, despite weak comps. And the outcome is “only” down 2.1% LFL in Food and 2.4% down LFL in Clothing/Home, so full year profit guidance is unchanged and the vultures gathering outside M&S HQ have wandered off in disgust…
• Tesco: The Q3/Christmas update is strong, with Tesco UK up by 2.2% LFL over the last 6 weeks and CEO Dave Lewis says “We have more to do everywhere but remain bang on track to deliver our plans for the year and as we enter our centenary we are in a strong position”.
• John Lewis Partnership: Thanks to a strong final week, the JLP update (which is for 7 weeks rather than the usual 6 weeks from Black Friday) is a bit better than expected (Waitrose up 0.3% LFL and John Lewis up 1% LFL) and with Waitrose on track to deliver higher profits, there is room for a modest Bonus in March, but the Board has warned that it may not be prudent to pay any Partnership Bonus this year!