Langton Capital – 2019-02-07 – Thomas Cook, DPP, EI Group, On the Beach, Compass & other:
Thomas Cook, DPP, EI Group, On the Beach, Compass & other:
A DAY IN THE LIFE:
Bit busy with announcements this morning so let’s move on to the news:
DP POLAND PLACING, BOARD CHANGE & TRADING UPDATE:
• DPP has announced a proposed placing of shares at 6p to raise £5.3m with an option for smaller shareholders to take up another £0.5m.
• The placing & option will comprise 63.3% of the total new shares in issue.
• DPP has announced that its CEO, Peter Shaw, is to step down ‘by mutual agreement at the conclusion of the Company’s 2019 Half Year, in June 2019.’
• The group says its ‘principal focus will include optimising resources and cost control and on increasing local market expertise, building on the strong operational team built by Peter in Poland. Pending a further appointment reflecting the Group’s priorities in this area, Nick Donaldson, non-executive Chairman, and Rob Morrish, non-executive Director, will take a more active role in the running of the business. Maciej Jania continues as Finance Director of DP Poland and Managing Director of DP Polska.’
• Re the fund-raising, DPP says that it had already announced pressure on sales as a result of the warm weather last summer and the ‘cumulative impact of delivery aggregators’ advertising spend.’ It believes some of this will continue into 2019 and concludes that the decision to raise money will allow it to ‘maintain the medium-term store roll-out and support the Company’s sales and marketing programmes to be implemented throughout 2019.’
• DPP remains a major player in the food delivery market in Poland, itself an attractive market. Competition has intensified and the group is now working, on a trial basis, with one of the delivery aggregators. The group confirms a trial with Pyszne (takeaway.com), an online food delivery platform for restaurants, commenced in January 2019.
• The group grew system sales by 24% in 2018- but this was on a slowing trend and sales were negative towards the end of the year. Some stores will need to be examined with regard to their viability.
• DPP says ‘the Group is targeting positive EBITDA in 2022 and targeting to be cash flow neutral in 2022. It says ‘any proceeds received from the Broker Option will be used to further increase marketing spend.’
• The group has raised money on a number of occasions and cash break even has been moving out to the right. CEO Peter Shaw has been instrumental in building the business but he is now leaving the company.
• The macro position is positive. Poland is a fast-growing, large, economy and eating out (or at least not cooking) is on the rise.
• But competition is increasing and, in its trial with Pyszne, DPP is perhaps adopting an ‘if you can’t beat them, join them’ approach.
• The prize remains significant (perhaps a 400-600 strong chain) but there are risks involved with this stock.
PUBS & RESTAURANTS:
• Ei Group has reported LfL sales increased at its Publican Partnerships pubs for the 18 weeks to 2 February 2019, while its mature managed estate recorded LfL sales growth of 5.7%. CEO of the group, Simon Townsend commented: ‘The year has started well, with growth being maintained across our operating businesses and, despite the ongoing uncertainty regarding the consumer environment, we are on track to deliver our plans for the year. The proposed disposal of a substantial proportion of our commercial property portfolio is in line with our strategy of unlocking the embedded value from every asset within our business and monetising that value creation for the benefit of all stakeholders’.
• Compass Group has seen organic sales increase of 6.9% for the three months to 31 December 2018. Commenting on trading the group stated: ‘We had an excellent start to the year and now expect to be slightly above the middle of our target 4-6% organic growth range for the full year, with modest margin progression’.
• The french spirits group Pernod Ricard, has promised to improve its margins and shareholders’ returns after pressure from activist investor Elliott. The group reported a forecast-beating increase in profits of 12.8% to 1.654bn euros in H1 2018/2019.
• Fourth has found that the average hourly pay of workers over 25 in the UK fell from £8.55 in June to £8.16 in December, before rising in January to £8.38. Fourth has commented that many hospitality jobs were driving down average pay, with a decrease in the pub sector by 3.5% while restaurants saw a 4.5%. Mike Shipley, Analytics & Insight Solutions Director at Fourth, said: ‘This data shows that wage inflation climaxed in June, due to a perfect cocktail of hot weather and an unexpected World Cup run for England, placing great pressure on the need for additional workers in the hospitality industry. This basic increase in the demand for labour from a limited pool of workers drove up hourly wages’.
• Dry January appears to have not hindered drink sales as UK alcohol sales rose 10% during last month, data from Kantar has shown.
• The number of people admitted to hospitality for a cause directly related to alcohol was 338,000 in 2017/18, data from the ONS has shown. This finding is broadly flat on 2016/17, however it is slightly lower as a proportion of overall admissions than 1o years ago.
• Constellation Brands has acquired a minority stake in the New York craft spirits producer Black Button Distilling.
• Plans for a new entertainment complex in Scarborough have been unveiled, it has been dubbed Flamingo Land Coast.
• Big discounts still around. Toby & Giraffe 2-4-1. Prezzo just cut from 50% off to 40% off. Pizza Hut 35% off and Domino’s 35% off deliveries over £30.
• Foodservice analyst Peter Backman has commented on Q4 and Christmas trading saying that ‘the pub sector recorded high levels of growth, which came on the back of slow growth in the quarter a year ago, so comparable figures were slightly easier. But high growth in the Christmas period has been a feature of the pub sector for the last few years and comes on the back of improving sales during the course of 2018.’
• Backman points out that ‘much of this increase resulted from improving wet sales, although food also performed quite well, compared with restaurants’ sales.’ Backman continues ‘quick service operators with a well-established model – Greggs, McDonald’s etc – continued to grow well in the quarter. Casual dining chains on the other hand struggled against overcapacity and many found it difficult to get into positive growth over the festive period.’
• Backman reports that ‘Brexit uncertainty weighs on the whole eating out market from schools and workplace catering, uncertain about funding and staff, to pubs and restaurants whose fortunes depend on shaky consumer confidence.’
• Backman comments that the restaurant sector ‘is only now starting to reduce capacity to a meaningful extent.’ It says overcapacity remains an issue and adds restaurant ‘sales and profits will be reduced to the extent that overcapacity exists and the impact of this will be felt in the first quarter of 2019 when, as always, big bills come in – and balance sheets become more stretched. I expect some well-known brands to join Patisserie Valerie in becoming smaller, or to even disappear.’
• SIBA chairman Ian Fozard suggests that there are now more breweries closing than opening.
• Richoux has passed its motion to re-register as a private limited company at its General Meeting. It remains to be seen whether any other small leisure companies decide that the costs and obligations attached to a stock market listing are worth the money.
• Arguably, if a company does not intend to use its shares as currency (or to allow liquidity across its share register), then there may be no real advantage to it being listed. Liquidity is often an illusion in companies where only a few thousand shares can be bought or sold at one time.
• Wagamama has opened its first new unit under the ownership of The Restaurant Group, the site is located in Murray Hill New York.
• Research from Kantar UK has found that the number of vegans in the UK is significantly lower than previously expected, with only 3% of people defining themselves as such.
THOMAS COOK Q1 UPDATE & AIRLINE REVIEW.
• Thomas Cook updates on Q1 trading saying it is in line with expectations. The group is to commence a ‘strategic review of [its] airline’
• TCG says Q1 revenue is up 1%. Its operating loss rose by £14m to £60m.
• TCG CEO Peter Fankhauser says ‘as expected, the knock-on effect from the prolonged summer heatwave and high prices in the Canaries have impacted customer demand for winter sun.’
• TCG says ‘where Summer 2018 bookings started very strongly, bookings for Summer 2019 reflect some consumer uncertainty, particularly in the UK, and our decision to reduce capacity which will both mitigate risk in our tour operator business and help our airline to consolidate the strong growth achieved last year.’
• TCG says that its transformation continues but ‘at the same time, we recognise that we need greater financial flexibility and increased resources to accelerate the execution of our strategy of differentiation: to invest in strengthening our own-brand hotel portfolio; further digitising our sales channels; and driving greater efficiencies across the business.’
• TCG concludes ‘as a result, we are today announcing a strategic review of our Group Airline. We are at an early stage in this review process which will consider all options to enhance value to shareholders and intensify our strategic focus. We will provide an update on this process in due course.’
• Brexit will be causing some problems here. Until we have a clearer view as to what the ‘review’ of the airline entails, visibility on profits could remain clouded.
HOLIDAYS & LEISURE TRAVEL:
• On the Beach Group have reported revenue growth of 20% for the first four months to 31 January 2019. Simon Cooper, CEO of the group, commented: ‘The first four months of the new financial year has delivered another solid period of growth for the Group. Our strategy of investing in our brands, talent and technology to drive growth has delivered performance in line with the Board’s expectations, with both new and repeat customers attracted to our wide range of value for money beach holidays’.
• The UK competition watchdog has claimed a victory for UK holidaymakers with a clampdown on major online hotel booking websites. The action has targeted issues like pressure selling, misleading discount claims, the effect that commission has on how hotels are ordered on sites and hidden charges.
• Reporting on the above action by the Competition and Markets Authority, Chief Executive of UKHospitality, Kate Nicholls has commented: ‘Action to provide transparency, clarity and fairness around online booking platforms will provide a fairer playing field, which can only be a good thing. Customers booking online have for too long been unwittingly misinformed and they deserve better’.
• Tourism Alliance has complained to the government that Brexit uncertainty is having a clear effect on bookings despite clarity emerging on flights, visas and passports.
• VisitBritain partners with Airbnb to invest £500,000 in helping businesses and destinations promote local experiences. The national tourism organisation estimates that its activity through the partnership will generate an additional 83,000 overnight stays in Britain.
• UKinbound members report boosted confidence from an influx of bookings in the last two months of 2018, with 59% of members saying they were confident about business in the upcoming 12 months.
• NATS reports last year as the busiest on record for air traffic across the UK, rising 0.3% to 2,557,780 flights in 2018.
• European airport passenger traffic increased by more than 6% last year to an all time high, but Brexit has been labeled an ‘immediate risk’.
• According to the Guardian, Ladbrokes Coral is encouraging staff to sign up as many gamblers as possible to online services to avoid being made redundant. The bookmaker will close up to 1,000 of its 3,500 shops over the next 18 to 24 months.
• Edge Investments invests £3.5m in Festicket, a platform that partners with festivals to provide standard and VIP packages for festivals worldwide.
• Snap shares climb 22% after Q4 results showed it had 186m daily users, unchanged on the previous quarter. The figures eased worries that the app was losing users to its rival Instagram.
FINANCE & ECONOMICS:
• Sterling down vs dollar at $1.293 but up versus Euro at €1.1382. Oil up at $62.39 with UK 10yr gilt yield down 2bps at 1.21%. world markets generally lower yesterday with Far East mixed in Thursday trade.
• Brexit & politics:
o Fifty days and counting. More than 950 days into the process and business is little-the-wider. Labour perhaps waiting for a Brexit it can blame on someone else and then, with no restraints from the EU or from anywhere else, it can impose socialism ‘properly’.
o NIESR says Britain may be able to avoid a recession in the event of a no-deal Brexit. It says the government could reduce the impact in the short term by increasing borrowing, by cutting taxes and by raising spending in the public sector. The NIESR nonetheless says ‘were the UK to exit the EU without a deal in March, we would expect a sharper slowdown in economic activity than in the central case.’
o The BBC reports UK jobs are attracting less interest from other European workers.
o Mrs May is in Brussels today. Jean Claud Juncker has said that negotiations cannot be reopened. A spokesman for the UK PM says there will have to be changes to the agreement if the UK is to agree it. Donald Tusk, alongside some fruity comments about Brexit campaigners in 2016 without any idea as to what they wanted, has also said there can be no renegotiation.
o Donald Tusk has said that his main aim is to prevent a Brexit ‘fiasco’ next month if possible.
o UBS has received UK court approval to move £28bn in assets from the UK to Germany as it manoeuvres to keep certain of its operations within the EU.
o FT suggests a second referendum is looking unlikely meaning that Mrs May’s deal, which most Brexiteers condemned as ‘worse than remaining in the EU’ or a no-deal Brexit remain the most likely outcomes. The Observer says that, if Mrs May’s deal fails, 42% of voters would like to leave the EU with no deal.
PRIOR DAY LATER TWEETS:
• Later tweets: CAKE drop in EBITDA from £30m to £12m then c£5m in a good year is indicative of a deep-rooted fraud. One ‘mega-unit’ just wouldn’t do it
• Data from Barclaycard has found that spending climbed 6.4%, the highest level for five months. Contactless must be helping
• NIESR says UK could escape no-deal recession if all else goes well. Deloitte says CFOs cutting back on jobs, new car sales down again
START THE DAY WITH A SONG:
Yesterday’s song was Bang Bang You’re Dead by Dirty Pretty Things, today who sang:
Act your age, mama (not your shoe size),
Not your shoe size
Maybe we could do the twirl
RETAIL NEWS WITH NICK BUBB:
Superdry: Today’s Q3 update covers the 13 weeks to Jan 26th and although the statement is headlined “Superdry in line with market expectations” (defined as the City consensus of c£58m for y/e April) the overview from CEO Euan Sutherland is not exactly jumping with joy: “Superdry’s performance has remained subdued during Q3. We continued to be impacted by the ongoing product mix and relevance issues we have previously highlighted and by the lack, until the end of Q3 and the start of Q4, of any prolonged period of cold weather in our key markets”. Group revenue was down by 1.5%, despite Wholesale growth of 12.7%. It is easy to know what the Superdry founder Julian Dunkerton will think of that poor performance and no doubt he will find a way to listen in to the analyst’s conference call at 8.30am.
Ocado: There has been no further update yet from Ocado on the fire at the Andover warehouse, but at 8.43am yesterday the company put out a statement to confirm that the fire had worsened overnight and that there had been substantial damage. If anything, the situation looks to have got even worse, judging by all the photos and last night the BBC website was proving rolling updates on the situation, as the police evacuated all homes within a 500m radius of the site…
Grocery Market Share Watch: Although the latest Nielsen grocery sales figures on Tuesday morning (for the 4 weeks to Jan 26th) showed that overall supermarket industry sales value growth picked up to a pretty decent 3.3%, the rival Kantar survey reported a slightly worse outcome of +2.6% for a similar 4 week period (to Jan 27th), on a Till Roll basis. However, on a pure Grocery basis (ex-Non Food) overall sales growth was 3.1%, according to Kantar, driven by relatively subdued Aldi/Lidl growth of 7.1% combined. Asda was the main winner amongst the “Big 4”, with gross sales up by 3.0%, whilst Morrisons was up by 2.7%, Tesco was up by 1.5% gross and Sainsbury was 0.8% up. M&S Food was as much as 3.9% up in gross terms, which is a big improvement, but that may have been driven by New Year’s Eve timing.
News Flow This Week: The latest MPC interest rate decision is out at mid-day and although no change is expected, it will be interesting to hear what the subsequent quarterly Bank of England Inflation Report says about the outlook for the economy.