Langton Capital – 2019-04-30 – PREMIUM – Whitbread, Greene King, branding, Loungers etc.:
Whitbread, Greene King, branding, Loungers etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
It’s been many years since I last stood on an upturned plug or a Lego brick (an old favourite, best positioned on the stairs) in bare feed but I can confirm that little has changed over that time to soften the contours of said objects.
Nor has my vocabulary evolved much but, when jamming you whole body-weight down hard on a sharp or misshapen object, there’s at least a scintilla of relief to be had by describing said object in as colourful a language as possible. Five, six or seven words ending in ‘-ing’ followed by a comment on its parentage will generally do the trick.
Of course, throwing the thing out of the window or feeding it to the dog could be better still. On to the news:
GREENE KING Q3 TRADING UPDATE:
Greene King has this morning updated on trading for its full year being the 52wks to 28 April 2019. Our comments are set out below:
• Greene King has updated on trading for its full year to 28th April saying ‘Pub Company LFL sales…were up 2.9%, ahead of the market and reflecting the successful programmes in place to drive industry-leading value, service and quality for our customers.’
• GNK says ‘we saw good drink volume growth across Pub Company and, in particular, in our 1,000 drink-led Greene King local pubs, which recorded LFL sales of 4.6%.’
• The company reports ‘LFL sales for the last 16 weeks were up 2.4%.’
• GNK adds ‘Easter LFL sales were up 4.6% against last year’s Easter weekend, helped by the good weather and particularly strong trading from Chef & Brewer, which recorded LFL sales of 15.3%.’
• GNK comments ‘Pub Partners LFL net income for the 52 weeks was up 1.6% while LFL profit was down 1.4%.’
Brewing & Brands:
• GNK says ‘total beer volumes were up 0.9% and own-brewed volumes were down 3.4% against a UK ale market down 4.2%.’
Balance sheet & other:
• GNK says ‘during the second half of the financial year, we made further progress on our debt refinancing plan.’
• The group adds ‘by the year end, we had repaid £393m, or 51% of the Spirit debenture, while we tapped the Greene King securitisation for £250m at 3.6%, creating headroom within our revolving credit facility for future bond repayments from the debenture.’
Outlook & Conclusion:
• GNK concludes ‘we expect to limit net cost inflation this year to between £10-20m and for full year profit before tax, non-underlying and exceptional items to be between £244m and £247m.’
• The group says ‘we are broadly on track to deliver our disposals programme and new builds/single site acquisitions for the year.’
• The group will report FY numbers on 27 June & will update on the impact of IFRS16 (the capitalisation of lease costs) at that time.
• Outgoing CEO Rooney Anand comments ‘we have traded strongly this year and have returned to market outperformance.’
• Mr Anand adds ‘as I hand over to my successor Nick Mackenzie, I believe that, with our strong pub and beer brands, talented and dedicated team and high-quality estate, Greene King is well positioned to make further progress and continue outperforming the market.’
• Greene King has pointed to a slight slowing over the last 16 weeks of its financial year which, given that the Beast from the East has fallen out of numbers and a very warm Easter has been included in, may be just a tad disappointing.
• The good weather over Easter has driven LfL sales up 4.6% over that period.
• Chef & Brewer has performed strongly. The implication may be that food has been less good. This should have a positive mix impact on margins.
• GNK’s shares have been strong in recent weeks. The shares are hardly expensive but some profit taking may be a feature in the near term.
WHITBREAD FULL YEAR NUMBERS:
Whitbread has this morning reported FY numbers and our comments are set out below:
• Whitbread says it has turned in a ‘robust financial performance and [is] on-plan to return Costa sale proceeds’
• The group says this is a ‘solid financial performance in a challenging environment supported by [its] efficiency programme’
• Revenues are up 2.1% at £2,049m
• Underlying PBT is £438m (up 1.2%) with underlying basic EPS of 193.2p (up 1.3%)
• Full year dividend is 99.65p versus 101.15p last year
Premier Inn & Restaurants:
• Group points to a worsening trend
• Whitbread says that it reports ‘total UK accommodation sales growth of 3.5%, reflecting additional capacity’
• LfL accommodation sales in the UK were down 0.6% ‘impacted by soft demand, especially in Q4’
• Further details are shown below:
Company overall, demerger etc.:
• Whitbread says it has a ‘strong balance sheet with net cash of £2,583 million following receipt of Costa sale proceeds’
• CEO Alison Brittain says ‘the last year has been significant for Whitbread, with the sale of Costa to The Coca-Cola Company for £3.9 billion completing on 3 January 2019.’
• Ms Brittain says ‘we intend to return up to £2.5 billion of the net cash proceeds to shareholders, and we have repositioned Whitbread as a focused hotel business by delivering our three strategic priorities to grow and innovate in the UK; focus on our strengths to grow internationally; and to enhance the capabilities required to support long-term growth.’
• The group now has 76k UK rooms ‘with around 13,000 rooms in our committed UK pipeline.’
• The group says ‘in Germany, we recently opened our second hotel, in Hamburg, and our pipeline is now almost 7,000 rooms, which is over 30% of our total pipeline for Whitbread.’
• Whitbread says ‘in the fourth quarter, we saw a decline in business and leisure confidence, leading to weaker domestic hotel demand.’
• It says ‘this weakness has increased into March and April particularly in the regional business market, coinciding with an acute period of political and economic uncertainty in the UK.’
• The group adds ‘at this stage in the new financial year it is too early to know how business confidence and its impact on the market will evolve. However, it’s important to note that our strong balance sheet, ongoing efficiency programme and integrated operating model means we are likely to be more resilient in a weaker market than many of our competitors. In addition, our ability and willingness to continue to invest through this period will place us in an advantaged position in the future.’
• Whitbread concludes ‘despite the short-term market challenges, our strong competitive position, ongoing disciplined allocation of capital and focus on executing our strategic plan will ensure we continue to win market share from the declining independent hotel sector in the UK and Germany. This will deliver sustainable growth in earnings and dividends, combined with our strong return on capital over the long-term.’
• Whitbread clearly remains cautious on trading in the medium term.
• The shares’ rating has risen to over 19x with a c2% yield. 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.
RADICAL CHANGE, THINKING OUTSIDE THE BOX: The Internet has impacted most industries. Even those that first looked ‘immune’ are being affected. We could have commented on the impact of Deliveroo (rather similar) but here we ask: ‘is TripAdvisor making brands worthless?’ 29th April 2019:
• Brands are a means to an end rather than an end in themselves. The engender loyalty, etc. but, if an aggregator performs the same task, what value the brand?
How did we get here?
• The consumer facing brands of old have always removed uncertainty and guaranteed quality to customers
• Everyone knows what to expect at a McDonald’s or a Travelodge
• However, this seems to have changed in the last decade or so due to concepts like TripAdvisor or Hotels.com
Where are we now?
• TripAdvisor has removed the random element of risk when going to an unbranded, independent restaurant, pub or bar
• The wheat can be sorted from the chaff via a societal hivemind of reviews and feedback and, as Warren Buffet says, ‘It takes 20 years to build a reputation and five minutes to ruin it.’
• Oversimplified and slightly demeaning brands can now be bypassed by conscientious customers
What does the future hold?
• If TripAdvisor was to slice and dice independents into similar categories, would the brand be needed at all?
• For example, All Bar One is known for being targeted towards ABC1 women with second quartile pricing, big windows, nice food and a brightly lit space. In theory, TripAdvisor could show all bars fitting this description in the nearby area, so why bother with the brand anymore?
• If this is the future then we are creating a disaggregated marketplace, where independents can thrive through the quasi-branding provided by TripAdvisor and the like
GENERAL NEWS – PUBS & RESTAURANTS:
• Young’s has appointed Mike Owen as its new CFO, he joins from Hall & Woodhouse where he has been the group’s finance and IT director since 2016. Stephen Goodyear, Chairman of the group said: ‘Following an extensive search, we are delighted that Mike is joining the Young’s team. He has an intimate knowledge of the industry and will bring a fresh perspective to the finance function, as we continue the development of our market-leading premium operation’.
• Fuller’s has completed the disposal of the Fuller’s Beer Business to Asahi Group Holdings.
• Restaurant discounting. Bella Italia 30% off food, Harvester (M&B) 50% off mains, Prezzo 25% off, Pizza Express 25% off food, Bar & Block (WTB) 2-4-1 & Domino’s 30% off orders of £20 or more.
• Loungers’ shares yesterday commenced trading under the ticker LGRS. The shares closed at 216p having been placed at 200p.
• Loungers placed some 41.6m shares and raised £21.7m for existing shareholders with a further £61.6m to pay off bank and other borrowings and to ‘provide the Group with an appropriate capital structure with which to pursue its growth plans.’
• As at the group’s April 2018 year end (prior to the refinancing taking place as a result of the IPO), Loungers had £157.4m of debt comprising £65.3m to banks, £15.9m via Investor Loan Notes to related parties and £76.2m via Preference Shares, held by Lion Capital.
• Majestic Wine has rebranded its first store into a Naked Wines unit as the group looks to restructure under the brand.
• Paul UK is set to launch a loyalty app on 20 May, powered by Yoyo.
• Ei Commercial Properties and The White Brasserie Company have agreed a 20-year free-of-tie lease for The Galleon in Dorset.
• Oakman Inns has acquired seven freehold pubs from Downing LLP with a combined EBITDA of £2.8m. Peter Borg-Neal, CEO and Founder of Oakman Inns commented: ‘At that point, Oakman had seven pubs and a great trading record with sales of over £10m, but faced huge issues with a dysfunctional banking relationship and a shortage of growth capital. Five years later, we have just opened our 23rd pub, last year achieved sales of £38m and were recently named by Alix Partners as the fastest growing pub company in the UK’.
• Heineken has completed the formation for its long-term strategic partnership with China Resources Enterprise and China Resources Beer for Mainland China, Hong Kong and Macau.
• US restaurants suffering from wage cost pressures.
• Texas Roadhouse has reported Q1 numbers to end-March saying revenues rose by 10% to $691m with net income down 7.6% at $50.39m. Diluted EPS is 70c down from 76c in Q1 last year. The company reports that restaurant margin, as a percentage of restaurant and other sales, decreased 128 basis points to 17.9% ‘primarily due to labor costs which increased 118 basis points.’
• Texas Roadhouse president Scott Colosi says ‘our top-line momentum continued this quarter highlighted by comparable restaurant sales growth of 5.2%. Despite our ongoing sales strength, our profits continue to be pressured by higher labor costs. Much of the labor increase was driven by wage rate and other labor inflation that currently does not show signs of abating.’
• CEO Kent Taylor comments ‘we will continue to manage our business with a long-term view that includes growing average unit volumes from just over $5.0 million to $6.0 million in the coming years.’ Regarding the rest of the year, the company says ‘comparable restaurant sales at company restaurants for the first four weeks of our second quarter of fiscal 2019 increased approximately 2.9% compared to the prior year period.’
• Cider Is Wine, a trade-alliance, is set to have a London Wine Fair Stand featuring 8 producers from 6 different countries.
• The ONS reports 31% of graduates are overeducated for the job they are doing. The study found graduates in arts and humanities were more likely to be under-using their education.
HOLIDAYS & LEISURE TRAVEL:
• Thomas Cook shareholders yesterday voted by 99.2% to 0.8% to ‘provide ratification for any potential technical breach of the borrowing limit in the Articles, and (ii) approve the temporary dispensation of the borrowing limits that apply to the Company under Article 122(B)’. The group had earlier said that it may have inadvertently breached its internal borrowing limits.
• Thomas Cook CEO Peter Fankhauser has commented ‘in the UK, we are living in a time of unprecedented political upheaval and there is little doubt that the prolonged uncertainty around the manner and timing of Britain’s exit from the European Union has led many customers to press pause on their holiday plans for this summer.’ The group has said that Turkey has leapfrogged Greece to become the company’s second most popular destination after Spain.
• Intercontinental Hotels working with Amadeus has identified three trends that it believes will impact the hotel industry over the coming years. It says we may be seeing The Beginning of the End for Room Types along with The Rise of Tech-Augmented Hospitality.
• IHG also suggests that ‘cult’ brands may achieve scale. It says ‘the kind of status usually reserved for luxury or boutique hotels or consumer brands will be available for all, if they can build a loyal following of fans who feel an emotional connection.’
• Tui increases its capacity to Turkey by 45,000 seats for summer 2020, with the firm also adding an additional 2,000 hotels across 75 destinations.
• Abta has guaranteed the holidays of customers booked with tour operator Short Breaks, which ceased trading on Monday.
• Marriott International has announced a new 2,000 premium house rental initiative across the US, Europe, the Caribbean and Latin America, named Homes & Villas by Marriott International. Stephanie Linnartz, Global Chief Commercial Officer for Marriott said: ‘The launch of Homes & Villas by Marriott International reflects our ongoing commitment to innovation as consumer travel needs evolve’.
• The FT has claimed that Marriott International is the first major hotel company to directly combat Airbnb with its own home rental service, mentioned above. This follows Airbnb’s acquisition of hotel booking site HotelTonight and their purchasing of a stake in Indian hotel franchise, Oyo Hotels & Homes.
• PPHE Hotel Group has reported total revenue up 5.2% to 62.5m for Q1 2019. President & Chief Executive Officer of the group, Boris Ivesha said: ‘We are pleased to report a strong first quarter performance, with like-for-like revenue for the Group increasing by 8.1% reflecting good increases in occupancy and average room rate and the appeal of our portfolio and our rigorous focus on inspirational service delivery to delight our guests’.
• Tourist numbers arriving in Colombo, Sri Lanka, are expected to fall by 50% over the next two months following the Easter Sunday bombings.
• US hotel market impacted by capacity increases.
• STR reports that US hotels ‘experienced the ides of March as low monthly growth ended the industry’s first quarter on a sour note, and despite a new demand record, March’s supply increase is the highest in a year-and-a-half.’
• STR reports ‘RevPAR growth in March was 0.6%, which means that the Q1 result was 1.5%, well below expectations. Occupancy growth in March was non-existent (0%); but really it was negative (-0.0173%) when you look at the full number. This means, of course, that the rooms supply change (+2%) was equal to the room demand change (+2%). Room demand was the highest ever for a March (111 million rooms), but that does not really count for much. I mean, it’s a record and all, but that is just “as expected” these days.’
• Labour’s John McDonnell has told the BBC that Labour is planning a “revolution” for the UK economy. There were no details forthcoming. Mr McDonnell said Labour will be ‘transformative – because we are going to change society and that’s what’s demanded of us now.’ He says ‘we are in a hurry – because the issues are so desperate now.’
• Spotify has claimed it has reached an ‘important milestone’ in the surpassing of 100m paid subscribers globally.
• Shares in the parent firm to Google, Alphabet, have declined 7% from record highs after the group reported Q1 revenue slower than expected. The company said revenues were up 17% to $36.34bn, the slowest growth in three years.
FINANCE & ECONOMICS:
• The EY Item Club has suggested that Q1 may be a ‘false dawn’ for the UK economy as uncertainty weighs on growth and stockpiling goes (perhaps temporarily) into reverse.
• The EY Item Club expects 2019 GDP to come in at just 1.3%, down from earlier estimates of around 1.5%. EY says ‘delays to Brexit, a difficult domestic economic and political backdrop and slower global economic activity have resulted in a weaker outlook for UK GDP growth this year.’
• Sterling little changed at $1.294 and €1.1567. Oil unchanged at $71.76. UK 10yr gilt yield up 1bp at 1.16%. World markets better yesterday with Far East lower in Tuesday trade.
• Brexit, politics etc.:
o Labour’s National Executive meets today to thrash out the party’s policy on Brexit. Deputy leader Tom Watson is pushing for a confirmatory vote on any Brexit deal whilst Rebecca Long-Bailey says, if Labour can move the PM’s red lines, then why not just do the deal without further reference to voters’ wishes.
START THE DAY WITH A SONG:
Yesterday’s song was ‘Brimful of Asha’ by Cornershop, today who sang:
Sitting in a dreamy daze by the water’s edge,
On a cool summer’s night
Fireflies and stars in the sky
RETAIL NEWS WITH NICK BUBB:
• GFK Consumer Confidence: The widely followed GFK monthly survey came out overnight and although the overall index has remained stuck at -13, as expected by City economists. The GfK survey is headlined “Consumers keeping calm in April amid the Westminster carry-on”.
• Kingfisher: The Kingfisher Q1 on May 15th is unlikely to bring much good news on trading for the lame-duck CEO to impress the cynical City, but it will be accompanied by a Capital Markets Day in London that is likely to focus on the new store formats being conducted at B&Q and Castorama. The Store Design expert John Ryan has already been to see the new small store “Good Home by B&Q” format that opened yesterday in Wallington in south London (between Croydon and Sutton) and in his Newstores blog yesterday he said that “What do you get if you cross a new-look McDonald’s with a standard Argos branch and throw in some of the elements of a convenience store?”, noting that in terms of both look and feel, lessons have clearly been taken from the Screwfix formula for this store, although the counter and in-store ambiance are ‘softer’.
• News Flow This Week: The latest monthly Kantar/Nielsen grocery sales figures are out at 8am this morning (for the 4 weeks to April 20th/21st). The Apple Q2 results are out in the US tonight. Tomorrow brings the much-awaited Sainsbury finals, the Next Q1 update and the Ocado AGM. Thursday brings the N Brown finals and the Howden trading update. And the Intu Properties AGM update is on Friday.