Langton Capital – 2019-05-14 – PREMIUM – EI Group, Gregg’s, On the Beach, Stock Spirits etc.:
EI Group, Gregg’s, On the Beach, Stock Spirits etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Too many results this morning. On to the news:
ENTERPRISE INNS H1 NUMBERS: EI Group has this morning released H1 results for the six months to end-March 2019 and our comments are set out below. 14 May 2019:
• EI Group reports underlying EBITDA up to £140m from £139m in the same period last year
• Underlying PBT is £59m against £57m in 2018
• Underlying EPS is 10.8p vs 9.8p last year. There is no dividend (as expected) and NAV is 332p per share (2018: 326p)
• Pub Partnerships’ saw LfL net income up 1.9% ‘with growth across all geographic regions’
• EIG achieved average annualised net income per pub up 2.7% to £83,100 (H1 2018: £80,900)
• Commercial Properties:
• EI Group reminds investors that it completed the disposal of 348 commercial property assets for net proceeds of £332.7 million earlier in H1
• This was ‘in line with the tangible net book value of the assets and representing a 13 times multiple of earnings’
• The group now has a total ‘portfolio of 83 (H1 2018: 351) properties of which 22 are expected to be sold, subject to superior landlord consent, for £11.4 million over the coming months’
• EIG says ‘the retained portfolio of 61 properties generates net annualised rental income of £4 million with average annualised net income per property of £65,600 (H1 2018: 351 properties generated net annualised rental income of £25 million with average annualised net income per property of £68,600)’
• Managed Pubs returned LfL sales growth of 6.0% (H1 2018: up 6.6%) ‘across our largely wet-led managed house businesses’
• EIG says managed ‘growth [is] on track with 357 (H1 2018: 276) pubs trading within our wholly-owned managed division’
• Managed Investments continues to make progress ‘with 62 (H1 2018: 43) pubs trading with 11 specialist partners’
Balance Sheet, Debt etc.:
• EI Group says it has a ‘revised capital allocation framework to maintain debt reduction whilst facilitating increased returns to shareholders’
• It has ‘strong net cash flows from operating activities of £132 million (H1 2018: £125 million)’
• It says that its ‘ordinary course disposal proceeds of £22 million (H1 2018: £34 million) partially funded capital investment of £45 million (H1 2018: £42 million)’
• The group has undrawn bank facilities of £150 million at 31 March 2019
• Net debt was reduced to £1.7 billion at the end of H1 (H1 2018: £2.1 billion)
• EIG has announced an additional £30 million share buyback to deliver a total programme of £85 million in the current financial year
Company comments on performance:
• CEO Simon Townsend reports ‘we are pleased with the trading performance of our Group for the first half of the year.’
• He says ‘we continue to deliver sustained like-for-like net income growth within our core Publican Partnerships business and are generating strong returns as we expand our Managed Operations and Managed Investments businesses.’
• Mr Townsend continues ‘despite an environment of unprecedented political uncertainty and inflationary pressure from increases in the national minimum and living wage, consumers continue to support their local pub.’
• The group says ‘this consumer resilience, combined with excellent operational execution and effective capital investment, provides us with the confidence that we can maintain our growth momentum for the year as a whole, despite some challenging comparative trading periods ahead of us in June and July.’
• The company concludes ‘we are using the significant cash proceeds received from the transaction [the sale of the bulk of the company’s commercial properties] to accelerate our debt reduction plans and to deliver value to our shareholders. We are pleased to announce today a further £30 million share buyback programme, in addition to the £55 million programmes previously announced in this financial year.’
• EIG has reassured that it continues to deliver on its strategy.
• The group has benefited chiefly from its own actions but has also been helped (in its largely wet-led estate) by a shift in favour of drink over food and by the warm weather in February.
• The hot Easter will help H2.
• EIG says that comps get a tougher in the summer (the World Cup and hot weather last year) but the group can only play the ball that it is bowled and it is doing well.
• 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.
BOOK REVIEW: MANIAS, PANICS & CRASHES. CHARLES KINDLEBERGER – PUBLISHED 1978: Although more than 50yrs old, Mr Kindleberger’s book, written before the ’87 crash, the dotcom boom and the credit crunch, remains a classic. It has been periodically updated to include more recent events. 14 May 2019:
• Bubbles come in waves. They are often linked to cheap money. The cheap money itself was either 1) available as a result of some financial ‘innovation’ (think CDOs squared etc.) or 2) it was sometimes put in place to help the economy because a previous bubble burst (think the credit crunch after years of easy money put in place to mitigate the effects of the dotcom correction.
No such thing as a free lunch:
• Mr Kindleberger says there is always a day of reckoning. Borrowers lose first & then lenders. Banks own you if you owe fifty grand. You own them if you owe 10,000x that much.
• Bubbles can lead to crises that lead to the next bubble (e.g. overly easy credit). There were a lot of books published in the wake of the 2008 crunch, the 6th edition of this book amongst them.
• Asset prices ‘often’ fall to 30% to 40% of their previous level (i.e. a 70% decline).
• On the way up, for example, people feel they have to get on the train before it leaves the station. This becomes a bubble when it cannot be explained by the fundamentals.
• Pyramid and Ponzi schemes are an attempt to take advantage of the psychological desire to invest via a ‘new formula’.
• Governments cannot rewire individuals – but they can dampen contagion.
• Bubbles are much, much, much easier to see in hindsight than they are in advance.
Anatomy of a bubble.
• Bubbles start (often) with an ‘invention’. This may or may not be a fabrication. Most manias begin rationally – but they lose touch with reality.
• Mania to get involved. During this stage, the bubble is highly contagious. People think speculators ‘are mad’ – but they still get involved. This is the ‘euphoria’ stage.
• The weight of buyers exceeds that of sellers. Prices may be ‘displaced’. They may ‘gap up’.
• The mania may have quasi-religious attributes. There are true believers. Apostles & financial missionaries spread the word.
• But the sellers run out of money, there is a panic to sell and the exits are blocked.
• Caution => distress => panic => rout. This is ‘eerily consistent’. During & after the rout is the ‘revulsion’ stage.
• Defining the straw that breaks the camel’s back may be hard or impossible. The ‘causa proxima’ may be trivial. It could be new information or a bankruptcy.
• These are many and varied. Beyond the top, the misuse of information is common.
• Spotting bubbles is difficult. James Gibbons said in 1859 ‘there is perhaps no record of a bank fraud of which the perpetrator was not honest yesterday’.
• The bad guys may flee & it is hard to punish the malfeasants. This can lead to extraordinarily harsh sentences – medieval executions, 150yrs for Bernie Madoff etc.
• And there’s more. Will scan Langton’s notes & possible complete tomorrow. For the moment, we’re running out of time.
GENERAL NEWS – PUBS & RESTAURANTS:
• Stock Spirits have announced revenue increased 8.2% to €156.9m and adjusted EBITDA climbed 4.2% to €33.5m, the six month period ended 31st March 2019. The company stated that it will increase its dividend by 5.2% to 2.63 cents. Mirek Stachowicz, Chief Executive Officer, said: ‘We delivered a strong organic growth performance in our core markets of Poland and the Czech Republic in the period, achieving strong increases in market shares, volume, revenues and profit. Looking to the future, the recently announced acquisitions in Italy and the Czech Republic are a clear sign that we are committed to delivering growth both inorganically and organically’.
• Greggs has reported total sales up 15.1% for the first 19 weeks of 2019, with LfL sales increasing 11.1%. During this period the group opened 38 new stores while closing 22. Commenting on trading the group said: ‘Looking forward, the sales comparatives from 2018 become progressively stronger but we now anticipate materially higher sales for the 2019 year as a whole than we had previously been expecting’.
• According to a survey conducted by vegetarian food brand Linda McCartney, one in ten British children are choosing to give up meat. Over 40% of the children who described themselves as vegetarian said they were doing so to be kinder to nature and animals.
• UKHospitality has welcomed the Local Government Association’s call to shake up the apprenticeship programme and reform of the apprenticeship levy. Chief Executive Kate Nicholls said: ‘Apprenticeships can be very useful for both employers and employees, providing opportunities to earn and learn while getting a valuable first step on a career ladder. It is clear, though, that the current system is in need of reformation if it is to be effective’.
• Leon has seen LfL sales increase by 15% in 2018, with full-year revenue up 24.5% to £95m. The group reported EBITDA of £3.9m a growth of 8.3% on last year.
• UKHospitality has restated that it believes the Government’s measures to reduce packaging waste must be proportionate and workable for business. Chief Executive Kate Nicholls said: ‘If the Government is serious about supporting such efforts, then any new measures that are introduced need to be workable, practical and affordable. If businesses begin to incur further costs, then the hard work they are already doing is likely to be undermined’.
• Discounts picking up. Pizza Express, Prezzo & Caffe Rouge 25% off food. Domino’s 25% off orders over £30. Bella Italia 30% off food & Bar & Block (WTB) 2-4-1 on mains.
• An estimated 10% of UK town centre shops are lying empty, according to data from the British Retail Consortium. The BRC’s chief executive, Helen Dickinson, said: ‘Empty shopfronts, particularly for larger stores, can deter shoppers from an area. This effect can be cyclical, with the long-term decline in footfall pushing up vacancy rates, particularly in poorer areas’.
• In the US, the NPD Group reports there were 3bn servings of coffee ordered at quick-service coffee shops in the year ended February 2019, up 4% yoy. The research shows specialty coffee drove most of the growth in away-from-home coffee consumption.
• Chapel Down Group announces Curious Brewer’s new facility will be opposite Ashford International railway station, a 1.6-acre site with a capacity of 2,900hl.
• Crussh is set to roll out into 61 Sainsbury’s convenience stores on 13 May following a successful trial at 10 sites.
HOLIDAYS & LEISURE TRAVEL:
• For the six months to the 31st March 2019, the online travel agent On the Beach has seen revenue increased 41% to £63.5m with group profit rising 5% to £4.7m. Simon Cooper, Chief Executive of On the Beach Group plc said: ‘On the Beach has delivered a solid performance in H1, despite continuing uncertainties around Brexit, with modest booking and revenue growth supported by the ongoing benefits of improved marketing efficiency which resulted in a growth in adjusted PBT of 14%’.
• Jet2.com is introducing Nando’s products to its in-flight menu, including a dip, drizzle and dunk Nando’s Box.
• STR has reported that London hotels have seen a 2.3% increase in supply during April 2019, while occupancy fell 1.6% to 81.1% as did RevPAR by 0.1% to £115.99. The average daily rate for London hotels in April increased by 1.4% to £143.01.
• Uber’s share price has declined another 8.5% following its IPO, amid wider stock market turmoil. Since listing on Friday Uber has seen $18.6bn wiped off its market valuation to $63.7bn.
• Finablr considers delaying or restructuring its IPO after struggling to drum up enough interest. The financial services firm had hoped to raise at least £154m from the float and -attract a valuation in excess of £2bn.
• Bolton Wanderers has become the first English football team to enter into administration for six years. The club has been given to two weeks to appoint an administrator following an unpaid £1.2m tax bill. Unlike a highstreet CVA, there is a price to pay for Bolton, as the club is most likely to suffer a points deduction in next year’s season, further deepening their woes.
• US customers have been given the go-ahead by the Supreme Court to sue Apple over app prices after consumers argued there was no alternative place to buy iPhone apps.
• Escape Hunt yesterday afternoon reported that it had successfully placed 6.67m shares at 60p to raise £4m before expenses to fund further expansion. CEO Richard Harpham comments ‘the board is delighted with the ongoing support shown by existing investors and wishes to welcome new shareholders at this exciting time in the company’s development’.
FINANCE & ECONOMICS:
• Bank of England deputy governor Ben Broadbent has warned that a further delay to Brexit could lower business investment further. Mr Broadbent said ‘it’s pretty clear that investment has been feeling the consequences of the uncertainty about Brexit and particularly the possibility of a bad outcome.’
• China is to impose tariffs on $60bn worth of US goods in the latest escalation of a trade war between the world’s two biggest economies.
• Sterling down at $1.296 and €1.1525. Oil down at $70.45. UK 10yr gilt yield down 5bps at 1.09%. World equity markets all lower yesterday with Far East down in Tuesday trade.
• Brexit, politics etc.:
• The Tory Party has slipped to 5th place in opinion polls that now show the governing party would poll fewer votes than the Green Party. Mrs May remains under pressure to set a date for her own departure.
• FT reports ‘there is a growing panic inside [Mrs May’s] cabinet over the outlook for Brexit.’ Ministers are said to have given up hope of securing an agreement with Labour.
• Jacob Rees Mogg told LBC ‘the majority of the people at [Conservative] associations I’m addressing — and these are members of the party — tell me they’re voting for the Brexit party.’
• Honda has said there are ‘no viable’ alternatives to the closure of its Swindon plant.
START THE DAY WITH A SONG:
Yesterday’s song was Toothpaste Kisses by The Maccabees. Today who sang:
Runnin’ down the avenue,
See how the sun shines brightly in the city
On the streets where once was pity
RETAIL NEWS WITH NICK BUBB:
Greggs: Back on 7 March, with the finals, Greggs reported a very strong start to 2019, with LFL sales growth of 9.6% in the first seven weeks of the year. This built on a strong finish to 2018 and was further boosted by the publicity surrounding the launch of the famous “vegan-friendly sausage roll”. At that point, Greggs expected things to slow down, but today they have announced that sales since then have continued to grow very strongly and that for the 19 weeks to 11 May LFL sales grew by as much as 11.1%. The year is still yet young, but Greggs have now decided that full-year sales and profits are going to be “materially higher than its previous expectation”.
Retail Property Watch: Most of the focus in the world of shopping centre landlords is on the problems of Intu,, but today has brought the finals from Land Secs, who owns shopping centres like Westgate Oxford, Trinity Leeds and White Rose Leeds (as well as 30% of Bluewater and 50% of St David’s Cardiff). And the CEO says “We see no near-term improvement in retail market conditions, with CVA activity set to continue”, but fortunately the business is also big in London offices. Tomorrow brings the finals from rival British Land (which owns a ton of secondary shopping centres, as well as the likes of Meadowhall and retail parks like Fort Kinnaird in Edinburgh).
Rich List Watch: We flagged yesterday that the beleaguered Philip Green and his one-time friend Mike Ashley (aka #MadMike) had fared badly in the annual “Rich List” in the Sunday Times, but other retailers still did well. Way up the rankings were the Weston family (of Selfridges and ABF fame), whilst the Lewis family behind River Island were also well placed. Otherwise, the discounting sector saw plenty of success stories: Tom Morris of Home Bargains was estimated to be worth £3.6bn, the Arora brothers behind B&M were said to be worth £2.3bn and Chris Dawson of The Range was estimated to be worth £2bn. We also spotted that the owners of Specsavers, Douglas and Mary Perkins, were thought to be worth as much as £1.8bn.
News Flow This Week: Tomorrow brings the Kingfisher Q1/Capital Markets Day, whilst the World Retail Congress conference continues in Amsterdam. On Thursday we get the Burberry finals and the Asda/Walmart Q1 update, as well as the Next AGM, the first closing date for the Spectre “offer” for Bonmarche and, in the evening, the Drapers Digital Awards.