Langton Capital – 2019-05-15 – PREMIUM – Numbers from MARS, SSP, CPG, CINE, TUI, JPJ & WMH etc.:
Numbers from MARS, SSP, CPG, CINE, TUI, JPJ & WMH etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I came across a description of a politician as ‘character impaired’ yesterday, which I thought was rather interesting.
Because, whilst being ‘character impaired’ may mean that somebody simply had an inability to understand the rules of cricket or to appreciate cheese, we all know that it means the blokes a sh1t and that the person coining the phrase, also a politician, had been grievously wronged by said character impaired individual in the Commons tea room or wherever.
Anyway, it’s a crazy busy morning with results so, without further ado, let’s move on to the news:
MARSTON’S H1 NUMBERS: Marston’s has this morning reported H1 numbers and our notes thereon are set out below: 15 May 2019:
Marston’s has this morning reported its H1 numbers and our comments thereon are set out below:
• Revenues are up by 5% to £553.1m with PBT for the period some 2% higher at £37m. EPS is 4.9p and the dividend is held at 2.7p
• The group has achieved underlying growth in all of its divisions with LfL operating margin in line with last year
Trading – Managed & Franchised Pubs:
• LfL sales are up by 2.2% and up by 3.2% in the last 10wks of H1
• The group has seen sales momentum improve slightly as the period has progressed
• Average profit per pub is up 1%
• H2 has started solidly with the group trading well over Easter & outperforming industry trackers
• LfL margin is in line with Destination & Premium margin down by around 10bps and Taverns’ margin up by a similar amount
Trading – Taverns:
• Taverns, which have traded well and have benefited from the wet-led nature of their sales, include some £400k of one-off costs ‘for the new pubs acquired in the period and the continued impact of conversion to franchised pubs.’
Trading – Beer Company:
• Brewing revenues are up by 8% with own-brand beers up 4% and operating profits some 8% higher
• Margins, having fallen a little in the wake of the Charles Wells acquisition, are in line with last year
Balance Sheet, Cash Flow & Debt:
• Due to the timing of dividend and tax payments, MARS registers a working capital outflow in H1 – but this was lower in FY19 than it had been last year, despite a c£6m stock build in case there had been a hard Brexit
• There will be a relatively minor net cash outflow for the year as a whole
• New build capex will be down by c£10m this year with total capex down by £30m this year and by another £25m to £30m next year
• Disposals (the group is targeting c£120m over the 2020-23 period) will further reduce debt and interest charges will be reduced by c£5m p.a. as a result of the rescheduling of debt within the group’s securitisation
• Pension contributions could be reduced as a result of triennial pension negotiations
• Charges will be unchanged over the remaining c15yrs of the securitisation but will be lower in the first 5yrs and somewhat higher in the last 5yrs
• Marston’s has announced that it will maintain its dividend over this period of debt reduction
Conclusion & Outlook:
• Marston’s is to invest c£1m in margin this year and next. Alongside the reductions in interest payments, this leaves room for upgrades of perhaps £1m net this year and £3m or so next year and in 2021
• CEO Ralph Findlay comments ‘I am pleased to report continued growth across all segments of the business.’
• He adds ‘our Taverns wet-led community pubs have built on the strong trading performance last year and it is particularly encouraging to see our food-led pubs once again achieving increasing momentum in profitable like-for-like sales growth.’
• MARS says ‘our leading Brewing business goes from strength to strength, winning new distribution contracts and continuing to grow market share.’
• CEO Mr Findlay concludes ‘we remain focussed on our strategic objectives and good progress has been made with our stated aim to improve cash generation and reduce the Group’s leverage. Whilst the backdrop of ongoing uncertainty around Brexit continues to be challenging, opportunities for growth remain and we are confident of delivering another year of profitable growth for our shareholders.’
• Marston’s has pointed to improved momentum during its H1 and into H2 with margins held at last year’s levels.
• The group has been benefiting from the recent recovery in wet-sales across the country and, though comps will be tougher against the heat wave and World Cup in H2 last year, the second half has started well. The warm weather around Easter will have boosted trade.
• There will be small upgrades on the back of today’s numbers as the reduced interest charge exceeds the modest investment in margin (i.e. targeted lower prices) that the company has announced.
• Marston’s shares continue trade on a PER of little more than 7x and a yield of almost 7.5%. This is cheap in the context of a company where the estate is still growing in terms of both size and quality and where debt is now falling.
• Trading comps will be more challenging in H2 but, as EIG pointed out yesterday, real wages are rising and unemployment levels are at historic lows. Marston’s has a estate of well-managed and well-maintained, largely freehold properties. It is selling product that the consumer would like to buy at a price they are prepared to pay.
• Lodges, craft brewing and food (in the longer term) remain growth areas. Marston’s is a major brewer and has a large wet-led element to its estate. Its managed houses are growing sales and holding margins. The group is well-placed to grow and to create further value for its shareholders.
ENTERPRISE INNS H1 ANALYSTS’ MEETING: Following the release of its H1 numbers yesterday, EI Group hosted a meeting for analysts and our comments are set out below: 15 May 2019:
• The group has ‘delivered its first increase in underlying EBITDA for many years’
• The bulk of the group’s operating profit (some 80% before the disposal of Commercial Properties & more after) comes from pub partnerships
• These are good number but H1 had good weather in February & is up against the Beast from the East in 2018.
• H2 will be considerably tougher. April weather was good but 2018 saw a sustained heatwave & the World Cup
• Both beer income and rents rose
• Unplanned failures impacted 44 units, up from 30 last year. This was ‘slightly disappointing’. It amounts to around 2% of the estate
• ‘Ordinary course of business’ disposals should trend down as the quality of the estate improves
• Rates relief measures announced by the government will benefit c73% of publicans
• The group is winding down its long lease, increasing the number of tenancies
• The MRO has given publicans a little more negotiating muscle. EIG alluded to this being less than 1ppt of earnings growth p.a.
• Whilst heavily sold off in H1 2019, this division will be built up again (and likely sold down again) over time
• Free of Tie units ‘are not long term holds’.
• There are ‘plenty of conversions to come’. Around 100-120 p.a.. The managed units should total say 400 by the end of this financial year
• Growth is being achieved without cost to margin. The group puts this down to experience, scale benefits etc.
• Whilst the division is growing LfL sales by 6% plus at the moment, a more sustainable level would be 3% to 4% says the company
• Managed investments should comprise c70 units by the year end. The first exit should be in FY21 (as these were anticipated to be 5yr investments). These are larger units with c£200k of EBITDA per site
• EIG will have the option of keeping the freeholds (and moving them to its Commercial Properties division) upon the sale of the opcos
Balance Sheet, Debt, Dividend etc.:
• Some £85m will be coming back to shareholders this year. This comprises c20% of the sale of the bulk of the group’s Commercial Properties plus c50% of available annual cash flow
• The group aims to refurbish its estate on a 5yr cycle
• A dividend was considered but, with the group’s shares trading at a discount to NAV, it prefers to buy back its shares.
• Comps are tougher.
• The group welcomes the fact that wages have been rising by more than inflation for a year or more now and that unemployment remains low
• H2 ‘has begun well & is in line with expectations.’
• As debt is retired, value should accrue to equity. That’s the plan and, at this stage, it is being executed well.
• The hot Easter will help H2 but, thereafter, comps will be tougher.
• EIG’s plan is solid and execution is going according to plan. That’s good news and, though the shares have risen in recent months, they should continue to merit support.
BOOK REVIEW: MANIAS, PANICS & CRASHES. CHARLES KINDLEBERGER – PUBLISHED 1978: Part II. 14 May 2019:
• Bubble behaviour is as old as the hills. It is contagious & hard to control. Charles McKay wrote in 1720 ‘when the rest of the world are mad, we must imitate them in some measure’. Chuck Prince of Citigroup said much the same thing in 2007 suggesting that little has changed in the last 300yrs.
Hard to deflate a bubble without causing collateral damage
• The cure may kill the patient.
• Irrational exuberance (Greenspan 1996) or perfect market? US stocks rose 13-fold in the period from 1982-99. At what stage were they ‘too high’?
• Bubbles often coincide with a willingness (or compulsion) to lend on the part of financial institutions.
• So how do you burst them? Moral suasion may cut little ice. Bagehot said you ‘should not starve a panic’.
• The authorities can’t save everyone from themselves. They should aim to ‘delay the death of the strong swimmers’. If the rescue is too early, it will cause inflation. It could be easier to clean up the mess than to prevent it.
• Too big to fail is a factor. Moral hazard that this can cause is also an issue.
GENERAL NEWS – PUBS & RESTAURANTS:
• SSP has reported H1 numbers for the 6mths ended 31 March 2019 saying underlying profit was up 14.6% at £62.5m with revenues up 6.8% to £1.26bn. The group says it has an ‘encouraging pipeline of new contracts with wins in North America, Brazil, India, Spain and France.’
• SSP CEO Kate Swann says ‘SSP has delivered another good performance in the first half of 2019, driven by strong sales growth, significant new contract openings across the world and our programme of operational improvements. We have continued to grow our global presence, particularly in North America and Asia, and we have further expanded our operations in Latin America. These are high growth markets for SSP and present us with exciting opportunities. Given this positive momentum, we are today raising our expectations for net gains in the second half of the year.’
• Ms Swann concludes ‘looking forward, the second half has started well and whilst a degree of uncertainty always exists around passenger numbers in the short term, we continue to be well placed to benefit from the structural growth opportunities in our markets and our programme of operational improvements.’
• Compass Group has seen revenue increased by 6.6% to £12.5bn during H1 2019, with operating profit rising 5.8% to £951m. The group has managed to maintain operating margins at 7.5% as operational efficiencies were offset by higher mobilisation costs. Commenting on the group’s results Chief Executive, Dominic Blakemore said: ‘Following the very strong first-half performance we now increase our organic revenue growth guidance for the full year and expect to deliver organic revenue growth and margin progression similar to 2018. We remain mindful of the macro uncertainty in parts of Europe and its impact on the business’.
• Leon Restaurants has now lodged calendar 2018 accounts with Companies’ House. The group reports sales up from £56.3m to £65.2m. EBITDA was £3.9m vs £3.6m with operating losses down from £762k last year to £701k. The group reports a loss before tax (after financing costs) of some £1.84m vs a loss of £1.83m last year. The group has lost £12.1m since incorporation but retains positive shareholders funds due to share issuance of £5.3m.
• UK wineries, breweries and distilleries have sold £7.3bn worth of alcohol overseas in 2018 a rise of 84% since 2007, according to data from the Department for International Trade.
• The founders of Rosa’s Thai, Alex and Saiphin Moore have announced plans to launch a new Chinese-inspired noodle shop concept Hoh Sek next month. The brand will focus on grab-and-go food, with its first outlet opening in London’s St Katherine Docks.
• The EU has fined AB InBev for blocking Belgian retailers from sourcing cheaper stocks of Jupiler beer from Dutch wholesalers. The EU’s competition commissioner, Margrethe Vestager, said: ‘AB InBev had deprived European consumers of one of the core benefits of the European Single Market, namely the possibility to have more choice and get a better deal when shopping’.
• Data from the Tax-Free World Association (TFWA) has found that spirits sales in global travel retail have increased by 10.2% in 2018 to $75bn. TFWA president Alain Maingreaud warned, however, that per person sales have decreased, and that the industry needs to do more to prevent customers from going online for their purchases.
• EI Group shares rose 6% yesterday as the group released H1 numbers showing that plans were on track and that sales had been boosted by good weather.
• KERB, which already has a Friday market running at St Katherine’s Dock, is to double its presence by adding a Thursday market featuring traders from its inKERBator programme.
• The Ivy Collection appoints former Director of Operations Baton Berisha as Managing Director.
• Shake Shack will open at intu Lakeside in Essex on 16 May.
• Gregg’s gets a good press today on the back of sales boosted by the sale of vegan sausage rolls. Gregg’s shares rose 15% yesterday.
• Propel reports that Abokado owner KPC could be looking to exit the business.
• The Financial Ombudsman has said that complaints against payday lenders are running at 5yr highs. The Consumer Finance Association says ‘these figures show a deeply disappointing increase, driven by a flood from claims management companies and we continue to see many a complaint that has no foundation.’
• The BBPA has stated that the Government should work towards a fair, industry-led and effective UK-wide Deposit Return Scheme (DRS) that excludes glass. Brigid Simmonds, Chief Executive of the BBPA commented: ‘The BBPA believes a UK-aligned DRS scheme for single use materials used for on-the-go packaging remains the optimal solution. We certainly do not believe that the additional costs and challenges with including glass can be justified’.
• Following a successful direct-to-car delivery trail in Mexico City, Burger King is set to employ motorcyclists to deliver food to LA drivers stuck in traffic jams.
• JW Lees has hired David Grosfils as Director of Operations, formerly of Hallmark Hotels, replacing retiring Tony Spencer. William Lees-Jones, Managing Director of JW Lees said: ‘We are sad to see Tony retire but delighted to welcome David as we embark on the next chapter of the JW Lees 191-year history with our Hotels & Inns division forming an important and growing part of our wider business interests’.
• The WSTA has called on Michael Gove to resist including glass in the proposed deposit return scheme. The WSTA says this would cost around 3.3p per bottle and adds that the cost would ultimately sit with the consumer.
• Walmart is reported to be ‘seriously considering’ an IPO for ASDA.
HOLIDAYS & LEISURE TRAVEL:
• Tui has reported H1 numbers showing that underlying EBITA decreased 77% to a loss of EUR 301m, while revenue increased 1.7% on a constant currency basis to EUR 6.7bn. The group said that the fall in profits reflected: ‘the ongoing weak demand environment in Markets & Airlines’.
• Tui commented on current trading in their H1 statement, remarking: ‘For Summer 2019, 59 % of the total programme has been sold compared with 62 % at this time last year. Bookings are down 3 %, with average selling price up 1 % against strong comparatives’. Tui continued with: ‘All markets are trading on lower margins than the prior year, given the weaker demand environment and oversupply to some destinations such as Spain’.
• American Express Global Business Travel forecasts European business travel spend to increase by 4.3% in 2019. The study showed a 3.8% increase yoy in travel spend in 2018. Cost control takes precedence as a managed travel priority, followed by data security.
• Vinci, the French global airports operator, completes the purchase of a 50.01% stake in Gatwick for a reported £2.9bn. Gatwick said ambitious plans for the future remain, with a further £1.1 billion capital investment programme set to deliver a more passenger improvements by 2023.
• STR has found that the number of new hotel rooms on opening in Europe in April 2019 increased by 48.6% on the same period last year.
• STR has reported that US hotels increased the number of rooms on offer in April 2019 by 9.9%. Jan Freitag, STR’s senior VP of lodging insights commented: ‘There has been ongoing acceleration in construction activity, and even though the national total is still more than 7,000 rooms below the previous construction peak in 2007, this is a situation worth watching’.
• Cineworld reported on trading for the period between 1st January and 12th May 2019, stating group revenue down 9.4%. The group opened four new sites during the period. Mooky Greidinger, Chief Executive Officer said: ‘The relatively slow start to the year in the first four months has come as no surprise as the comparative period in 2018 was extremely strong; Avengers Endgame was always set to be the beginning of real strength in this year’s slate’.
• Commented on current trading Cineworld stated: ‘We are confident that the strong film release line up in the balance of the year, which includes highly commercial titles, such as “Lion King”, “Frozen 2”, and the most anticipated movie of them all “Star Wars: The Rise of Skywalker” will enable us to achieve results which meet our expectations for the full year’.
• William Hill has updated on trading for the 17 weeks to 30 April 2019 saying group net revenue was 2% ‘reflecting year of transition in Retail and Online’. WMH says the ‘full-year outlook [is] in line with expectations assuming normalised gross win margins for the remainder of the year.’
• WM Hill CEO Philip Bowcock says ‘online continues to show good momentum as we focus on growing our mass market customer base, while Retail has begun to adapt to the new £2 machine gaming stake limit.’ He says ‘the impact of the introduction of the £2 stake limit has been in line with our expectations. We are confident in our plan to manage this major change, and will update more fully at the half year.’
• JPJ (was Jackpot Joy) has released results for Q1 to end-March saying trading is in line with expectations & that gaming revenue was up 13% year-on-year, with adjusted EBITDA up 16%. CEO Neil Goulden says ‘I’m pleased to report that the Group has delivered another good quarter of growth. Group revenues were up 13%, driven by a strong performance in Vera & John, while adjusted EBITDA increased by 16%.’
• JPJ says ‘the Board is currently comfortable retaining significant cash on the balance sheet given the optionality which this confers and we will update the market at our interim results with respect to our plans to return cash to shareholders.’
• Manchester City says it has proof that will refute allegations that it is breaching the “financial fair play” rules imposed on football clubs across Europe.
• Walt Disney Co has announced it will take control of Hulu as it expands its video streaming offering. The agreement values Hulu at $27.5bn.
FINANCE & ECONOMICS:
• The UK unemployment rate fell to 3.8% in the first quarter of this year reports the ONS. This is the lowest level since 1974.
• ONS reports slight slowdown in the rate of wage growth in the UK in the year to Q1. Wages up 3.3% compared with 3.4% in the period to end-Feb.
• NIESR comments saying that real wages are still in growth. The observers state ‘going forward, our monthly Wage Tracker suggests that regular pay growth will stabilise at 3½ per cent in the second quarter of this year. With CPI inflation stabilising at around 2 per cent, this points to annual regular real pay growth of around 1½ per cent in the first half of 2019.’
• Sterling lower at $1.201 and €1.1518. Oil price higher at $70.96 and UK 10yr gilt yield up 1bp at 1.10%. World markets all higher yesterday with Far East up in Wednesday trade.
• Stocks bounced globally yesterday as President Trump got out of bed in a better mood & played down the risks of a Sino-US trade war.
• Brexit, politics etc.:
o A spokesman for no10 said the UK is still making preparations for leaving the European Union without a deal. The current default position is that Britain will leave the EU on Oct. 31 without a deal if an agreement has not been ratified by parliament before then.
o Ministers are said to be drawing up secret contingency plans for the collapse of British Steel.
o No10 has said it is “imperative” to ratify Britain’s exit from the European Union before the summer break.
o No10 under pressure to break off talks with the Labour Party re a Brexit compromise.
START THE DAY WITH A SONG:
Yesterday’s song was ELO with Mr. Blue Sky, today who sang:
In restless dreams I walked alone,
Narrow streets of cobblestone
Neath the halo of a street lamp
RETAIL NEWS WITH NICK BUBB:
Kingfisher: Ahead of the Capital Markets Day event today (which will focus on “Innovation” and the new B&Q small store format) Kingfisher has announced a Q1 trading update (to April 30th) and, given how soft the comps were, the modest 0.7% LFL sales growth is slightly disappointing. The UK was only up 3.4% LFL (with Screwfix only up 4.5%) and France was down by 3.7%, although the key business sin Poland was up 6.2% LFL. The embattled CEO Véronique Laury, says: “At this early stage of the year our expectations for the full year are unchanged, and we remain confident in our ability to deliver significant financial benefits over time”.
Moss Bros: Ahead of its AGM today, Moss Bros has announced a trading update and with Retail LFL sales running 2.2% up over the last 15 weeks there has an improvement since the finals in March. Despite challenging conditions in the Hire market, management say that the business is on track to meet full-year market expectations.
Waitrose Watch: The much cooler weather year-on-year again dampened down supermarket sales last week, with yesterday morning’s JLP weekly overview, for w/e May 11th, revealing that Waitrose reported a 3.5% fall in gross ex-petrol sales, to continue the weak start to Q2. That left the last 15 weeks up by 0.7% gross cumulatively (also up by c0.7% LFL, as there are no new stores).
John Lewis Trading Watch: The cool/wet weather last week again worked in favour of John Lewis, with gross sales up by 0.6%. In terms of sales mix, Fashion/Beauty sales were up by 0.2% gross in w/e May 11th and Electricals were 3.4% up gross, but Home sales were down by 3.3% gross. John Lewis LFL sales are now running c4% down over the last 15 weeks (down 2.9% gross).
News Flow This Week: The World Retail Congress conference continues in Amsterdam today and this evening the Drapers Digital Awards are being held in London. Tomorrow brings the Burberry finals and the Asda/Walmart Q1 update, as well as the Next AGM and the first closing date for the Spectre “offer” for Bonmarche.