Langton Capital – 2019-07-19 – PREMIUM – SSP, DP Poland, EI Group, Deliveroo etc.:
SSP, DP Poland, EI Group, Deliveroo etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Whilst it’s never troubled me before, I’ve decided that I wouldn’t want to swap places with a locust.
Because, though you probably get to eat as much as you can in your short life, there is quite a lot of downside.
Not least of which is that, as we now own a bearded dragon, we know that many of said insects are bred for one purpose and one purpose only and that doesn’t comprise blighting some local farmers wheat crop.
Because the little darlings that we come into contact with are stuffed in a box, posted via Royal Mail to our house in the pitch black and are given a good shaking into the bargain.
They then get briefly exposed to the outside world only to be stuffed in a cupboard. This followed by a bit more shaking, exposure to the bright lights of a vivarium and the last thing that they see is the inside of a hungry reptile’s mouth before they journey down its digestive tract.
Not very appealing but, compared to the role of stockbroker in this post MIFID II environment, at least there’s some certainty to how things will end. On to the news:
PRIVATE COMPANY RESULTS: Park Holidays UK Limited, one of the largest caravan park operators in the country, has reported Dec 2018 results to Companies House. 19 July 2018:
• Park Holidays runs 30 holiday parks ‘that are located in coastal locations in the south of England with the majority of the parks being within a two hour drive time of London.’
• It says its ‘major revenue streams of the business are derived from the sale of holiday homes, rental of pitches to holiday home owners and short term holiday lettings.’
• In addition, the company sells food and drink on-site.
• The group says it will expand its offer and look for the opportunity to make new park acquisitions in addition to acquiritn land adjacent to current parks
• KPMG is the auditor & the group has a clean audit report
• Park Holidays says ‘despite the ongoing uncertainty surrounding the impact of Brexit, during the year to 31 December 2018, the UK economy was relatively stable with continuing low interest rates and slight growth in residential property values.’
• The group says ‘lodge and larger caravan sales remained popular during 2018 with all parks now including these products in their sales mix, usually located on premium plots within parks.’
• The company has ‘driven a strong increase in repeat bookings and an improvement in online review feedback and ratings.’
• Interestingly, Park Holidays says ‘glamping is beginning to make its mark on the leisure industry and with that in mind, the Company has invested in 40 ‘Camping Pods’ that will be introduced to four parks during 2019.’
• The group acquired two new parks during the year and entered into a second sale-and-leaseback deal. Such deals now cover 22 of the company’s parks
• Park Holidays says ‘the current uncertainty surrounding Brexit could be impacting potential holiday home buyers’ decisions given that the purchase of a holiday home is a substantial investment for what is essentially a luxury product.’
• Despite that, staycation demand could be boosted & Park says this ‘could result in attracting new customers that otherwise would have taken a holiday abroad.’
• Park reports that revenue rose to £154.8m from £148.2m in the prior year.
• Gross profit was £91.6m, or 59.2% versus 58.4m in the prior year.
• Expenses rose 8% and financing costs rose by a factor of 7.6x to £6.7m.
• PBT fell to £31.9m (post tax £21.9m) from £33.1m in 2017.
• The group has shareholders’ funds of £350m and retained profits of £184m, both numbers up slightly after the £21.9m of profit was retained and a dividend of £19.6m was paid out to shareholders.
• The group has tangible fixed assets of £419m & net debt (finance leases) of £176m.
• Private companies are less visible than their quoted peers.
• Park has grown organically & by bolt-on acquisitions. Rival Parkdean was previously listed. The latter merged with Park Resorts in 2015.
• Staycations will be a boon. Currency weakness helps with demand. Supply (of caravans) should not be disrupted (as they are manufactured in the UK), though suppliers will have their own issues to deal with.
• This is, hopefully, a Steady Eddie business.
• The risk will be if it is geared too heavily. Whilst there is little to suggest that this is a short term problem, it would either take the form of bank debt (or bonds) or finance leases or lease liabilities post the ongoing sale and leasebacks.
• Park, as with most consumer-facing operators, cannot determine demand for its product. It can only be best in class and service whatever demand results.
STONEGATE AND EI GROUP TO FORM LARGEST PUB COMPANY IN THE UK: Another leisure company goes private. Here a few thoughts on the merger. 19 July 2019:
• Both Stonegate and EI Group are large companies already. The options for new synergies decline with scale and it is unlikely that beer, food or labour will be purchased much more cheaply by the enlarged company.
• However, it does make sense to have choices. To have different brands between which managed units can be shuffled and to have the option of moving managed houses onto a lease or leasehold units into the managed estate.
• In this, the enlarged entity will be morphing towards the shape achieved by the massive ‘Beerage’ companies prior to the Beer Orders (now rescinded) splitting them up post 1989.
• A brewery is less likely these days (given the move to food, alternative drinks, accommodation etc.) but it is by no means out of the question.
An eventual exit?
• A Stonegate IPO will likely be rumoured.
• Despite raising its profile with analysts recently, the group has ruled this out and, as is plain, it hasn’t already happened.
• TDR is said to be a happy holder – but to some extent that will depend on what its fund subscribers want to do over the longer term
The search for permanent capital:
• At the time when funds are raised, they will usually say over what length of time they expect to first invest and then divest their holdings
• If fund holders want out, then Private Equity may be obliged to either sell holdings or raise new funds (with a longer time horizon) and shuffle holdings between them
• We are uncertain of the situation at TDR. Whilst Buffett is an exception, however, we would suggest that most private equity holders will be looking for an exit at some point
• The EI Group team have achieved a great deal during their tenure. The board directors, however, will be leaving the enlarged company
• Stonegate CEO Simon Longbottom concedes that the deal is much larger than any Stonegate has undertaken before but says the expanded group would be better able to contend with industry challenges.
• EI Group is reported to have rejected two offers before agreeing on the 285p in cash exit price. The FT quotes outgoing EI Group CEO Simon Townsend as saying ‘Stonegate’s management team and their owners have a good track record of continued investment in UK pubs. I would say that the prospects for the future of this combined entity are good.’
GENERAL NEWS – PUBS & RESTAURANTS:
• SSP has updated on Q3 trading saying it ‘had a good third quarter and made further progress on its strategic initiatives. Total Group revenue increased by 9.2% on a constant currency basis, comprising like-for-like sales growth of 2.0% and net contract gains of 7.2%. At actual exchange rates, total Group revenues for the period increased 10.3% year-on-year.’
• The group adds ‘in the UK, like-for-like sales growth was in line with our expectations, with stronger like-for-like sales growth in the air sector compared to rail. In Continental Europe, like-for-like sales continued to be held back by slower passenger growth in the Nordic countries and the impact of airport redevelopment activity in this region and in Spain.’
• In North America, SSP says ‘like-for-like sales growth was driven by increasing passenger numbers, although some of our airports have been impacted by the grounding of Boeing Max 737 aircraft and the transfer of passengers away from our terminals.’
• Overall, the group says ‘looking forward to the full year, our expectations remain unchanged and whilst a degree of uncertainty always exists around passenger numbers in the short term, we continue to benefit from the structural growth opportunities in our markets and to create further shareholder value.’
• SSP will report full year numbers on 20 November.
• DP Poland has updated on H1 trading saying its system sales grew 10% with LfL sales turning positive once more from March.
• The group now has more sub-franchisees in place and it says 80% of orders are now made online.
• DPP says LfL sales were ‘building’ from March this year. LfL sales rose 5% in the March to June period with order count up 6%. LfL sales were down by 1% over the H1 as a whole.
• DPP reports that 3 corporate stores have gone to 2 new sub-franchises from 1 July. The group now has 67 stores in 28 towns and cities. Some 4 new stores were opened in H1 2019.
• DPP chairman Nick Donaldson reports ‘the first half of 2019 has seen momentum return to like-for-like performance following the strong comparatives driven by TV advertising in January and February 2018.’
• Mr Donaldson adds ‘like-for-like order count has grown 6% since March. Total System Sales grew 10% in the first half as a result of like-for-like performance and new store openings. Our efforts in sub-franchisee recruitment are bearing fruit with 2 additional sub-franchisees acquiring/agreeing to acquire 3 corporate stores between them this month We have also entered into 3 more management contracts with 1 of our existing sub-franchisees.’
• DPP will report H1 numbers on 24 Sept.
• Anheuser-Busch InBev is reported to be considering selling off business units in South Korea, Australia and Central America to cut its debts after cancelling the planned IPO of its Asia-Pacific unit. The Wall Street Journal suggests that the world’s largest brewer hopes to raise at least $10 billion via disposals.
• Deliveroo is to launch a platform on which restaurant operators can buy ingredients. The new Food Procurement arm should allow restaurants to buy ingredients and supplies at better prices through Deliveroo. The delivery company would like to offer a one-stop shop for restaurants.
• Deliveroo says that it could have up to 5,000 restaurant partners on its platform by the end of the year. Both Punch Taverns and Enterprise Inns (EI Group) offer or offered central buying services to their tenants.
• Deliveroo suggests that restaurants will be able to save more than 20% on their ingredients bills while smaller independent outlets could save 40%. Suppliers will take the hit though deliveries and the like could be streamlined. Efficiencies are a good rather than a bad thing but arguably nothing incremental will be created and the cost of goods, preparation and delivery remains a zero-sum game.
• Deliveroo says ‘food procurement is an exciting new service for restaurants, which will cut costs while raising the quality of ingredients. By using our size and scale to negotiate great prices we can both simplify the procurement process and help independents and chains can make big savings.’
• The company says ‘restaurants and their suppliers are the winners. And of course this is great news for customers, as restaurants cook with better quality ingredients.’ Deliveroo was earlier this month told to halt any integration plans that it had in progress with shareholder Amazon.
• BBPA CEO Brigid Simmonds reacts to Southwark Council’s decision to introduce a late-night levy by saying ‘Introducing a late-night levy is a backward step for Southwark. Late-night levies don’t effectively address alcohol-related issues. Instead, they unfairly tax well-run and responsible businesses such as pubs – many of which are SMEs already struggling to get by.’
• On the same topic, UKHospitality CEO Kate Nicholls said ‘By introducing a discredited tax, that the House of Lords recommended be abolished, Southwark Council has proven it only cares about revenue-raising, rather than supporting the local community. Local businesses, their employees and customers are the ones who will suffer.’
• A survey by OnBuy.com finds around 70% of consumers think pop-up shops can revitalise UK retail.
• The International Organisation of Vine and Wine (OIV) reports 2018 global wine production up 17% yoy. Italy retained its crown as the world’s leading wine producer with a total volume of 54.8mhl.
• Waitrose is set to close three stores and sell a further four to rival operators in a move that could cost 667 jobs.
• Retail sales last month were stronger than had been anticipated reports the ONS. It says the volume of sales grew 1 per cent in June versus the previous month. The ONS says ‘retail as a whole saw a return to growth in the month of June, mainly due to growth in non-food stores with increased sales in the second-hand goods, including charity shops and antiques.’
• Remy Cointreau has reported revenue up 0.4% during Q1 2019-2020 to €223.2m. The group stated it anticipates that the rest of 2019/2020 will be within the company’s medium-term objectives.
• Amazon Prime Day has been its records with 175m products being sold in the 48-hour flash sale. Amazon UK country manager Doug Gurr said: ‘Every year, we look forward to offering Prime members great deals across everything they need from homeware and fashion to the latest in tech and our own devices’.
• Richard Caring has announced his intention to convert the former Barbecoa site in London’s St Paul’s into a second Ivy Asia site.
• Yard Sale Pizza is opening its fifth London site in Hackney.
• Caravan Restaurants is set to launch a new concept in autumn at the newly built restaurant building on Duke of York Square London.
• Byron has returned to covers growth reports Propel. The accounts for the company, which underwent a CVA last year, for the year to end-June last year are overdue. They should have been delivered to Companies House by 31 March.
HOLIDAYS & LEISURE TRAVEL:
• A Jet2 passenger has been fined £85,000 for allegedly trying to open aircraft doors during a flight. The airline said the passenger had to be restrained by cabin crew with the help of other passengers as the flight returned to Stansted.
• The boss of Thomas Cook’s retail division has written to the group’s trade partners to assure them that it is ‘business as usual’ following the news of the proposed takeover by Chinese conglomerate Fosun.
• GfK reports summer 2019 bookings now up on last year despite months of sluggish sales. Season-to-date bookings are up 1% yoy, driven by ‘nine consecutive weeks of passenger growth [and] strong late sales’ compared to the first four months of this year, when summer bookings were down 7% on 2018.
• David Hope, GfK senior client insight director, told Travel Weekly ‘The tough trading environment, with bookings coming later, has had a significant impact on cashflow. The industry has had to price holidays extremely competitively.’ But ‘In the last three weeks we’ve seen prices increasing.’
• EasyHotel reopens its flagship Old Street hotel, describing it as ‘ideal for tourists visiting London who want a decent place to stay in a central location but without the hefty Zone 1 price tag’. Guy Parsons, CEO of EasyHotel, said ‘the best thing about our new Old Street hotel is that guests are left with more cash to spend on getting out there and experiencing London.’
• HVS claims franchising is gaining popularity across Europe’s hotel sector as the big brands seek to move into new markets to drive growth. Brand affiliation in Europe is currently estimated at 40% compared to the US, where around 70% of hotels are branded.
• Stephen Collins, senior associate at HVS, said ‘franchising is becoming a strong, often preferred means of expansion for midmarket properties…However… brands that are successful in one European market might struggle to gain recognition in another. Different regulations and disclosure obligations across various European markets also mean a one-size-fits-all approach to franchise agreements is not always possible, as it is in the US’.
• STR reports US hotel occupancy down 2.4% to 74.2% for the week ending 13 July, with ADR down 0.6% to $132.24 and RevPAR down 2.9% to $98.08.
• The minimum age for National Lottery Games could be increased from 16 to 18 as the Department for Digital, Culture Media & Sport issues a consultation on the matter.
• EBay reports quarterly ad revenue above expectations at $89m, sending shares up nearly 7% to $41.60. Haris Anwar, senior analyst at financial markets platform Investing.com said ‘The results show eBay’s new revenue sources are working to fuel growth in the bottom-line profitability.’
FINANCE & ECONOMICS:
• The OBR reports the UK is likely to fall into recession next year if there is a no-deal Brexit. It says the economy could shrink by 2% by the end of 2020 if the UK leaves without an agreement.
• The OBR is assuming tariffs on EU goods at 4% with uncertainty ‘weighing on exports’ and ‘heightened uncertainty and declining confidence’ deterring business investment. GDP would then level off and begin to grow, leaving the UK permanently some 3% less well off than it would otherwise have been.
• Sterling up on better-than-expected retail sales numbers at $1.2541 and €1.1137. Oil down at $63.09. UK 10yr gilt yield up 1bp at 0.76%. World markets. UK & Europe down yesterday but US higher. Far East up in Friday trade.
o Current chancellor Philip Hammond says it is ‘terrifying’ that the Boris Johnson camp (specifically Jacob Rees Mogg) is saying that the economy would be boosted by a no-deal Brexit. Rees Mogg told the Guardian that warnings about economic contraction were part of Project Fear, which had been wrong in the past.
o The House of Commons has voted to prevent a future PM from suspending Parliament in order to push through a no-deal Brexit.
o BBC on the cards? Boris, Brexit & Corbyn. Boris Johnson to be in Number 10 by the end of next week. No deal could split party, lead to general election & change of government. Both Messrs Johnson and Hunt have said that they would not want to hold a General Election before 31 October.
o Channel Four documentary on Boris Johnson and BBC programme on no-deal unpreparedness not doing much for confidence.
START THE DAY WITH A SONG:
Yesterday’s song was Shoot the Runner by Kasabian. Today, who sang:
Don’t raise your eye
It’s only teenage wasteland
RETAIL WITH NICK BUBB:
• Planet ONS Watch: We noted yesterday that, in the real world, as per the overall BRC-KPMG figures for June (the 5 weeks to June 29th), Retail Sales were disappointing again last month, given the cooler weather compared to last year, but “seasonally adjusted” life was fine on that strange parallel world, the Planet ONS (aka the Office of National Statistics), via yesterday’s official Retail Sales figures for June…As usual, credulous City economists (who treat the dubious ONS figures as the gospel truth) swallowed at face value the 1.0% rise in month-on-month seasonally adjusted sales volume, which was much better than expected, without digging any further. We focused, as usual, on the year-on-year non-seasonally adjusted sales value figures and the controversial split between Large and Small Businesses and the June +4.0% outcome would have looked worse but for suspiciously
• News Flow Next Week: Next week will be dominated by the coronation of the wretched Boris Johnson as Prime Minister on Wednesday and his Cabinet reshuffle (although the election of the new Liberal Democrat leader will also be noteworthy), but there is plenty of Retail news to distract us, beginning with the Joules finals and the McColl’s interims on Tuesday, closely followed by the latest monthly Kantar/Nielsen grocery sales figures. Wednesday then brings the B&M Q1 update, with Thursday bringing the Inchcape interims. On Friday we then get the Howden interims, the Bonmarche finals and the B&M AGM. Friday may also bring the delayed Sports Direct finals, although we wouldn’t hold our breath…
• BDO High Street Sales Tracker: We flagged yesterday that sales at John Lewis were boosted again last week by the “Clearance” Sale and the very weak comps and today’s BDO High Street Sales Tracker for medium-sized Non-Food chains also looks pretty good, for w/e Sunday July 14th. Despite a decent comp, BDO Fashion sales were up by 2.7% LFL (including Online), the ninth consecutive week of growth…And total BDO LFL sales (including Homewares and Lifestyle sales) were up by 3.0% last week (up by 0.6% in Store sales and up by 15.3% in Online sales).
• Trade Press: Retail Week magazine focuses on the future of Retail Property, whilst the Editor looks in his column at Amazon’s annual Prime Day promotional extravaganza and thunders that “Earth isn’t big enough for Amazon’s ambitions”. In Drapers’ magazine today, the Editor notes in her column that the towns shortlisted in the Government’s “Future High Streets” plan are pinning their hopes on Digital and transport and thunders that “Local focal destinations will lure shoppers back”. In terms of News stories, Drapers flag that womenswear independents are cautiously optimistic about trading ahead of the Spring 2020 trade shows and that M&S needs to hire a product expert to turn around its struggling Clothing division according to industry sources. In terms of features, Drapers have a feature interview with Kenny Wilson of Dr Martens, look at whether Private Equity is “friend or foe”