Langton Capital – 2019-07-25 – Fuller’s, Compass, MARS, Diageo, holidays & other:
Fuller’s, Compass, MARS, Diageo, holidays & other:
A DAY IN THE LIFE:
Given enough time, we will make oodles of money.
Indeed, given enough time, everyone will make oodles of money because infinity lasts forever and if, over that time, a one-eyed monkey will type Hamlet whilst the fully-sighted peer next to him is simultaneously typing Macbeth with one hand and Richard III (in Greek) with the other, then surely there’s room for us to hit the big time?
The problem is, we don’t know how, and we don’t know when.
And that’s a problem because, unlike our new prime minister, we’ve always believed that big talk was overrated and execution to a plan was key.
Still, perhaps we’re wrong and the Eton-educated Oxbridge millionaire is right. We should be leaving detail to other people and work on the basis that the strength of our will (and / or our wants) will make good stuff happen.
Bits of Langton will be on holiday from tomorrow for 2wks or so. The email will be going out. It may be a little shorter at times than usual. On to the news:
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INDUSTRY COMMENTS: The bearer of bad news is rarely thanked. Peter Backman suggests this may be why restaurants are largely silent at the moment and Marston’s shares fell on its trading update. 25 July 2019: See Premium Email.
GENERAL NEWS – PUBS & RESTAURANTS:
• Fuller’s has reported full year numbers to end-March 2019 saying that revenue rose 7% to £431m with EBITDA up 3% at £73.2m and PBT unchanged at £43.2m. EPS is down a shade at 62.78p (2018: 62.90p).
• Fuller’s reports full year dividends up 3% to 20.15p.
• Fuller’s reports a ‘strong performance from Managed Pubs and Hotels with like for like sales growth of 4.9% (2018: +2.9%)’ and a ‘good performance from Tenanted Inns – like for like profits rose 1% (2018: +3%).’ Total beer and cider volumes remained level (2018: -1%).
• Fuller’s points to the sale of the Fuller’s Beer Business to Asahi Europe Ltd agreed during the financial year for £250 million, with completion post year end as the main event of the year.
• Fuller’s says Managed Pubs and Hotels like for like sales rose 1.2% and total sales increased 2.3% in the first 16 weeks. Tenanted Inns like for like profits down -3% for first 16 weeks.
• This is a strong performance in a less-strong market and does highlight the strong performance of London versus the UK regions. CEO Simon Emeny says ‘we have had another year of like for like growth that has outperformed the industry, while our successful Tenanted business has continued to build on the new turnover agreement that creates genuine, sustainable partnerships between our Tenants and ourselves.’
• Mr Emeny adds ‘against some incredibly tough comparatives from the hot weather and football fervour of summer 2018, I am pleased to report steady trading for the first 16 weeks of the new financial year with like for like sales in our Managed Pubs and Hotels rising by 1.2% and total revenue rising by 2.3%. Like for like profits in our Tenanted Inns were down -3% against very tough comparatives.’
• Emeny concludes ‘we can see a clear way ahead for the Company. With an exceptionally strong balance sheet, a predominantly freehold estate and a proven long-term business model, there will be undoubted opportunities and we are perfectly poised to leverage those over time as we embark on the next phase in our history.’
• Diageo has reported full year numbers with sales up 5.8% at £12.9bn and reported profits up 9.5% at £4.0bn.
• Diageo CEO Ivan Menezes says ‘Diageo has delivered another year of strong performance. Organic volume and net sales growth was broad based across regions and categories, with new product innovation being a strong contributor. We expanded organic operating margin ahead of our guidance and increased investment behind our brands ahead of organic net sales growth.
• Mr Menezes adds ‘fiscal 19 has been another year of strong free cash flow delivery at £2.6 billion and we have returned £2.8 billion to shareholders via share buybacks. The Board has approved plans for an additional return to shareholders of up to £4.5 billion over Fiscal 20 to Fiscal 22.’
• Diageo’s CEO concludes ‘as we look ahead we see attractive opportunities to deliver consistent growth and create shareholder value. In the medium term I expect Diageo to maintain organic net sales growth in the mid-single digit range and to grow organic operating profit ahead of net sales in the range of 5%-7%’.
• Compass Group has reported organic sales growth of 6.3% driven by stronger North America sales. The group invested around £100m in bolt-on acquisitions mainly in Europe. The group commented on trading outlook: ‘We now expect full year organic growth at the top of our 4-6% range and therefore the margin is expected to be in line with the prior year’.
• The WSTA has stated that UK businesses can’t afford to repeat the extensive Brexit planning they were forced to ake prior to the original March deadline. Miles Beale chief executive of the WSTA said: ‘As a global industry, a no deal Brexit and the uncertainty it would bring still poses a significant risk to our members, and we continue to work tirelessly to ensure their voices are heard’.
• The drinks group Constellation Brands has acquired a minority stake in Colorado-based Montanya Distillers.
• As many as 72,000 jobs have been lost on UK high streets in the last year, the British Retail Consortium has reported.
• Peter Backman’s latest Quarterly Briefing Report says that ‘the absence of real news across the foodservice sector underlines a sense of lock down – waiting for something to happen (Brexit? Better times? A more confident consumer?).’
• Mr Backman says that ‘restaurant chains seem to have given up on providing current performance data – this is partly due to the absence of quoted companies and partly, I suspect, an unwillingness to come forward with disappointing news.’
• AB InBev has reported Q2 numbers saying it has seen its ‘best quarterly volume performance in over five years with total growth of 2.1%, driven by strong performances in many of our key markets including Mexico, Brazil, Europe, South Africa, Nigeria, Australia and Colombia.’
• AB InBev says it has generated top-line growth of 6.2% and EBITDA growth of 9.4% with margin expansion of 123 bps to 42.0%. Total volumes grew by 2.1% in 2Q19, with own beer volumes up 2.2% and non-beer volumes up 1.8%.
• Taylor St Baristas has appointed administrators saying ‘after 13 years as a trailblazer in London’s coffee scene, Taylor St Baristas today [yesterday] announced the appointment of an Administrator to support the restructure – and potential sale – of its coffee business.’
• Taylor St says ‘more recently, the business commenced a shift in strategy away from owning and operating cafes – focusing instead on the development of its partnership and wholesale businesses.’ But, it says, ‘following a strategic review of Taylor St’s finances, the directors have concluded that the highly leveraged capital structure of the business is no longer sustainable and have appointed an Administrator accordingly.’
• Co-founder Nick Tolley says ‘sadly, Taylor St’s carrying too much debt, which has affected our ability to raise new capital to support the ongoing development of the business.’ Mr Tolley maintains ‘whilst the underlying fundamentals of the business remain strong…we’ve simply been unable to overcome a balance sheet that’s carrying too much debt.’
• Taylor Street last reported numbers for the year to March 2018. In that year, accumulated losses rose by c£750k to £3.9m and the company had negative net worth of £2.01m. Unfortunately (and terminally) these losses are likely to have accumulated further in the period from March last year to date.
• The Fulham Shore yesterday announced that directors David Page and Nabil Mankarious exercised options over 2.2m shares and sold them at 12p.
• Moody’s reports that Asahi Group Holdings’ purchase of AB InBev’s Australian business was credit negative. It says ‘the mostly debt-financed acquisition will significantly raise Asahi’s financial leverage.’
• Robinsons Brewery has seen an increase of 59% in sales of no and low-alcoholic beers and ciders year to date, compared to the same period last year.
• The BBPA has called on Boris Johnson to support beer and pubs with a cut to beer tax and to address unfair business rates. Chief Executive of the BBPA, Brigid Simmonds said: ‘Pubs are the original social network and at their heart of their communities, playing a key role in uniting us all. Along with brewing, they are also an important pillar of the UK economy. This is why Boris Johnson should back the sector by cutting beer duty and helping pubs with their business rates bills’.
• UKHospitality has queried the rationale of the Government to announce its plans to tackle waste reduction on the same day that the new prime minister Boris Johnson was named. Chief Executive of UKHospitality, Kate Nicholls said: ‘It is disappointing then to see the Government outline its next steps yesterday when all eyes were elsewhere. With the confirmation of a new Prime Minister grabbing headlines, it seems like a classic case of burying bad news. If the Government is serious about engaging with businesses to find workable solutions to cut waste, then we would hope they would be honest with the public about the cost involved’.
• The Draper’s Arms, a gastropub in Islington London, has announced it will close its kitchen today in order to prevent staff from overheating due to record temperatures.
• Shepherd Neame has agreed a long-term distribution partnership with Singha, which will make the Kent-based brewer the sole distributor of Singha across the country.
• Budweiser agrees a new multi-year partnership with the Premier League and La Liga, complementing its role as a partner of the Fifa World Cup.
• Per Beverage Business World, the UK is home of 418 coffee roasters, with 343 of them outside London. The Roasters Report UK 2019, also revealed that coffee from emerging origins would be a core focus over the next 12 months, with less familiar varieties from Rwanda, Myanmar and China.
HOLIDAYS & LEISURE TRAVEL:
• The FT runs a feature suggesting that British tourists traveling abroad need to ‘navigate strike action at the UK’s busiest airports and a slump in sterling as rising fears of a “no deal Brexit” in October put pressure on the pound.’
• Hilton has reported Q2 numbers ahead of expectations. It says EPS for Q2 was up 25% at 89c. It says ‘we are pleased with our strong second quarter results, which exceeded the high end of guidance.’ He says ‘we continued to experience meaningful market share gains during the quarter with increases across all brands and regions, further growing our industry-leading RevPAR index premium. As we look to the remainder of the year, we think we are well-positioned to continue driving growth ahead of the industry.’
• Vail Resorts acquires Peak Resorts for $264m, adding 17 ski areas near to ten US cities to its portfolio.
• Uber is trialling a subscription service in San Francisco and Chicago. THe subscription will cost $24.99/month and will give users ride discounts, free Eats delivery and free JUMP rides on bikes and scooters.
• Boeing has said that it could halt production of the 737 MAX unless it is cleared to fly this year following two crashes. The company reported a quarterly loss of $2.9bn mainly due to the grounding of its MAX fleet.
• STR has reported that Europe’s hotel industry has seen occupancy increase 0.7% to 75.6%, with ADR up 3.4% to EUR118.16 and RevPAR climbing 4.1% to EUR89.31.
• The Federal Trade Commission is expected to announce on Wednesday that Facebook has agreed to a sweeping settlement of allegations it mishandled user privacy and pay roughly $5bn
• The French media group, Vivendi has hired external advisers to help it with the sale of 50% of its Universal Music Group. It is believed that the division could be valued in the region of EUR17-44bn.
FINANCE & ECONOMICS:
• The NIESR says there is a one in four chance that the UK ‘has already slipped into a technical recession.’ It adds that even ‘away from the gloomiest Brexit scenarios, the underlying state of the UK economy does not make for cheerful reading.’
• NIESR says ‘the level of business investment since 2016 also indicates a form of seizure.’ It says ‘with the prime minster, the chancellor of the exchequer and the Governor of the Bank of England all to shortly change, it is little wonder that those making forward-looking plans are waiting or looking elsewhere if they can. The prospect of a “no-Deal Brexit” is concentrating minds and, although we expect a significant response by policymakers to such a shock, the long run impact of a loss of some 5 per cent of GDP in perpetuity means there will not be much economic joy from such an exit.’
• If the UK were to run 5% below its potential ‘in perpetuity’, it would imply that Brexit is costing around £100bn p.a.
• Sterling up yesterday at $1.2474 and €1.1202. Oil down a little at $63.31. UK 10yr gilt yield down 1bp at 0.68%. World markets mixed.
• Brexit & politics:
o All change. PM, Chancellor, Home Secretary & Foreign Secretary. And still Mr Johnson doesn’t believe that a General Election is justified.
o PM Johnson has vowed that the UK will come out of the European Union on Oct. 31 “no ifs or buts”. He has said that a no-deal Brexit would be the EU’s fault.
o President Trump says Mr Johnson is Britain Trump.
o FT says Mr Johnson is, at heart, a reactionary.
o Labour ‘will put forward a motion of no-confidence in the country’s next prime minister when it judges that the move has the best chance of success’ per a spokesman.
o EU leaders have suggested that they would be willing to work with Mr Johnson. He recently called the French ‘turds’.
o Dominic Cummings is back in government as an advisor. He said that a part of the ERG was a ‘narcissist-delusional subset’. The unelected official said that this ‘metastasising tumour’ needed to be ‘excised’.
o Nissan is to cut 10,000 jobs globally. It will announce where the cuts are to take place later today.
START THE DAY WITH A SONG:
Yesterday’s song was Mustang Sally by Wilson Pickett, today who sang:
I keep your picture,
Upon the wall
It hides a nasty stain that’s lying there
So don’t you ask me
To give it back
RETAIL WITH NICK BUBB:
• Howden: Even though the weather (until this week) has been more helpful to the kitchen joinery business Howden than last year, you wouldn’t have thought that such a “big ticket” product area could be doing that well in the current climate, but today’s interims (for the 24 weeks to June 15th) are strong again, with PBT of £78.1m, up by c14%, on the back of good 3.4% LFL sales growth and improved gross margins. Trading over the last 4 weeks has seen LFL sales strengthen to +4.8% and the company says “With our peak trading period still ahead of us, we are on track with our plans for the year as a whole”.
• Headline Watch: We didn’t think that the front page headline of the Daily Borisgraph on Tuesday (“Fantasist whose lies should never have been believed”) could have been surpassed, as a summary of the way the lunatics seem to have taken over the asylum, but up popped the front cover of Private Eye magazine yesterday with a photo of the “Loon Landing” outside No 10, with the caption “One small step for a man…one giant leap in the dark for mankind”.
• News Flow This Week: As well as the Howden interims this morning, we have also had the Inchcape interims, a Findel trading update and the news that the property company CapCo is to demerge its core Covent Garden business. And the monthly CBI Distributive Trades survey is out at 11am this morning, tomorrow brings the Bonmarche finals, the B&M AGM and the delayed Sports Direct finals.