Langton Capital – 2019-09-26 – PREMIUM – M&B FY update, SSP update, Time Out & other:
M&B FY update, SSP update, Time Out & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
TLAs (three letter acronyms) are extremely common.
The CIA, the FBI, the CBI, the FCA etc. (with Langton’s own ICAEW a notable exception) are everyday utterances but it’s interesting to note that some of them can take longer to say than the words themselves.
I mean ‘GSW’, as in ‘gun-shot wound’, comprises 5 syllables whilst the words themselves are only three and ‘shot’ is only one meaning that, in a rational world, one would have to conclude that the doctors and nurses on ER or whatever the modern equivalent is are filling dead air rather than trying to convey information.
Anyway, that may be interesting but, unless running through the alphabet is beyond me at stupid o’clock in the morning, it only works with W as all the other letters are single syllable. Why not just call it ‘dub’?
It does, however, make the WWW rather a mouthful. Anyway, let’s move on to the news.
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
MITCHELLS & BUTLERS FULL YEAR TRADING: M&B has updated on full year trading. It will report numbers late November. 26 Sept 2019:
Mitchells & Butlers has this morning updated on Q4 and full year trading and our comments are set out below:
• M&B reports ‘since our last update sales have continued to outperform the market.’
• It says in the 8 weeks to 21 September like-for-like sales grew by 3.3% ‘with drink sales growth particularly strong’.
• This leaves the cumulative 51wk LfL sales growth at +3.6% (where it was at week 43). This is down slightly on the +4.1% recorded in H1 as a whole.
• Total sales are up by 4.0% in the year to date.
• 51wk food sales are +3.5% with drink sales +3.3%.
• In the last 8wks, food is +2.1% and drink is +4.0%.
• The group comments that ‘despite cost headwinds we expect the full year group operating profit margin to be at a similar level to last year.’
Balance Sheet, Debt etc.:
• M&B says ‘we continue to make good progress on our investment programme, premiumising offers where possible and reducing the remodel lifecycle.’
• The group adds ‘we have opened 7 new sites and completed 239 conversions and remodels in the financial year to date.’
• Regarding its pension fund, M&B comments ‘we are pleased to have reached agreement on the 2019 triennial valuations, showing a deficit of £293m and an unchanged schedule of future contributions.’
• M&B CEO Phil Urban says ‘sales growth has remained consistently ahead of the market and we carry this momentum forward into the new financial year.’
• Mr Urban adds ‘we remain confident of the impact of our Ignite initiatives which will be continually reviewed and refreshed as the business moves forward.’
• M&B has confirmed that trading has continued ahead of the market. Of course, the group has benefitted from capex in its units and the return on capital from this spending will have contributed materially to both the LfL and the total growth in sales.
• However, this is arguably the right course of action.
• The slight slowdown in H2 is notable but not out of line with performances elsewhere.
• In H1, the company traded strongly over Christmas and continued to perform well in the remainder of the period.
• The fact that wet sales have been good over the summer should be a benefit to margins.
• There will be no (upward or downward) pressure on forecasts as a result of this update and it is light on comment when it comes to the outlook. Cost headwinds and uncertainty remain a problem – but this is industry-wide rather than company specific.
• In addition to its capex, the group will also have benefited from its extensive estate in London.
• M&B is getting stuck in both in terms of discounting (with up to 40% off at some of its outlets) and in evolving its offer in line with changing consumer tastes.
• As mentioned earlier, the group has a large estate and all changes will take time to come through. Competitors will not stand still. Smaller operators will be more nimble but other, larger players, are facing much the same challenges as M&B.
• The group’s shares have risen strongly on the news that rival operator Greene King was to be purchased by Chinese property interests but the group remains optically relatively cheap.
• It is strongly asset-backed and, though its share register and its dividend arguably require a bit of work the group is pulling what levers it can.
GENERAL NEWS – PUBS & RESTAURANTS:
• Catering operator SSP Group has updated on trading for its year to end-September saying ‘SSP had a good fourth quarter and made further progress on its strategic initiatives.’
• SSP will increase total group revenue by approximately 7.8% on a constant currency basis this year including LfL growth of approximately 1.8%.
• SSP says ‘overall, the trends seen in like-for-like sales growth in the third quarter have continued into the fourth quarter. In the UK, the air sector has been fairly resilient over the fourth quarter, while rail has remained softer, albeit benefitting from a lower level of disruption in the rail network.’
• SSP says in Continental Europe, like-for-like sales continued to be held back by slower passenger growth and the impact of airport redevelopment in the Nordic countries and in Spain. In North America, like-for-like sales growth has been affected throughout the quarter by the grounding of Boeing Max 737 aircraft and the transfer of passengers away from our terminals at some airports.
• Some caution but broadly in line. SSP concludes ‘after another strong quarter, net contract gains for the full year are expected to be just above our previous expectations, at around 5.5%, and as usual they will be accompanied by pre-opening costs.’ Re the outlook, it says ‘despite the many external challenges, particularly towards the end of the year, SSP has performed well and guidance for FY19 remains unchanged.’
• The group says ‘looking into 2020, many of these challenges will remain as well as ongoing economic uncertainty and the expectation of airline capacity cuts. That said, the diversity of the business and flexibility of the model leave us well placed to benefit from the significant structural growth opportunities in our markets and to create further value for shareholders.’
• Time Out Group has reported H1 numbers saying that its ‘transformation accelerates with the successful opening of three new food & cultural markets.’
• Time Out reports revenues up 10.4% to £24.7m with ‘strong gross profit performance’ of 25% ‘which further benefitted from the continued delivery of material improvements in gross margin to 71% in H1 (2018: 63%).’
• TMO reports its losses were reduced to £12m (from just a shade over £12m last year) showing that the group is still to make a profit. The group made an EBITDA loss of £4.5m.
• TMO says H2 adjusted EBITDA should be positive at the group level. CEO Julio Bruno says ‘the continued growth of Time Out Market Lisbon and the successful opening and early trading of three new markets in Q2 further demonstrate the format’s global appeal, quality of curation and breadth and engagement of the Time Out audience.’
• Tasty has announced the board appointment of Mayuri Vachhani as Finance Director, with immediate effect.
• Cask Marque’s 2019 Cask Report finds ‘there are more breweries in Britain than there have been for decades – around 2,300. They supply over 50,000 pubs, bars, hotels, restaurants and clubs with cask beers, making over 10,000 different beers available each year.’
• Editor of the report Matt Eley says ‘it’s not just the number of cask beers on offer that is so impressive, it’s the variety of styles. The choice of colours, strengths, flavours and aromas just keeps on growing, as people become more adventurous in their tastes and brewers become more experimental.’
• The Cask Report does highlight ‘there is an ongoing decline in on-trade beer consumption, fourteen pubs a week are closing and the average number of cask brands on the bar has reduced from 4.4 to 2.8 in two years. This means that competition for space on the bar is intense.’
• The Report contends that premiumisation – in terms of quality, strength and price – offers significant potential to the industry. However, Paul Nunny of Cask Marque does say ‘if you can’t get the quality right, please don’t stock cask.’
• Data from MatchPint has shown that the opening weekend of the 2019 Rugby World Cup has seen a 5% increase in the number of rugby fans searching for pubs compared to the 2015 tournament, the Morning Advertiser has reported.
• Research from Allegra Strategies has found that 9% of customers rate coffee served in a pub as being better than that served by Pret A Manger, Costa Coffee or Starbucks.
• Admiral Taverns is reportedly close to completing a deal that will see it take 150 Heineken pubs valued at c£50m.
• Pret A Manger has announced that it will include full ingredient labelling in all of its 391 UK shops by the end of this week.
• The 48-strong coffee chain, AMT Coffee has called on cafes to stop charging customers extra for alternative milks, Beverage Business World has reported. AMT Marketing manager Rebecca Lamb commented: ‘It is a premium for us that we absorb. We are genuine company and we believe that if you are lactose intolerant or choose to go dairy-free we should not be charging you more. It does not make any sense really’.
• Abokado, which earlier this month announced it was planning a CVA, has secured the approval of its creditors to press ahead, reports Propel. The company is said to be planning a phased process of closures.
• Ei Publican Partnerships has revamped its digital hub for publicans in order to drive sales through refreshed digital content.
• The casual dining chain Sweetgreen has raised $150m in investment led by the private equity firm Lone Pine Capital.
• Per Food Service Equipment journal, Whitbread-owned Bar + Block Steakhouse has been earmarked for ‘rapid expansion’ as the chain prepares to open in Sutton, bringing it to 12 sites. Joanna Spencer, senior brand and marketing manager at Whitbread Restaurants, said ‘The Bar + Block Steakhouse brand is undergoing rapid expansion and is set for considerable growth in 2020.’
• Crussh Fit Food & Juice Bars’ new Autumn menu will be 70% vegetarian, with a number of changes to reduce plastics including the introduction of Canned LifeWater and the roll out of compostable cutlery.
• In a sign that there are fewer deals around, accountant KPMG has moved 800 staff and about 20 partners from its advisory division into its audit department. This could be in preparation for a break up on the company in the wake of criticism over a number of audits. KPMG told the FT it was ‘working on creating a model which gives our audit practice greater independence from the rest of the business, while ensuring our auditors have access to the benefits a multidisciplinary firm brings’.
• Tesco is to shut its first (of around 10) ‘Jack’s’ discount store after around a year.
HOLIDAYS & LEISURE TRAVEL:
• More on Thomas Cook (and implications for competitors, suppliers etc.):
o The Times reports that TCG failed with ‘a balance sheet deficiency of in excess of £3.1 billion.’
o The ‘going concern’ principle may no longer be appropriate.
o The search for value in the wreckage will be painstaking and not short. Condor is still trading, the Nordic business could be valuable etc.
o There will be aircraft (or bits, engines etc. thereof) but there will be few bricks & mortar assets
o Intangible assets will have a value. The aircraft slots at Gatwick & Manchester as well as elsewhere in the UK and throughout Europe will be worth something.
o Travel Weekly quotes an unnamed ‘travel specialist digital marketing agency’ as saying that the Thomascook.com domain is ‘conservatively’ valued at £100 million a year. The agency in question could well be trying to sell it. The value to a buyer is what a buyer says it is.
o The brand name is ‘a perishable asset and will start to decay the longer they leave it.’ There could also be a bit of ‘bad will’ in the short term.
o If anybody buys the name, they will face years of fending off bills and invoices from jilted suppliers (to whom, to be fair, the buyer will owe nothing)
o The CAA says 20% of stranded Thomas Cook UK customers have been flown home in the first 2dys of Operation Matterhorn
o Stable door, horse bolted etc. The Transport Salaried Staffs’ Association is asking the government to ‘look into reports in the media that the Turkish and Spanish governments were prepared to make substantial investments to support the company’.
o A silver lining for TUI? Moody’s has reported that ‘TUI benefits from Thomas Cook’s compulsory liquidation, despite some short-term costs.’ It says the demise of its major competitor should help the company. Moody’s says ‘the Thomas Cook liquidation will likely reduce overcapacity in the airline business, supporting TUI’s weakest segment, Markets and Airlines. However, TUI will likely incur additional costs in the coming weeks because some of its customers were booked on Thomas Cook Airline flights that are no longer operational. TUI is currently assessing the extent of replacing those customers’ flights.’
o Sky reports that the UK is to copy Germany and potentially introduce new laws to protect travellers when companies go bust. Transport Secretary Grant Shapps said laws in Germany allowed aircraft to keep flying and other buyers to come in.
o TUI is adding a range of tours for summer 2020 to new destinations including Albania, Canada, South Korea and Uzbekistan.
o Moody’s reports that the Thomas Cook liquidation is ‘credit negative for UK airports.’ It says, not unreasonably that, as TCGA was Europe’s third-largest airline flying to sun and beach destinations, its closure will cut income for airports – at least in the short term. Moody’s says that ‘within the UK, Manchester airport is most exposed, as TCAL handled about 10% of total passenger traffic for the last financial year. This exposure is, however, mitigated by the airport’s integration in a larger airport group, The Manchester Airport Group Plc.’
o Thomas Cook’s Nordic business is still flying though some flights have been cancelled or delayed ‘as the subsidiary battles to survive the collapse of its parent company earlier this week’ reports Reuters.
o There are reports that Thomas Cook customers are being targeted by fraudsters claiming to offer refunds.
o Thomas Cook staff unions are demanding to know why the airline was grounded in the early hours of Sunday morning with no means to bring home passengers (at least in the UK).
o Transport secretary Grant Shapps said Thomas Cook’s demise should not be seen as a reflection of the ‘general health’ of the travel industry. He said Thomas Cook had expanded its retail network as the ‘market moved in the opposite direction’ and failed to keep up with changing consumer buying habits.
o In the wake of the Thomas Cook collapse, the CAA will issue Atol renewals a month later than planned. The ‘unprecedented’ move will give the CAA and the industry additional time to cope with the fallout.
• Safestay PLC reports H1 revenue up 24% to £8.1m but pre tax losses widened to £904k from £790k a year earlier. Average bed rate rose 6% yoy to £19.50. Safestay added that it has experienced ‘positive summer trading’ and forecasts full-year revenue to exceed £17.0m.
• Stobart Group has voiced caution over future passenger figures due to uncertainty in the aviation sector partially caused by Brexit. Stobart owns Southend airport and has a 30% stake in Connect Airways, the owner of Flybe.
• BlaBlaCar acquires Busfor, a ticketing platform in Russia and Ukraine, for an undisclosed sum.
FINANCE & ECONOMICS:
• The number of cars made in the UK rose for the first time in a year in August per the SMMT. The trade body says numbers produced rose by 3.3%.
• Sterling weaker at $1.2372 and €1.1284. Oil down at $62.36. UK 10yr gilt yield unchanged at 0.53%. World markets mixed. Far East up in Thursday trade.
• Brexit & politics:
o FT says Supreme Court judgement is a ‘devastating indictment of the abuse of power by a prime minister.’
o PM Boris Johnson has told the Commons that he believes the Supreme Court was wrong to rule on what he concedes was a political matter. He insists that he will continue with negotiations to take the UK out of the EU by 31 October.
o Jacob Rees Mogg has attacked the Supreme Court for undertaking a constitutional coup.
o Mr Johnson has said he will not seek a delay to Brexit, but he will obey the law. He says he will get a deal, but the EU says there have been no negotiations. He cannot call a general election, cannot prorogue parliament, has lost his first six votes in the Commons, sacked 20-odd moderates and stands accused of misleading (a.k.a. lying to) the Queen. For a man desperate to secure a slot in the history books, he’s made a good start. If his aim was to secure Britain’s future, then not so much.
o Verdict called a ‘natural result of Boris Johnson’s constitutional vandalism’ (retired Supreme Court judge) and ‘a car crash for the Tories’ (Times). Tory Party stands accused of being led by a liar who is followed by fools. Jacob Rees Mogg still refusing to resign.
START THE DAY WITH A SONG:
• Training courses intruding. Back soon.
RETAIL WITH NICK BUBB:
• DFS: Today’s finals are slightly confused by the move of year-end from July to June, but DFS claim a “Good trading performance with all brands and channels achieving like-for-like gross sales growth” and underlying profit before tax for the pro-forma 52 weeks to 30 June was up 31% to £50m.However, given the current focus on the pressures on “big ticket” spending, it’s not surprising to hear that “recent trading conditions have reflected the increasingly uncertain political and economic backdrop and we have seen reduced levels of footfall across our brands, which we attribute to lower levels of consumer confidence and housing transactions, the two key drivers of the upholstery market” and that trading has been “subdued” over the last 12 weeks. There is no specific guidance on the profit outlook, but no doubt analysts will be taken a red pen to their forecasts ahead of the analysts
• September Trading Watch: The gloomy CBI Distributive Trades survey for “September” yesterday is hardly worth mentioning, as it is such a useless survey, despite its bizarre following amongst City economists…But in the light of the DFS warning this morning, it is amusing to hear from the CBI that “Aside from furniture and carpet sellers, which reported unchanged volumes in September, sales contracted across all sectors, with lower sales by clothing retailers and department stores driving the fall in volumes”.
• News Flow This Week: Tomorrow brings the monthly GFK Consumer Confidence survey.
• Quote of the Day: If the reactions of the wretched Donald Trump and Boris Johnson to their critics yesterday made you despair, this insight from the US comedian Jack Handey may cheer you up: “Before you criticise someone, you should walk a mile in their shoes. That way when you criticise them, you are a mile away from them and you have their shoes”.