Langton Capital – 2019-11-27 – PREMIUM – Marston’s, Britvic, On the Beach. Jet2 etc.:
Marston’s, Britvic, On the Beach. Jet2 etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
It would be interesting (or disturbing) to see ourselves as others see us, suggested Robert Burns and he wasn’t wrong because I had one of those OMG moments in the York Castle Museum last weekend.
We were headed for the Victorian Street (parsimonious devil warning, there are carol singers on the street and it’s £3 per head extra to get in) when we passed the ‘kitchens’ and ‘living rooms’ displays.
And the 1950s ones, with their dated enamel sinks, wall-mounted water heaters, squeaky vinyl chairs, antimacassars etc made me thinks (slightly mockingly I regret to admit) of my grandparents’ houses but then we came to the 1980s displays and, horror of horrors, they looked like my house.
Of course, that shut me up. Checking my phone and seeing that we (the Mighty Hull City) were two down to Middlesbrough didn’t help but, at the end of the day, you are what you are. On to the news:
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MARSTON’S FULL YEAR NUMBERS: Marston’s has this morning reported results for the 52wks to 28 September and our comments thereon are set out below. 27 Nov 2019:
• Marston’s updated on full year trading on 15 October meaning that much of today’s news has already been digested by the market
• Revenue rose to £1.17bn (up 3.0%) with underlying PBT down £3m at £101m. EOS was 13.5p (2018: 13.9p) and the total dividend for the year is maintained at 7.5p.
• The company reports it has seen ‘sales growth in both pub segments’ with LfL sales growth of 0.8%
• The group has seen ‘growth in both wet-led and food pub segments’
More on the numbers:
• Marston’s has written down the value of a number of its properties leading to a £43.4m exceptional, non-cash debit to the P&L
• The group’s swaps have also been marked to market, leading, as a result of reduced gilt yields, to a further non-cash, £48.7m charge
• Marston’s says that LfLs in the first 7wks of FY20 are up, but no figures are given. Christmas will be critical to H1 numbers.
• Marston’s says that Christmas bookings are also higher – but the holiday remains a predominantly ‘walk-in’ affair
• Margins are lower – in line with earlier guidance – and there are no material changes in the outlook for costs
• MARS needs around 1.5% LfL revenue growth to mitigate cost increases. This is a more modest number than town-centre or London operators may be facing. It is based on a modest increase in the National Minimum Wage, but this has recently become something of a political football
• No material changes to FY20 estimates are expected on the back of today’s numbers
• IFRS16 will add £300m to debt, knock 8% off PBT, increase EBITDA and add 70bps to debt/EBITDA, raising the latter from 6.2x to nearer 6.9x
Managed & Franchised Pubs:
• LfL sales at Destination & Premium pubs were up by 0.1% on last year.
• The group says that, as previously flagged, ‘reported underlying operating margin of 18.9% is slightly below last year, reflecting increased margin investment and cost increases in labour, business rates and energy costs.’
• Total sales are up by 2.1% to £460.1m
• Marston’s has seen ‘continued sales and earnings growth in Taverns [which is] impressive against strong comparatives’
• Taverns total revenue is up 3.9% at £324.1m. The pubs were in LfL growth. Average profit per pub is up 2% on last year.
• Taverns’ margin was 1% lower ‘reflecting cost increases, the continued impact of franchise conversions, and increased rent and opening costs from the Aprirose acquisition.’
Trading – Beer Company:
• Beer Company total revenues are up by 3.1% with margins stabilised now post the acquisition of the Charles Wells’ brands
• The group has seen ‘continued growth in Brewing against challenging comparatives.’
• Here, total volumes are up 1% with ‘strong growth in [the] independent free trade’. The group now delivers to one in four of UK pubs
• Charles Wells synergies, at £4m, are in line with expectations and the group has signed a new, 15yr licence with Shipyard
Balance Sheet, Cash Flow & Debt:
• As mentioned above, the write-downs and the mark-to-market have reduced NAV by around 20p per share
• The group’s pension fund, on an accounting rather than an actuarial basis, has moved from a surplus to a deficit – but this is very much as a result of depressed gilt yields. Should these rise after the election, much of the above will be reversed
• The result of the group’s latest triennial review will be known in around a year’s time.
• Year-end net debt is in line with 15 October guidance at £1.399bn. This is up £14m on last year. The group remains committed to cutting some £200m from its debt over the medium term. IFRS16 will add around £300m to debt via the capitalisation of leases (though there is no cash impact)
• Regarding disposals, MARS has already achieved around £50m of the £70m indicated for FY20.
• It has a ‘high degree of visibility’ on the remaining pubs that it needs to sell to hit this target. It should achieve book value. There is no commitment to do so but there could be more disposals on top of the £70m later in the year
• The group has opened eight new-build pubs in the year alongside 15 wet-led outlets and two lodges
• Fixed charge cover has been maintained.
• MARS’ dividend is secure and the company is moving towards a position where it should generate around £50m p.a. after the payment of a maintained dividend.
Conclusion & Outlook:
• CEO Ralph Findlay says ‘we are making good progress with our debt reduction plans and are ahead of schedule in meeting the accelerated £70 million of disposal proceeds which we are targeting in the current year.’
• Mr Findlay continues ‘we continue to benefit from Marston’s balanced business model and our Taverns wet-led community pubs and brewing businesses have both once again outperformed the market, building on an outstanding year last year.’
• The company says ‘our principal focus remains to reduce our net debt by £200 million by 2023 – or earlier – and the measures we are taking now will result in a high quality business which is cash generative after dividends and capital expenditure.’
• It concludes ‘trading is on track for the initial weeks of the current year and we are well prepared for the all-important Christmas and New Year period.”
• Marston’s results are in line with guidance but, as previously reported, the company’s strong performance in Q1 and Q2 faded against the tough comps provided by the hot weather and the World Cup in the group’s H2 last year.
• The group has nonetheless benefitted from the recovery in wet-sales across the country as a whole although (weather & football-impacted 2018) comps have still been hard to beat.
• Marston’s shares have been buoyed by the Greene King takeover approach and the company’s focus on reducing debt whilst holding its dividend has pleased investors.
• The group’s shares remain inexpensive. The yield is secure at around 6% and, with debt coming down, the company continues to reshape its portfolio in order to focus on its core, freehold estate of well-managed and well-maintained properties.
• The group has reported that, thus far, FY20 LfL sales are ahead of last year suggesting that the company continues to sell product and services 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. The group is well-placed to return to growth and to create further value for its shareholders.
PUBS & RESTAURANTS:
• Britvic has reported full year numbers saying it has turned in ‘a strong performance, with good momentum in our key brands and categories.’ The company increased revenues by 1.4% (against hot weather last year) with adjusted EBIT up 4.4%.
• Britvic CEO Simon Litherland says ‘I am pleased to report that Britvic has once again delivered a strong performance, with good momentum in our key brands and categories. In 2019 we have increased revenue, adjusted margin and EBIT, as well as significantly improving free cashflow generation.’
• Mr Litherland continues ‘building on this strong platform, I am confident that Britvic is well placed to capitalise on the future growth opportunities in the years ahead. While we anticipate conditions to remain challenging, we fully expect that we will make further progress in 2020.’
• Zonal and CGA have produced their latest GO Technology report in which they say that ‘interactive and personalised experiences are shaping the out-of-home eating and drinking sector/’
• The report suggests that 18-24yr olds ‘are using their smartphones in increasing numbers to settle their bills (22%).’ The report still suggests that 16% of respondents do not use their mobile to order because of ‘customisation issues’ and 17% ‘would pay by mobile more often if they had confidence in the payment app, suggesting that brands should prioritise establishing trust with their customers.’
• Zonal comments ‘as we are the mobile generation, it comes as no surprise that consumers are clearly open to using technology as part of their going out experience, whether browsing a menu or paying for a round of drinks, in order to satisfy their thirst for convenience and speed of service.’ It says it is still ‘important that brands don’t lose sight of the personal touch and that any technology solution adopts the brand’s personality in order to build trusted relationships that last.’
• Overall, 26% of respondents had used their mobile to find a restaurant with 23% using it to check a menu. CGA says ‘mobile devices are transforming the way people and brands interact.’ It says that rewarding loyalty could be key to securing repeat purchases.
• The MCA reports that 51.3% of UK consumers are drinking less than they were 12 months ago. Some are not drinking at all. Perhaps those that are drinking more may be reluctant to admit it. The MCA says ‘the decline in alcohol consumption poses an obvious challenge to operators, as they look for alternative ways to drive footfall to their outlets.’ The MCA says the decline in alcohol is both a threat & an opportunity.
• Food, gaming machines and accommodation have long bolstered revenues. Elsewhere, Langton has commented that experiential services and products are gaining ground. Start-up companies in London are certainly seeking to tap into the growth with ping pong, darts, crazy gold, ball pools, axe throwing and bingo all now on offer alongside alcohol. What could go wrong?
• West End landlord Shaftesbury yesterday reported that the value of its portfolio of properties fell in the year to September. This was the first time it had marked values down in a decade. The firm said most of the damage was done by falling valuations of large stores on Long Acre in Covent Garden. CEO Brian Bickell commented ‘in a year dominated by domestic political uncertainties and a slowing national economy, the qualities of our portfolio, business model and proven strategy, together, have delivered a resilient performance.’
• Feed It Back, which provides real-time data from customers to restaurants, has been looking at the roast dinner. By analysing thousands of online and social reviews, Feed It Back says that it is beef that can ‘make or break’ a roast. Chicken, pork and turkey are much less likely to drive comment.
• SIBA has published a wish-list ahead of the Election saying that, though the UK ‘has been at the forefront of the Global craft beer revolution,’ there remain ‘huge challenges’ for the industry to overcome. SIBA would like to see a change to the way that Small Breweries’ Relief is phased in with ‘no withdrawal of any relief for any small brewer so protecting jobs, businesses and investment.’
• SIBA says it would like to see Beer Duty frozen for the next five years and for cider duty to be brought into line with that on beer. Business rates need to be reformed and the landlord-tenant relationship in the on-trade needs to remain fair. All of this whilst the government is preoccupied with Brexit. SIBA CEO James Calder says ‘our manifesto urges the next Government to adopt our 15 policy initiatives which will turbocharge UK independent brewing. I would encourage all candidates in the election to show their support for independent brewing and back our plans.’
• Hawthorn Leisure, the pub arm of New River, is to spend at least £3m on its pubs over the next 12mths per the MA.
• Mayfair Capital Partners’ owned restaurant chain YO! Sushi is to roll out sushi counters into 50 Tesco stores nationwide.
• The MA reports Lucky Saint founder Luke Boase as saying that the public remains sceptical re low-alcohol beers.
• Wagamama has opened its first Mamago, in the City of London. The site is located at 120 Fenchurch Street.
• Barclays is reported to have provided a £25m funding package to Isle of Arran Distilleries in order to help the company develop its second distillery on the island.
• Roadchef has introduced the first ever McDonald’s Drive Thru on a UK motorway.
HOLIDAYS & LEISURE TRAVEL:
• On the Beach Group has reported full year numbers saying that revenues rose by an adjusted 42% with EPS down an adjusted 1% at 21.4p. The group will pay a full year dividend of 3.3p.
• On the Beach says that Thomas Cook’s collapse led to exceptional costs ‘associated with helping customers to organise alternative travel arrangements and lost margin on cancelled bookings.’ The company CEO, Simon Cooper, says ‘in what has been a difficult general economic climate with the prolonged uncertainty regarding Brexit and the related currency impacts, I am pleased with the Group’s performance with significant progress made against our strategic objectives while delivering a 3% increase in Group adjusted profit before tax, in line with market expectations.’
• On the Beach concludes that ‘the Board strongly believes the correct course of action to ensure that On the Beach is best-positioned to capture market share, is to focus on price competitiveness and to increase the visibility of all of the Group’s brands, with the expectation that seat supply will normalise during FY20. Whilst the consumer environment will continue to be challenging, we remain confident in the ability of our resilient and flexible business model to significantly increase our market share in the medium term.’
• More signs that capacity is coming onto the UK holiday market. Sales are vanity, profits are sanity?
• Jet2holidays has asked to raise its ATOL licence by more than 15% or more than half a million passengers in the next year. It also wishes to increase trade sales. CEO Steve Heapy said the operator was ‘closing in on TUI’ in terms of who would be the UK’s no1 operator.
• Jet2holidays has launched a new brand, named Vibe, aimed at millennials. It is split into four categories – Iconic, Pure, Party and Chilled – and will feature hotels across around 50 resorts.
• Gatwick saw its profits rise marginally in its last half year, despite concerns at the time regarding Thomas Cook.
• ABTA has suggested that demand for river cruises is likely to grow. It says 32% of people surveyed for its 2020 Travel Trends Report said that they were interested in taking a river cruise.
• NATS is reported to have handled 0.5% fewer flights in UK airspace in October this year versus the same month a year ago. NATS says ‘the collapse of Thomas Cook resulted in a marked decline in non-transatlantic arrivals and departures last month, which impacted air traffic figures overall.’ It continues ‘we would expect recovery in that segment in the coming months as other airlines begin to purchase the slots left by the tour operator.’
• Lift sharing app Bolt, which was previously know as Taxify, has raised $100m in additional funding reports Sky.
• Although it hasn’t happened yet, the Thanksgiving holiday in the US looks like showing a shortfall in revenue per available room when compared to last year reports STR.
• Indian rival to Uber, Ola, is reported to have begun signing up drivers in London ahead of plans to launch services in the city shortly. Uber is currently appealing the decision not to extend its license to operate.
• More clicks into bricks. Netflix has taken over a cinema, the historic Paris outlet in New York. Having battered the cinema industry, Netflix said on Twitter ‘now, the iconic theatre will be kept open and become a home for special Netflix events, screenings, and theatrical releases.’
• Manchester City’s owner is to sell a $500m stake in the company to Silver Lake in a deal that sets a new record, at $4.8bn, for the value of a sports club.
• eBook company Scribd is reported to have raised a further $58m in development capital.
FINANCE & ECONOMICS:
• The NIESR has said that raising minimum wage levels too quickly could do more harm than good as it ‘risks undermining the strong consensus between employers, workers and political parties that has been built up during the past two decades, especially if the increases lead to falls in employment that are difficult to reverse.’ Various leisure operators have said that they would ‘labour-schedule’ more actively if wages progress much further.
• Sterling down at $1.2853 and €1.1673. Oil up at $64.15, UK 10yr gilt yield down 6bps at 0.64%. World markets mixed.
• Brexit & politics:
o The election campaign is going well for the Tories. Labour is again embroiled in the anti-Semitism mire and the Liberals look, well a bit wet. Younger people signing up to vote (see below) could have an impact.
o There is the potential for Lib Dem voters to drift to Labour.
o More than 2m u-35s are reported to have registered to vote in the last 3-4wks. It is unclear at this point if this will dent the Tory’s 9pp to 17pp poll lead, depending upon who you believe.
o Voters are reported to be signing up more rapidly than they did in 2017 with registration numbers ahead by 38%.
o The SMMT has said that UK car production could be cut by more than a third if the UK leaves the EU without an ‘ambitious’ trade deal.
o Michel Barnier has told the EU that he will prioritise a trade deal with the UK should the latter leave the EU as planned at the end of January.
o Labour and the Liberal Democrats are reported to be outspending the Tories online.
START THE DAY WITH A SONG:
• Taking a break due to exam commitments. Back later in the week.
RETAIL WITH NICK BUBB:
ScS: The ScS Group AGM is being held today at 2pm in a hotel in Durham (which, fyi, is some 13 miles south-west of the SCS HQ in sunny Sunderland) and the sofa and carpet retailer has issued a brief trading update ahead of that, to flag that “the ongoing economic and political uncertainties are continuing to impact consumer confidence and spending”, but that “the business is trading in line with our expectations”. In the 17 weeks ended 23 November 2019, the LFL order intake decreased 7.1%, which is a slight improvement on the poor trading for the first nine weeks of the financial year (-7.6% LFL) which was reported with the final results on Oct 1st. That implies that the last 8 weeks have still been pretty bad for ScS, despite more helpful weather and that the odd 9% jump in the share price of its rival DFS yesterday was somewhat premature…
Sosandar: The Online womenswear business Sosandar is still pretty small (the market cap is little more than £40m), but little acorns etc etc and it has reported today with its interims that “we achieved sales growth of well over 100% in October, a performance which November is on course to exceed”.
John Lewis Trading Watch: With “Black Friday” a week later this year, the John Lewis sales figures for last week are rather meaningless, but overall gross sales in w/e Nov 23rd crashed by as much as 43.3%, according to yesterday morning’s JLP weekly overview. The commentary said that “our performance exceeded expectations with the scheduled launch of Black Friday deals towards the end of the week”, but our impression is that the extended Black Friday deals are earlier than last year, so we will have to see how far they cut into the big sales uplift this week. In terms of sales mix, Fashion/Beauty sales were down by 42.4% gross last week, Home sales were down by 14.7% gross and Electricals were down by as much as 55.9% gross…There is no new store space in the current figures, but we think that John Lewis LFL sales are down by more than 4.0% over the last 43 weeks, despite the Sale-driven
Waitrose Watch: Despite the “Black Friday” timing, Waitrose faced quite a weak comp last week and so it is a bit disappointing that w/e Nov 23rd saw a dip of 1.3% in gross ex-petrol sales, notwithstanding continued good sales of “Excitable Edgar” merchandise…That left the last 43 weeks still down by 0.7% gross cumulatively, but although, unaccountably, Waitrose do not think it useful to give a weekly LFL sales figure, we think that store space is at least 1% down (after the sale of five Waitrose stores in June and more disposals last month), so that the LFL sales picture will not look so bad (the LFL sales dip was 0.4% in H1, with gross sales down by 0.8%).
News Flow This Week: The ASOS AGM is being held at 12 noon today in their HQ in Camden, but no trading update is expected. Tomorrow brings the Motorpoint interims and then first thing on Friday we get the widely followed monthly GFK Consumer Confidence survey and…the wretched annual discount jamboree that is BLACK FRIDAY…