Langton Capital – 2019-12-04 – PREMIUM – Loungers, Stock Spirits, consumer spending, holidays etc.:
Loungers, Stock Spirits, consumer spending, holidays etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The dog’s moulting now, meaning that our house looks rather like the Other World from Stranger Things what with dog hair, which I swear is lighter than air, floating everywhere and most flat surfaces covered with somewhat unpleasant cobwebby fluff.
And he’s a big dog and long-haired at the best of times meaning that 1) there’s a lot of fur to shed and 2) this may take some time.
Of course, this may just be an excuse to do nothing. We could clean up and then push him outdoors with a broomstick on windy days. We could drag him through a hedge backwards from time to time and, if the worst really came to the worst, we could brush out the creature’s dead hairs.
However, I think that might be like watering weeds in the garden in that it might only encourage him to hit his true, hair-shedding potential. Anyway, having removed a couple of dog hairs from my tea, it’s time to move on to the news:
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LOUNGERS H1 NUMBERS: Bar chain Loungers has reported maiden H1 numbers to end-October and our comments are set out below. 4 Dec 2019:
• Loungers reports revenues for the 24 weeks to 6 October up 22% at £79.8m. LfL sales growth for the period was 5.4%
• Adjusted EBITDA is up by 25.6% at £14.7m and the EBITDA margin has widened from 17.8% to 18.4%.
• The group has made a headline loss before tax of £2.5m but reports that the adjusted number is a positive £2.6m versus a pre-IPO loss of £4.3m in H1 last year
• Adjusted diluted EPS is 2.5p versus a non-comparable loss per share of23.1p last year.
• The group reports that, post IPO and positive trading, net debt has fallen from £162.0m to £29.3m
• There is no LfL figure given for H2 trading to date. Comps are tough but the company comment remains upbeat
• There is no dividend. The company says ‘as disclosed at the time of the IPO, in the short term, the Board intends to retain the Group’s earnings for re-investment in the roll-out of new Lounge and Cosy Club sites.’
• Loungers says it ‘is the Board’s ultimate intention to pursue a progressive dividend policy, subject to the need to retain sufficient earnings for the future growth of the Group.’
More on the numbers & current trading:
• Loungers reports that the group has ‘continued to trade well and to outperform the market.’
• It says that ‘five new sites [have been] opened in H2 to date and [the group remains] on plan to deliver 25 new site openings in the financial year with Lounges in locations such as Sutton, Watford, Sittingbourne and Chorley and Cosy Clubs in Nottingham and Brindley Place, Birmingham.’
• The group says that it has successfully renegotiated of all its major food and drink supply contracts
• Loungers maintains that ‘revenue growth in the period reflected the positive impact both of new site openings and strong underlying sales growth in our existing estate.’
• It says its ‘sales growth has been accompanied by improved margins, both at the gross and adjusted EBITDA level’
• It says ‘this margin improvement, delivered against well documented sector cost headwinds and the impact of the increased costs of being a publicly traded company, reflects the benefits of increasing scale within the business and a continued focus on driving operational efficiency.’
Balance sheet, debt etc.:
• Comparing numbers pre and post-IPO could be misleading.
• Loungers says it is ‘on track to deliver 25 new site openings this financial year and going forward.’ The group currently has 133 Lounges and 28 Cosy Clubs
• It says that its new site pipeline ‘remains strong into 2021/22; strategy is to open 25 new sites per annum.’
• Loungers says it is ‘building a platform for future growth’. It has added to its management team and is evolving a regional structure. This is the right thing to do but, in the short term, it could lead to a step up in costs
• CEO Nick Collins says ‘I am delighted to announce another strong set of results which continue to highlight our consistent outperformance against the market.’
• Mr Collins adds ‘this will be the fifth consecutive year we have opened at least 20 new sites and we remain excited by the prospects and potential for both our Lounge and Cosy Club formats and the significant opportunity we have ahead of us.’
• The company concludes ‘looking ahead, the strength of our FY20 openings to date and the continued evolution of our offer further underpins our confidence in continuing our current growth rate of 25 new openings per year and the potential for more than 400 Lounges and 100 Cosy Clubs across the UK.’
• Loungers is a very good operator and today’s numbers, though in line with earlier guidance, are much better than those produced by the industry as a whole
• The group’s shares remain around the level of the IPO earlier this year as the market will arguably focus on future growth rather than shorter term momentum – though the latter is good
• There are very few barriers to entry in the leasehold end of the hospitality industry and, as the UK’s casual diners are finding out, high margins attract competition
• That said, and whilst acknowledging that Loungers is extremely good at what it does, it is worth looking at the group’s balance sheet where tangible assets are only around £11m
• This is what it would cost a competitor, excluding goodwill, time value, shoe leather, management expertise etc. (which are considerable) to replicate the Loungers’ estate
• The £11m compares with a market cap of £183m
• If Loungers can continue to generate superior returns and stack profits onto its balance sheet such that its asset value approaches a reasonable percentage of its market cap, then the shares could be secure
• If this is not the case, and nothing grows forever, then the company is supported by earnings alone, rather than a blend of earnings, assets and barriers to entry, and it could be vulnerable. Incumbents have 1) done well by virtue of the fact that they are incumbents but 2) that is history and they are there to be shot at
PUBS & RESTAURANTS:
• Stock Spirits Group has reported full year numbers saying that revenues rose by 9.2% on a pro-forma basis and adjusted EBITDA was up 6.4% to £63.2m on the same basis.
• Stock Spirits CEO Mirek Stachowicz says ‘we have delivered a year of good growth as our successful strategy of premiumisation continues to make progress.’ He adds ‘we continue to assess a range of M&A opportunities following our successful acquisitions this year of Distillerie Franciacorta in Italy and Bartida in the Czech Republic, and are committed to pursuing a strategy of both organic and inorganic growth in order to deliver further shareholder value in future.’
• Barclaycard has reported that ‘consumer spending in November shows muted 0.9 per cent growth as Brits plan for a frugal festive season.’ It says the retail sector saw sales fall ‘as clothing, department and electronic stores all dip in spending.’
• Barclaycard reports discount stores did well but says that a ‘third of Brits are planning to spend less than usual on Christmas this year.’
• Barclaycard says that the November decline in real spending after inflation involved spending on essentials flat at 0.0% with fuel spending down 3.1%.
• Barclaycard reports that ‘consumer spending in bars, pubs and clubs saw good growth at 8.7 per cent as Brits enjoyed nights out with friends and family. However, this did not bring any relief to restaurants, which declined by 5.2 per cent. Takeaways and fast food, meanwhile, saw a rise of 11.4 per cent as the colder weather and longer nights saw diners take advantage of food delivery apps over venturing out for a meal.’
• This data is at odds with what the industry is saying on the ground. It could be that the increased use of cards via contactless spending is skewing the figures for pubs. The limit for contactless spending rose to £30 in late 2015, spurring a surge in the use of plastic.
• Barclaycard says ‘consumers remain prudent ahead of the festive season with 36 per cent intending to spend less than usual on Christmas this year, with 42 per cent of those cutting back saying it’s because they are looking to spend less money overall.’ Regarding overall consumer attitudes, Barclaycard’s survey suggests that ‘positive sentiment about the UK economy remains low, with only 31 per cent of UK adults expressing confidence – dropping to just 27 per cent for those aged 18-34.
• Barclaycard concludes ‘throughout 2019 we have seen the nation managing their budgets by seeking greater value for money, and this trend looks set to continue in December. As we head into the busy shopping season, retailers will no doubt be crossing their fingers for consumer confidence to rise enough to deliver some Christmas cheer.’
• Deliveroo has been obliged to withdraw an advert that has been held by the Advertising Standards Authority to be misleading. It featured a woman diving into a Deliveroo bag, the ASA said it might mislead viewers to think they ‘could order food from different restaurants to be delivered together.’
• Deliveroo maintained that the ad was about emphasising ‘choice.’ In September, the ASA banned a Deliveroo ad for implying that Deliveroo operated ‘unrestricted throughout the UK.’
• Re yesterday’s decision, Deliveroo says ‘this advert underlined the huge choice of great restaurants available on Deliveroo. This is growing each day. For the record, you can’t actually dive into your Deliveroo bag, however hungry you are.’
• Hospitality software solutions company Fourth has reported that 68% of UK hospitality employees admit that they require more information about allergies and that 23% are ‘not confident about advising customers with serious allergies.’
• Fourth says that a knowledge re allergens is critical. It says that only 63% of senior staff are confident or very confident that they are handling the issue allergens correctly. Fourth says the data ‘show the urgent and pressing nature of the allergens challenge. While there is some evidence of pockets of progress, and some excellent working practices, as an industry we must collaborate to identify the best approach, and one that gives both our people and our guests absolute confidence and a consistent experience.’
• Major UK franchisee Burger King UK has reported that it has acquired eight new sites with more growth likely. The company has 100 owned sites out of a UK estate of 515 units.
• Dishoom reports ‘with outrageous joy, today we finally confirm that DISHOOM BIRMINGHAM will open its doors in Spring 2020.’
• French champagne producers are beginning to worry that US threats to impose tariffs of up to 100% could be more than just hot air. The export of sparkling wines to the US is worth around €700m per annum.
• US-owned burger chain Five Guys is set to open its 100th UK site next week. The opening of the unit, in St Paul’s, London, means that the company has got to 100 UK sites in just six and a half years.
• Action on Sugar has reported that high street coffee chains are failing to reduce the amount of sugar they include in their drinks. It says that some seasonal beverages contain almost as much sugar as three cans of Coca Cola. The Starbucks’ caramel hot chocolate with whipped cream, includes the equivalent of 23 teaspoons of sugar.
• Flying Firkin Distribution has launched a website to simplify beer ordering. It says ‘we’re delighted to be able to better showcase the unique range that Flying Firkin can offer publicans and organisers of beer festivals across the UK who are looking for a simple, efficient way to get the best beers possible. Another new feature includes practical tips and advice as to how to run a successful beer festival.’
• Choose your markets. The UK’s six richest individuals control as much wealth as the poorest 13 million reports The Equality Trust.
HOLIDAYS & LEISURE TRAVEL:
• More holidays going into the market. TUI has announced an extra 74,000 airline seats for winter 2020 out of Doncaster Sheffield airport. Newcastle airport has re-introduced Sharm el-Sheikh and is to add 38,000 seats.
• HotStats reports that Q4 has been tough to date for UK hoteliers. It says that GOPPAR, a gross profit per room measure, has dropped by 5.3% year on year in October. October is the seventh month this year to lag the same month in 2018.
• Room rates were lower and non-room spending also fell.
• Hyatt reports that it is to add more than 20 new hotels and resorts by the end of next year.
• The Tory Party has said it will spend a further £4.2bn on local train, bus and tram services if they win the general election.
• Sky is to build a ‘Hollywood-style’ film studio in north London. It will create more than 2,000 jobs in the process. Sky Studios boss Gary Davey says ‘it is a big enough site to attract very high-end production in both TV and film from all over the world. We are going to fill this thing with projects of all kinds. It means a huge number of new jobs and new investment.’
• Co-founders of Google, Larry Page and Sergey Brin, are stepping back from their day-to-day roles at Alphabet.
FINANCE & ECONOMICS:
• The IHS Markit PMI for the UK construction industry came in at 45.3 in November, up slightly from the 44.2 that it recorded in October. Civil engineering was worst hit whilst house building held up relatively well.
• Markit says ‘UK construction output fell again in November as Brexit uncertainty and the forthcoming General Election continued to send a chill breeze across the sector.’ It says ‘greater hesitancy among clients led to a decline in overall new work for the eighth consecutive month during November.’
• The much larger Services PMI is reported at 9.30am today.
• Noises suggesting that a Sino-US trade deal may not be signed until after the US November 2020 Presidential elections led equity markets lower across the world yesterday.
• Sterling higher yesterday at $1.2991 and €1.1729. Oil higher at $61.25. UK 10yr gilt yield down 7bps at 0.67%. World markets mostly lower with Far East down in Wednesday trade.
• Brexit, politics etc.:
o Donald Trump has said that he would not buy the NHS even if it were served to him on a platter. He says he could work with whomever becomes PM because he is very easy to get along with.
o Trump says he believes Prime Minister Boris Johnson, whom he has called ‘Britain-Trump’, was very capable and would do a good job – but then adds that he does not wish to become involved in the UK election.
o PM Boris Johnson has confirmed that the Tories would bring in a ‘digital services tax’ despite President Trump’s sabre-rattling re France.
o One of Britain’s richest men, Surinder Arora, has warned that Labour’s plans to target wealth could scare investors away from the UK.
START THE DAY WITH A SONG:
• Taking a break due to exam commitments. Back middle of next week.
RETAIL WITH NICK BUBB:
• QUIZ: The struggling fashion chain QUIZ has announced some pretty awful-looking interims today (for the six months to end Sept 30th), with underlying PBT plunging by 85% to just £0.6m, before a chunky exceptional store and lease write-off provision of £7m, which is driven by a calamitous 11% drop in Retail revenues. Management have not spelt out what this means for the full-year results…
• Morrisons: In Oct 2018 Morrisons suddenly announced that the well-regarded Commercial Director Darren Blackhurst was being shunted aside and that the CFO Trevor Strain was taking on additional responsibility for his role, so we are not quite sure what to make of today’s news that Trevor Strain has been promoted to be Chief Operating Officer… and that one Michael Gleeson is to be the new Chief Financial Officer…
• John Lewis Trading Watch: With “Black Friday” a week later this year, the John Lewis sales figures for last week are again rather meaningless, but overall gross sales in w/e Nov 30th surged by as much as 60.4% (after slumping by 43.3% in the previous week), according to yesterday morning’s JLP weekly overview. In terms of sales mix, for what it’s worth, Fashion/Beauty sales were up by 71% gross last week, Home sales were up by 18% gross and Electricals were up by as much as 81% gross…The commentary flagged 2 more meaningful comparisons: sales last week were up by 2.1% on the Black Friday week a year ago and sales for the first 10 days of the Black Friday promotion were up by 9.5% on the same 10 day period a year ago. But with the promotion falling a week nearer to Christmas this year and with it covering 11 days versus only 8 days last year the real bottom-line impact of all the
• Waitrose Watch: “Black Friday” may have boosted Non-Food spending last week, but it is disappointing that w/e Nov 30th saw a fall of 3.9% in gross ex-petrol sales at Waitrose…That left the last 44 weeks down by 0.8% gross cumulatively, but although, unaccountably, Waitrose do not think it useful to provide 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 in October), so it is safe to say 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%).