Langton Capital – 2016-01-26 – Marston’s 16wks update, McDonald’s, Stonegate & other:
A Day in the Life:Follow us on Twitter at either @langtoncapital or @brumbymark. Find previous emails at https://www.langtoncapital.co.uk/daily-notes/ So I was thinking of taking a day off today because I was having a bad hair day. But then I realised I had three meetings and a couple of trading updates and so decided to wear a hat instead but, as I’ve always got things on, it’s hard to see when I’m next going to be able to swing a sickie. Although maybe sickies are just a thing of the past, one of those guilty or not so guilty pleasures that you give up when you become self-employed. Along with job security, a pension, sick pay, holiday pay, pay in general and all the rest but hey, nobody forced me to do it, huh? Anyway, it’s time for the news but if you would like to spread the love and add a colleague or acquaintance to this email list then just let me know. On the other hand, you could just forward it to them & suggest that they hit the ‘subscribe’ button at the bottom and then, via the miracles of modern science, it will bung them on the list. Marston’s AGM & Trading Update – 16wks to 23 Jan 2016:Marston’s has this morning updated on trading for its first quarter including the Xmas and New Year periods and our comments are set out below: Trading: Marston’s reports ‘our performance in the financial year to date has been encouraging, including good trading over the Christmas and New Year period.’ The group adds ‘in Destination and Premium, like-for-like sales were 3.0% ahead of last year including like-for-like food sales growth of 2.5% and wet like-for-like sales growth of 3.4%.’ Xmas was strong. Marston’s comments ‘in the key two week Christmas trading period to 2 January trading was good with like-for-like growth of 4.9% despite tough comparatives.’ The group says ‘operating margins are ahead of last year.’ There is little if any discounting going on. We believe that margins could come back to level for the year as a whole as the impact of the NLW kicks in. As regards Taverns, managed and franchise pub, Marston’s reports ‘like-for-like sales were 2.7% ahead of last year, with 5.0% growth over the Christmas fortnight.’ It says ‘the evolution of the franchise model continues to be a key driver of growth, and has been extended into higher turnover pubs, with the highest turnover franchise pub achieving £30k per week over the holiday period.’ Re Leased units, profits are estimated to be around 3.0% ahead of last year in the period under review. In Brewing MARS says ‘our strong brand portfolio has performed well with own-brewed volume up 21% in the year to date, underpinned by a very strong performance in the off-trade.’ This number is inclusive of Thwaites’ business (purchased April 2015) and we believe that underlying beer sales are up in the low single digits Debt, cash-flow, capex etc.: Marston’s new-build programme continues apace with the group saying it should ‘open at least 20 new pub-restaurants and five lodges in the current financial year, with seven pub and three lodge openings expected in the first half.’ This being a trading update, there is no comment on debt. We believe that expectations are in line with earlier guidance. Conclusion: CEO Ralph Findlay reports ‘once again we traded well over the Christmas period with record sales over the key Christmas fortnight for the fourth year in succession, maintaining our record of market out-performance, including pub retail sales of over £3 million on Christmas Day for the first time.’ He says ‘this performance demonstrates the appeal of our pubs and the value for money we offer, underpinned by excellent service.’ Regarding the outstanding beer result, Mr Findlay comments ‘in Brewing, our principal brands and new beers contributed to an excellent first quarter.’ Langton Comment: In short, Marston’s has reported that it has traded very satisfactorily over its Q1 – including the critical Christmas and New Year period. It has effectively maintained the momentum with which it finished FY15. Whilst this is in line with our expectations, it does appear to contrast with cautionary comments made by Restaurant Group as recently as the week before last. We would expect similarly reassuring comments when Greene King releases its December Tracker tomorrow and – one would hope – when M&B hosts its AGM the day after. The bottom line would appear to be that well-located units selling customers what they want to buy at a price they are prepared to pay continue to perform well. Furthermore, Marston’s has transformed its business over recent years and it is now beginning to reap the benefits in that its tail has gone and its new-build pubs, now around 140 of them, continue to trade strongly. It is adding its own units at an attractive EBITDA multiple of under 6x and the return on capital on these freehold units remains between 13% and 15% depending on location. Margins are up at a time during which the group has been beating the market in terms of LfL sales growth. This contrasts with the performance reported by JD Wetherspoon and leaves Marston’s looking well-positioned. Marston’s is in control of its own destiny with most of its pubs now under its control. It’s new-build units add a degree of certainty lacking with some other operators. The group is growing EPS and cutting its debt. Its shares trade on around 11x current year earnings and offer a 4.8% yield. We see estimates as unlikely to change. They may currently be under a little upside pressure but, until we get some more clarity on the impact of the NLW, they will remain where they are. We believe that Marston’s is capable of delivering double-digit EPS growth into the medium term and see its shares as offering extremely good value. The News:Pub, Restaurant & Drinks Producer News:
• Restaurant Group announces Debbie Hewitt to succeed Alan Jackson as Chairman of the company. Says she will assume role from AGM on 12 May. Group says ‘Alan…has played a pivotal role in initially turning around the then ailing City Centre Restaurants and subsequently building the Company into a leading restaurant business. He has shown strong and insightful leadership throughout his tenure, delivering a strong succession plan for the Board.’ Debbie Hewitt comments ‘the Board of The Restaurant Group wishes to extend its gratitude to Alan for his contribution to the success of the Company. The Restaurant Group has great brands and highly talented people and Alan has played an important role in bringing strategic vision, strong market insight and leadership of the Board throughout his tenure as Chairman. He has taken a proactive role in preparing the Board for his • Stonegate has posted a 1.2% rise in LfL sales for the full year to 27 September 2015, while LfL gross margin improved by 3%, helping to drive a 10.8% rise in LfL profit. Total revenue for the period was up 0.7% at £561.6m and profit before tax came in at £4.2m. The company made 103 investments in the year across all of its formats, benefitting from a 3% rise in like-for-like food sales and a 0.9% increase in drink sales. Stonegate’s purchase of 52 sites from The Tattershall Castle Group in September makes the group the UK’s fourth-largest managed pub operator. • McDonald’s reports Q4 & FY numbers, says ‘we took bold, urgent action in 2015 to reset the business.’ CEO, Brit Steve Easterbrook says McDonald’s is now positioned ‘to deliver sustained profitable growth.’ • McDonald’s Q4. Says global LfLs +5.0% but revenues down 4% (though up 5% in comparable currencies.) CEO Easterbrook says re 2015 ‘we ended the year with momentum, including positive comparable sales across all segments for both the quarter and the year – a testament to the swift changes we made and the early impact of our turnaround efforts. We enter 2016 committed to managing the business for the long term and aligned as a System around the critical imperative that we must run great restaurants each and every day for our valued customers.’ • McDonald’s Q4: Group says consolidated operating income increased by 7% (16% in constant currencies), EPS 131c, up 16%. EPS was up by 26% in constant currencies, showing just what an impact the strong US$ had on 2015 results. • McDonald’s full year numbers, diluted earnings per share of $4.80, unchanged on last year but up 10% in constant currencies. • McDonald’s US performance strong in Q4, LfL sales +5.7% ‘benefiting from the October launch of All Day Breakfast’ as well as mild weather. • McDonald’s saw a strong performance in the U.K. (as well as Canada + Australia) with less good numbers out of France • McDonald’s operating income in High Growth markets up 27%, led by Russia, China and a number of other territories • McDonald’s is to roll out table service across the UK in an effort to focus on its premium services. UK boss Paul Pomroy said ‘we opened 26 new restaurants last year and the rollout of our reimaging programme is transforming the way we serve customers, and has been a key growth driver.’ He adds ‘to date, over 300 restaurants have been refurbished and we expect a further 350 to be completed and reopened for customers by the end of the year – an average of one every day.’ • IEA says traffic controls, bike lanes and other green initiatives are holding back the economy. It argues that ‘from a green point of view you’re better off getting rid of all these traffic controls. They actually increase pollution by delaying traffic and making car engines run less efficiently.’ • New research from the University of Oxford suggests that regularly going to your local pub makes you happier, healthier and more sociable. The study also found that smaller ‘community style’ pubs work better than larger city-centre pubs, at least when it comes to maintaining more close friends. • The BBPA has ramped up its campaign for a fourth beer duty cut and is distributing 100,000 related posters, postcards and beer mats to pubs around the country. The new BBPA posters, alongside postcards developed by CAMRA, highlight the notable difference in beer duty between Britain and other major European countries, and urge consumers to back the campaign by writing to their local MPs via the website www.beerandpubjobs.co.uk. • Sales of port wine grew by 1% in volume and by 2% in value year-on-year in 2015, making it the fastest growing fortified wine category in the UK. • Hackney Brewery has started to make ale from unwanted bread to draw attention to the level of food waste in the UK. The East London brewer is calling the drink Toast Ale and is launching it this week at £3 a bottle, with all profits going to Feedback, a charity that is pushing to halve food waste in the UK by 2030. • Greene King CEO and Morrisons non-executive director, Rooney Anand, has purchased 12,500 shares at 160.36p in the northern-based food retailer. • Sainsbury’s has relaunched its Entertainment on Demand music site, which holds over 20m tracks and 2.5m albums. The website allows customers to use Nectar points and also sells ebooks. • Pizza Express is in talks with premium pizza delivery chain Firezza as it focuses on developing its delivery concept. • Fish and chip shop chain Harry Ramsden’s believes it can grow from its current 41 sites to around 300 within the next five years. The group is targeting expansion of both its franchised and managed stores and believes its FishWorks brand, which has two London sites, can reach 50. Harry Ramsden’s chief executive Joe Teixeira said: ‘Following the successful turnaround of Harry Ramsden’s in the last three years, we have a clearly defined strategy driving the reinvigorated brand, focusing on customers and our people to grow aggressively offering the Harry Ramsden’s proposition to a wider demographic profile’. Leisure Travel: • The number of UK travellers abroad rose by 9.1% to 22.4 million last summer, with spending up 13.6% to £14.4bn, according to the ONS. Consumers now spend almost £700 per person on their annual family holiday, up 20% on five years ago when the average spend was £597. • The Canadian hotel industry saw mostly positive results in 2015 as ADR rose 4.5% to CAD143.52 and RevPAR grew 3.6% to CAD92.29, although occupancy fell 0.8% to 64.3%. • London-based travel firm Mirecki M, which specialises in trips to Cuba, has collapsed. • STR reports shift in lender expectations suggests that financiers of U.S. hotels expect the current period of growth in hotel asset values to peak within the next year. • Thomas Cook has joined Thomson in cancelling its summer 2016 programme to Tunisia. • Staycity is opening its second site in Birmingham (of 170 apartments) and the group is attempting to drive traffic through its website by promising the best deal. The aparthotel’s marketing campaign, ‘Book direct for a better deal’ draws attention to the fact that customers going through its website will be guaranteed the lowest rate available or a 10% refund. • ‘It’s important to us that we build a direct relationship with our customers and that we can pass on special offers and discounted rates more quickly and easily,’ explained Staycity CEO Tom Walsh. ‘That’s difficult to do through a third-party booking agent, so we’re urging our guests to book their stay through our own website to benefit from these offers and the price guarantee.’ • The group’s first Birmingham site, opened in 2006, has been one of its most successful and occupancy has remained over 90%. It is now in eight cities across the UK and Europe and plans to grow from 1,000 apartments to 3,500 over the next two years. • Harwood Capital-backed Indoor Bowling Equity has bought six sites from The Original Bowling Company. The locations will be rebranded as Tenpin sites and will take IBE’s estate up to 36. Other Leisure: • Two Russian investors have bought Fairline boats out of administration for about £4.5m per FT. Finance & Markets: • UK factories only saw limited signs of recovery in the three months to January, with new export orders remaining ‘near-flat’ amid global uncertainty. The findings, in a survey from business lobby group CBI, mark an improvement on the sharp fall recorded in the previous set of quarterly figures, although manufacturing continues to lag the rest of the UK economy. • Preliminary figures show Russia’s economy contracted by 3.7% in 2015 as the country continues to grapple with the ramifications of a collapse in oil prices. Retail sales declined by 10% and capital investment fell by 8.4%, in what is the country’s worst full year economic data since 2009. • Bank of England has ” luxury of a bit more time” before raising rates per policymaker Kristin Forbes • World markets: UK mixed, Europe down. US down sharply in later trading with Far East down Tuesday • Oil price weakens, slips below $30. Currently trading at around $29.99 per barrel • CBI survey suggests business optimism declined in Q1 2016 to date Langton Licensed Retail Index – Major MoversLast week was very much a week of two halves. The wider UK market fell on Monday and Tuesday before succumbing to panic selling on Wednesday when the FTSE100 lost over 200pts. A rally then set in with the markets rising sharply on both Thursday and Friday. The FT All Share Index finished the week up 1.22% and leisure stocks were not immune from the moves with the weekly performances (with a couple of exceptions) being driven by wider market moves. Pubs: JDW had a poor week last week (down 8.4%) on the back of its lacklustre Q2 update and the comment that results would be ‘at the bottom of the range’ – see earlier emails for further comments. Greene King shares lost 2.6% as they failed to bounce as markedly as did the market but Marston’s, which updates tomorrow, lost only 0.5%. M&B shares, having been oversold for some weeks now, ended up by 2.6%. The tenanted pub companies had a poor week with Enterprise’s shares down by 4.5% and Punch Taverns giving back 4.1%. London operators Fuller’s and Young & Co both lost ground with the former down by 2.4% and the latter a material 7.1%. Concerns that the London market may be becoming saturated may have weighed on the shares. Other Leisure: Amongst the other major operators, Restaurant Group steadied up after having lost ground during the previous week when it updated on full year trading. Its shares rose by 1.2% las week whilst bar operator Revolution Group lost 4.4% and Domino’s Pizza shares finished the week some 5.1% lower. Whitbread, Cineworld and Merlin shares moved by less than one percentage point (the former down, the latter two up) whilst SSP shares fell by 1.9%. Will Brumby – will.brumby@langtoncapital.co.uk Retail Roundup from Nick Bubb:
Dixons Carphone: Carpetright: Today’s update from Carpetright for the 12 weeks ended 23 January is pleasing once again and the Board says that profits expectations are unchanged. The ebullient CEO Wilf Walsh says “While we saw some softening of like-for-likes in the pre-Christmas period, reflecting lower footfall, customer numbers recovered in the important January sale period. Our trading performance over the last four weeks, with like-for-like growth of 6.0% against exceptionally strong prior year comparatives, gives us confidence that the enhanced interest free credit offer and strong promotions launched on Boxing Day are hitting the spot with our customers”. Card Factory: Ahead of today’s Q3 update from Card Factory, their great rival WH Smith was making bullish noises last week about its new Cardmarket chain, but it hasn’t stopped the business from having another successful Christmas, with LFL store sales growth for the cumulative 11 month period of +2.8% and “the Board’s expectations for the full financial year are unchanged”, after “another year of consistent strong growth and strategy execution”.
Today’s Press and News: News Flow This Week: The Apple Q1 results are announced this evening in the US. And as the end of the month is approaching rapidly now, we get the CBI Distributive Trades survey for “January” tomorrow morning, whilst the monthly GFK Consumer Confidence Index is out first thing on Friday. Nick Bubb – nicholas_bubb@hotmail.com Monday Wrap:This was produced for distribution yesterday: So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following: The News: Evolution, a continuing process: • The news that contactless payment volumes have quadrupled in less than a year should not be a surprise. • Similarly Uber Eats may now be looking to disrupt former-disrupters such as Just Eat and Deliveroo. • Tesco, meanwhile, is going in the other direction & has closed its (admittedly only two) food to go outlets. o One has to here question the future re Harris & Hoole and Giraffe within the Tesco fold Oil. Iran eclipsed by snow in the US: • It was always going to be winter at this time of year in North America but Storm Jonas, now dubbed Snowzilla, has reminded traders that Americans use oil in order to stay warm • Hence the price, though giving a bit back at present, rose by 10% on Friday and a little more over the weekend to trade at over $32.50 earlier today • Oil apparently has just had its best 2dy run in 7yrs. • However, a too-short term chart, whilst it will give traders a bit of a buzz, can be a bit misleading because the oil price remains historically very low • Because, though the price rose by almost 20% over the last three days, it is still down by around three quarters of its value on prices of only a little more than a year ago • With billions being gambled on the oil price on a daily basis, there’s little that any single observer is likely to be able to add • But surely snow melts but the re-emergence of Iran is (semi) permanent? • Overall, however, the suggestion that oil could test new lows is not without merit and, when the snow lying in New York and Washington melts, the price could come under further downward pressure • We note, however, that slashed capex budgets, over time, could lead to a squeeze on supply at some point in the future Sterling bouncing: • So should we scrub everything that we’ve said recently about the impact of a weak Pound? • Well not really. Sterling had an OK day Thursday & a bit more of a bounce Friday but it’s still down by around 10% over the last 3mths • As always, the impact on holidaymakers going abroad will be immediate whilst the costs for holiday companies should have been hedged – at least for the season that we are currently in • Commodities (priced in US$s) and imports (priced, typically, in US$s, dollar-linked currencies, Euros and Yen) will rise in price on an overall lower level of Sterling but the impact should take some time to feed through Random information, hopefully not all of it useless: • The Daily Mail has opined that ‘Amazon wages war on grocers’. It points out that the online giant is to hire 2500 more staff in the UK and possibly takeover Ocado. • Falling diesel prices, now at six year lows, should help to put a little more cash back into would-be pub-goers pockets • Tunisia. Now shut till November in the eyes of TUI. The market will be fortunate if that is the worst of it. Capacity in Canaries & elsewhere seems to have picked up the slack. • UK market: Tried to go better today but fell. On Friday, it was somewhat unusual to see the oil companies in the gainers & the miners in the fallers. • Interestingly on Friday, only four FTSE100 stocks actually registered a decline. • Commodities: The Gold Rally is now visible to the naked eye. Non-precious metals prices still weak, copper is off by 23% over the last year and soft commodity prices, with the recent exception of sugar, remain depressed |
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