Langton Capital – 2016-01-28 – Daily Wrap: M&B, pubs vs casual diners, London trading & other:
Leisure Wrap & Other:
So the trading day is grinding to a close. Wef’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. As always, contact us if you’d like further details:
Mitchells & Butlers; simply too cheap?
• M&B’s shares are trading at around 8x earnings.
• That appears to be too low, even given the group’s issues with growth and the nature of its share register.
• The shares are up 2.3% or so at the time of writing and have risen to around 290p from their lows of 265p or so only a week ago.
• And the shares may move higher – but there doesn’t appear to be an identifiable catalyst to oblige this to happen.
• Trading, for the record, was not particularly good in Q1.
• Xmas was OK – at up 2% – but even that was perhaps a little below best hopes and, if Xmas is stripped out, it leaves early Dec and Jan looking decidedly weak at perhaps down 2% and possibly a bit more
• But the group is stepping up its Orchid spend – and this should feed through to LfL sales in due course
• We don’t want to be backed into a corner where we are waiting for ‘something’ to happen but, when the specific catalysts elude you, that’s often where you find yourself
• It can be lonely and it can take time but, at these levels, M&B’s shares simply appear to be very cheap
Pubs vs Casual Diners:
• GNK Tracker said that eating & drinking spend in Dec was flat.
• Horizons has said the same.
• Restaurant Group was somewhat downbeat (though not negative) and M&B, which is arguably the nearest to casual dining across the listed pub stocks, increased sales by 2% over the Xmas fortnight
• Interestingly it did not give a December number. We could see this being near to zero
• Marston’s was more upbeat and we hear from GNK on 10 Feb
• JDW’s sales were healthy – but its margin is an issue
• We believe that a pattern is emerging whereby pubs are outperforming restaurants – perhaps notably in the food area
• Companies that are ‘taking price’ (i.e. gouging) are seeing volumes coming under pressure whilst MARS and JDW are not.
• GNK is now a large animal but, if it splits out Hungry Horse (which is a near-casual-diner), it will be interesting to see if it bears out the above trend
• Fuller’s has updated this morning
• LfL managed it was up 5.6% at week 26, up 5.8% at week 33 and up 5.3% as at week 43.
• In tenanted, it was +3 then +4 and then +3.
• Hence, whilst tenanted may be down to rounding, with an extra decimal point to play with, we can say that managed LfLs have slowed
• Getting out the differential equations manual (to work out the last 10wks) is tough as the Xmas fortnight should be over-weighted
• However, if we suggest that the 10wks we are trying to identify had the punching power of say 14wks (effectively treble weight the Xmas fortnight), then we come up with about 4% for the most recent trading period
• Given that we believe Xmas was good (and we know that the weather was helpful, the temperature in London, allegedly, was the same on the summer & winter solstices at 15 degrees), this perhaps suggests that underlying trading was a little weaker still
• This clearly isn’t the end of London (and nor is it the beginning of the end but it may be the end of the beginning blah, blah) but it is, perhaps, something to bear in mind
Random information, hopefully not all of it useless:
• Just Eat shares had a bit of a shocker yesterday at down 9.8%. Could be Uber Eats fears or maybe it’s just the fact that it’s on a PER of c80x?
• Oil price rally supporting market. Equities in UK now back through 6,000 (in an upward direction) as we write.
• Oil price approaching $34 per barrel. This is what rallies do. They happen while you’re denying their existence.
• However (re oil) there’s little to upset the bears on the longer view. Oil down from $120 per barrel & only a few points off the bottom. Still lost two thirds of its value over the last 12mths
• Gold price rally is now at least visible to the naked eye. But price still down 9% over the last year.
• Cocoa now joined coffee as a cheaper commodity. End-2015 sharp rise now a thing of the past. Price only up 2% on a 12mth.
• Sugar, which has been one of the very few soft commodities to hold up in price, is showing some signs of rolling over. Sugar no11 now down 1% on a year and refined white sugar only up 8% having been up much more late-2015.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. M&B Q1. Sales better over Xmas but poor in early Dec and Jan. See email for further detail.
a. M&B Q1. For the 17wks to 23 Jan, LfL sales are down by 1%. Broken down was 0.6% fall in drink sales and a 1.5% fall in food sales
b. M&B Q1: Trading for the second part of the 17wks under review was somewhat stronger than the first period, but still down
c. M&B to up capital spend, seeks out low hanging fruit in Orchid. This should pay off. Shares trading at 7.6x this year’s earnings
2. Horizons has reported that there were more people eating out over Christmas but it says that spend is down
a. Horizons: Poll accords with GNK Tracker which said that, though spend on leisure was up, that on eating & drinking out was flat.
3. Diageo reports H1 numbers, says ‘momentum continues with stronger top line growth and higher free cash flow’
a. DGE H1: Group sees 1.8% organic net sales growth, on 1.0% organic volume growth. Generates 2.4% organic operating profit growth
4. Fuller’s updates on trading for Q3 saying ‘the Company saw a strong performance in its Managed Pubs and Hotels’.
a. Fuller’s cumulative (to Q3) LfL sales +5.3% in managed pubs while LfL profits in Tenanted Inns were +3%
5. SSP updates on Q1, says ‘has had a good start to the new financial year and expectations for the full year remain positive and unchanged.’
a. SSP Q1: Says total revenue +6.2% on a constant currency basis. LfL growth 4.3%. Revenues at actual exchange rates +1.9%.
6. Scotch whisky producers are calling for an additional 2% tax cut & argue current 76% levy on average bottle of scotch is unsustainable
7. Air Partner says trading momentum in the second half of FY 31 January 2016 remained good
8. Official figures indicate the amount of Air Passenger Duty charged last year amounted to more than £3.1bn.
9. The number of Chinese visitors to the UK in the first nine months of 2015 was up 37% year on year to a record 214,000.
10. London is now the second most visited city in the world having overtaken Bangkok and Singapore. Hong Kong remains numer one
11. US Fed yesterday kept interest rates unchanged. It said it was “closely monitoring” global economic + financial developments