Langton Capital – 2016-03-01 – Revolution, Gregg’s, Just Eat, McColl’s & other:
A Day in the Life:
Follow us on Twitter at either @langtoncapital or @brumbymark.
Find previous emails on our website at www.langtoncapital.co.uk
I think you know you’re getting old and cranky when you find yourself agreeing with the odd nutter on TV.
And I’m not talking about Colonel Gadhafi or Idi Amin-type mad but rather I mean the occasional eccentric that the TV news magazines have brought on to make a counter-argument, you know the kind, the ones that are meant to be shot down in seconds but who actually, every now and again, seem to make sense.
So I don’t necessarily think that we should all start wearing tin foil inside our hats so that the aliens can’t read our minds but perhaps we should rip out 80% of the country’s traffic lights, as the IEA suggests?
Because I think that only a small fraction do anything other than line the pockets of those who manufacture them and councils should maybe take note that traffic tends to run more smoothly when the lights are out.
And I have more but, with a couple of companies reporting and work to do, let’s move on to the news:
Pub, Restaurant & Drinks Producer News:
• Gregg’s FY numbers. Says has turned in an ‘excellent operational and financial performance’. Sales +5.2% at £836m.
• GRG FY: Managed LfL sales +4.7% over full year (after +4.5% last year). PBT +25.4% at £73m. Dividend up 30% to 28.6p
• GRG FY: Says has seen strong cash generation that has supported capital investment & has paid a £20m special dividend
• GRG FY: Says 202 shops refurbished in the year, 122 opened, 74 closed. Has 1,698 shops at year end
• GRG FY: Will spend some £100m this year on ‘investment in manufacturing and distribution operations over the next 5yrs’. CEO Roger Whiteside says ‘in 2015 we delivered another excellent performance in the second year of our strategy to transform Greggs from a traditional bakery business into a modern, attractive food-on-the-go retailer.’ He continues to say ‘we have made significant progress across the business change programme, consequently our estate is stronger and our products, value and service are all improving the experience for customers.’
• GRG says ‘this year has started well and the consumer outlook remains positive with disposable incomes expected to grow further in 2016.’ CEO Roger Whiteside says ‘overall 2016 will be another year of significant change as we advance with our strategic plan and propose major investment in our supply chain. Alongside this we are confident of delivering a further year of underlying growth.’
• GRG re future. Group says ‘we have made great progress in executing the strategic realignment of the business and, in the year ahead, will continue to make changes to improve further in all areas. This is expected to include major investment and change in our supply chain, which will involve some proposed bakery closures, as detailed in the Chief Executive’s report.’ The group CEO concludes ‘I am confident that we can make further progress in the year ahead.’
• Just Eat FY numbers. Says is ‘excellent performance’ and ‘momentum continues into 2016’. Orders +57% to 96.2m, revenues +58% to £248m.
• Just Eat: Underlying EBITDA +83% at £59.7m, adjusted EPS +57% at 6.6p, says ‘the strategy of continuing investment for long-term growth is delivering results’. Group CEO David Buttress says ‘our ability to increase and manage choice for consumers, while supporting restaurants with technology and marketing that creates value, resulted in continued strong global growth in our business in 2015.’ He adds ‘our business is becoming increasingly global, with our international business now larger and growing even quicker than our UK business was at the time of IPO.’
• Just Eat says ‘global online takeaway market continues to grow as consumers become ever more demanding; wanting more choice and greater convenience.’ It says ‘JUST EAT has been at the leading edge of developing and growing the online marketplace for takeaway food delivery as it responds to these changing trends.’ Re the current year, the group says ‘strong trading momentum has continued into 2016. Investment for growth in areas such as technology, marketing and people will continue and, as a result, the Board expects 2016 revenues of £350 million and Underlying EBITDA of between £98-100 million at current exchange rates.’
• Revolution H1 numbers: Sales +2.2% at £59.2m, EBITDA £7.9m vs £7.6m, PBT £4.7m vs £4.3m. EPS 8p, H1 DPS 1.5p
• Revolution: Says has opened 3 new Revolución de Cuba bars in H1. Estate is now 60 units with 2 more planned for H2. Chairman Keith Edelman reports ‘this is another strong set of results for Revolution Bars Group, underpinned by strong like-for-like sales growth and improved profit margins. Particularly pleasing was the opening of three new Revolución de Cuba bars, all of which have performed well in early trading. With two more bars scheduled for opening in the second half, we are confident of meeting our strategic growth targets.’
• Majestic Wine is today hosting a site visit for analysts. It says no new trading information will be disclosed.
• McColl’s Retail reports FY numbers. Sales +3.1% at £932m, LfL sales for FY down 1.9%. Underlying EBITDA up to £37.7m (2014: £37.3m)
• McColl’s FY. Says profit before tax up to £21.1m (2014: £12.6m). FY dividend 10.2p vs 8.5p. CEO James Lancaster says ‘I am pleased to announce financial results in line with expectations for 2015. In a challenging market we have grown sales and improved profits, at the same time we continue to deliver on our strategy of evolving our store portfolio. This year will see us reach 1,000 convenience stores, 50% more than we operated just four years ago. Additionally, we will extend and expand the range of products and services we provide to neighbourhoods across the country, at the most convenient times. McColl’s is a business which can continue to grow and deliver for customers, colleagues and shareholders.’
• Hogs Back Brewery will start putting its 4.5%ABV Hogstar Engish Craft Lager into cans from March as demand for craft beer in cans grows. Commenting on the trend, Hogs Back Brewery managing director Rupert Thompson said the image of cans ‘has completely changed over recent years among discerning beer drinkers, and it seems the right pack format for Hogstar as one of the new generation of high quality, high flavour craft beers.
• Fullers has reopened The Pilot in Chiswick following an extensive refurbishment and changes to its menu.
• Wagamama CEO David Campbell believes the expanding chain will become a global brand ‘by the end of the next decade’.
• Bruno Paillard has said that low interest rates and better climate conditions are boosting the production vintage of Champagne.
• Figures from the UK Cards Association show that more than one billion contactless transactions were made in 2015. One in eight card payments is now made this way after an increase in the limit for transactions to £30. Graham Peacop, chief executive of the UK Cards Association, said: ‘The swift increase in contactless usage continued apace last year, with nearly one in eight card transactions now using the technology. Whether it’s to stock up in the supermarket, travel to work or buy your lunch, contactless is a fast, easy and secure way to make payments.’
• Starbucks is ready to open its first store in Italy ‘with humility and respect’ early next year, in partnership with Italian developer Percassi. The coffee chain will set up its first Italian site in Milan.
• New data from reservation platform Bookatable suggests this Sunday will be the biggest Mother’s Day yet for restaurants. The site has seen bookings for Mother’s Day increase 61% year on year.
• Mothers’ Day now more important than Christmas (Day at least) for some pubs.
• PPHE Hotels announces will acquire 80% interest from its joint venture partner in Croatia.
• Breakfast sales at Travelodge +13% since relaunch last November
• Hilton is to spin off its lodging properties & timeshare business into a separate listed entity, effectively a REIT. Chief Executive Officer Christopher Nassetta said that the move was designed to enhance shareholder value. Nassetta said ‘by simplifying our business, each segment should benefit from a dedicated management team with the capital and resources available to take advantage of both organic and inorganic growth opportunities.’ He continued ‘it will also allow investors to more effectively allocate capital towards businesses more aligned with their objectives.’
• Travelodge reports FY numbers, says EBITA exceeded £100m in year to end-Dec for first time in group’s history
• Travelodge FY numbers. Revenue £558m, REVPAR +11.7%, room rates +10.2% and occupancy +1.0 percentage point
• Travelodge: CEP Peter Gowers reports ‘we are delighted to announce a record year for Travelodge. Our investment in the customer experience is delivering excellent results and our new-look rooms are driving substantial improvements in guest satisfaction. We are seeing significant growth from business customers and like for like sales growth was again substantially ahead of the UK hotel market.’ Mr Gowers continued to say ‘there continues to be strong underlying growth potential for value hotels. Travelodge has continued to outperform its market segment in the first weeks of 2016 and we have 19 new hotels scheduled to open this year. We have identified 250 further potential UK locations for new hotels and with our strong brand, direct distribution model and growing development pipeline, the board believes the company is well positioned to continue to deliver
• Travelodge reports opening of 12 new hotels in 2015 with a further 19 to come in the current year
• Sale of Travelodge for figure in the region of £1bn effectively put to one side for the time being. Times reports group as saying ‘we conducted a strategic review before Christmas, but with trading going as it is our owners are now perfectly comfortable holding on.’
• Research from ATPI Group and ITM shows that buyers are forecasting a ‘confident outlook’ for business travel in 2016. More than half of buyers predict an increase in business travel this year and 72% feel ‘very or quite confident’ about their company outlook and growth opportunities.
• Android Pay will launch as a rival to Apple later this month. Mobile payments clearly on the increase
Finance & Markets:
• Data yesterday showed Eurozone inflation has fallen back into negative territory. Consumer prices in the 19 countries sharing the euro fell by 0.2% year on year in February, against a 0.3% increase in January. German government bond yields with maturities of up to nine years traded below zero.
• Unsecured consumer credit rose by 9.1% YoY in January to £1.6bn as people looked to take advantage of sales.
• Yanis Varoufakis, self-professed “erratic Marxist”, is reported to be advising Jeremy Corbyn’s Labour Party in the UK. Mr Corbyn said to the Islington Tribune ‘I think the way Greece has been treated is terrible and we should reach out to them’. He continued ‘Varoufakis is interesting, because he has obviously been through all the negotiations’.
• World markets: UK slightly higher yesterday, Europe also mostly better. US down a bit & Far East up in Tues trade
• Oil spent most of yesterday going better. Is off the top a bit but still trading at around $36.50 per barrel
Retail Roundup from Nick Bubb:
Greggs: Today’s finals may be overshadowed by the news that Greggs is to close three bakeries (in Twickenham, Edinburgh and Sleaford), but the results are strong and this year has started well and LFL sales in the eight weeks to 27 February 2016 have grown by 4.2%, with total sales up 6.8%.
MySale: the turnaround of the Online “flash sales” retailer MySale continues, with today’s interims for the six months to end Dec showing a return to profit, with underlying EBITDA of A$1.5m a A$12.9m improvement on a year ago. The CEO Carl Jackson says “We are pleased with the start to the second half of the year as we have seen good momentum in revenue growth. There is still a lot of hard work ahead, but we have a well invested technology, marketing, buying and distribution platform capable of supporting a much bigger business, so we look to the future with confidence”.
This was produced for distribution yesterday afternoon: 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:
Leisure in the wider market:
• Our Licensed Retail Index (see earlier email) shows that pub & restaurant companies underperformed the wider market last week
• However, whilst the miners, oil & gas stocks & financials drove the wider market upwards for a second consecutive week, that’s hardly surprising
• Whilst the FTSE All Share Index rose by 2.45% last week, major leisure stocks such as GNK, MARS, JDW & MAB were clustered around the 0.8% to 1.9% mark
• Acknowledging that there are wider moves that are beyond the control (or remit) of leisure analysts, we would suggest sticking with both the sector and with existing stock selection as, over time, leisure is an ‘aspirational’ product and growth, at the macro level, should be robust
• As ever at the micro-level, new entrants will make their presence felt
Evolution of product offers:
• We’ve commented on a number of occasions that, with regard to the hospitality industry, change is the only constant.
• But this also applies to other sectors.
• Indeed hospitality, in that it relies upon the direct interaction between the company involved and the consumer, may be a little less susceptible to ‘disruption’ than may some other industries
• Today our colleague Nick Bubb reports on a ‘leaked document that Tesco planners have looked at a scenario of cutting store staff numbers by 39,000 over the next three years.’
• Elsewhere, the FT points out that up to a third (around 1m) retail jobs may vanish by 2025. The BRC has said that there may be ‘fewer but better’ jobs available as the NLW pushes up costs and technology provides non-human alternatives for some functions.
• Of course never say never but it may be some time before the pub & restaurant industry feels anything like the same pressure.
• Very much a ‘risk-on’ day on Friday but rather the reverse today.
• China hit 15mth lows earlier today. Global equities had de-coupled but that was enough to spook Europe.
• UK & Europe still holding >50dy moving averages, however and, to chartists, that means something.
• Recent trend of lower-highs would appear to have been broken – though hardly comprehensively. Remains to be seen whether the same is true of lower-lows.
• The alternative would simply be that short-term volatility had increased.
• Whilst fortunes are made and lost at the micro level (you buy LLOY or MKS or BP rather than UK PLC as such), events are influenced – or even driven – by what goes on at the macro level.
• Here there are some signs of distress. Let’s not use the word ‘panic’.
• Observers, critics etc. are saying ‘do something’ but they tend to be short on detail
• ECB meets on 10 March and, after hinting at further action so broadly, Mr Draghi may be under pressure to deliver.
• But deliver what?
• In the absence of a new technology (steam, electricity, motor vehicles, internet etc. all of which amount to ‘working smarter’), wealth will come from working harder.
• Or longer and, as far as that’s concerned, there are few takers from amongst the ranks of politicians who need to be re-elected on a 4yr or 5yr basis.
• Earnings numbers across most markets are under pressure and further equity market advances may be on the back of widening PERs rather than on earnings delivery
• Helicopter money (QE and its derivatives) may be the short-term palliative but, over the longer term, perhaps we should ask China what to do.
• It almost seems as though we are going to have a recession because, well, we’re bored of not having a recession.
• Oil price hit 2mth high’s (intra-day) on Friday but edging back now. Was almost $36 in the small hours of Monday morning but now (mid-morning) trading at around $35.20.
• Gold price stalled around the $1233 level. Nothing to say it won’t break through (likely on the upside) but it’s taking its time about it.
• Commodity of the day. Lean Hogs. As opposed to fat pigs, huh? Well yes and no. it’s a real thing & the commodity is often seen as a proxy for white meat (as the inputs for chicken and pigs are to some extent similar).
• Pigs continued. Here prices have been very weak up till around 3mths ago but prices have since recovered. Hogs now selling for around 71c per pound, up some 7% over the last 12mths.
• Pigs continued. Charts suggest the commodity has had a tougher last couple of days & price may be headed downwards. However, medium term trend is upwards – and this will put a little pressure on input prices across the hospitality industry.
• Gold vs Silver. One up, one down. Go figure.
Random information, hopefully not all of it useless:
• Mervyn King suggests another financial crisis is ‘certain’. Thanks a lot, Merv.