Langton Capital – 2016-03-03 – Whitbread, Domino’s, Coral, Sportech, UK Budget & other:
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Whitbread – Q4 Trading Update:
Q4 Update: 50wks to 11 Feb 2016:
Whitbread has this morning updated on Q4 and year to date trading for the 50wks to 11 February and our comments are set out below:
Q4 results in brief:
Regarding Q4 (the 11wks to 11 Feb), the co says Premier Inn LfL sales rose by 2.2%, Restaurants were up by 2.3% and Costa was up 0.5%
Year to date results in brief:
Regarding the 50wks to 11 Feb, the group reports that LfL sales at Premier Inn were up by 4.4%, Restaurants were 1% ahead and Costa was up by 3.0%
In hotels & restaurants, Whitbread says ‘’Premier Inn has continued to win UK market share’ and adds ‘total occupancy remained high, in line with last year, at 81.1% and total room nights sold increased by 7.4% to 17.0 million.’
The group reports in Q4 ‘Premier Inn grew total sales by 7.3%, driven by a 6.9% increase in the number of rooms available, and occupancy increased by 0.3% pts to 71.4%. Like for like sales grew by 2.2%’.
It adds ‘the market has continued to show a divergence in performance in the quarter between the regional and London hotel markets. In the regions Premier Inn grew total sales by 8.3%…[whilst] in London, despite a softer hotel market, Premier Inn grew total sales by 3.6% in the quarter, with an 8.0% increase in rooms available.’
Our total London revpar and occupancy declined, broadly in line with the market, by 3.6% and 1.5% pts respectively albeit our occupancy remained high at 76.1%. Total London market revpar declined by 3.3% and revpar for the Midscale and Economy sector was down 2.2%.
Restaurants ‘delivered total sales growth of 2.2% and like for like sales growth of 1.0% for the 50 weeks’
The group says this was ‘ahead of our competitor set’
Whitbread reports ‘Costa grew its worldwide total sales by 14.2% and like for like UK sales by 3.0% for the 50 weeks.’
It says ‘YtD Costa grew worldwide system sales by 13.1% to £1,516 million (13.4% at constant currency).’
During the year to date, Whitbread has opened 103 net new stores in the UK
Whitbread says ‘Costa Enterprises (including Costa Express UK & International) delivered system sales of £374 million, up 12.6%’
It installed ‘a further 921 Costa Express machines taking the total to 5,213.’
Costa says ‘international system sales grew by 11.0% to £309 million (12.4% at constant currency). 79 net new stores were opened in the period with 41 in EMEI and 38 in Asia.’
Whitbread says ‘our strong financial position remains unchanged.’
CEO Alison Brittain reports ‘Whitbread has had another good trading period, delivering year to date total sales growth of 10.4% and like for like sales growth of 3.2%. We expect to report full year profit in line with expectations.’
She adds ‘in the quarter, Premier Inn had a good performance growing total sales by 7.3% with occupancy rising by 0.3% pts to 71.4%’. She says ‘we benefitted from our substantial, higher returning, hotel extensions programme.’
Ms Brittain adds ‘Costa had good total sales growth of 10.5% and like for like sales growth of 0.5% reflecting lower footfall on the high street and an unusually warm winter.’
Looking forward, the CEO says ‘in the year ahead, as we build towards our growth milestones, we will continue to invest in improving our customer propositions, our digital and IT capabilities and in our winning teams to ensure we maintain our market leading positions. This will deliver long term profitable growth and sustainable returns for our shareholders.’
Whitbread says ‘this year we shall open around 5,500 new UK Premier Inn rooms, including c.1,500 rooms from extensions, and plan to open a further c.5,000 new UK rooms next year, including c.1,700 rooms from our hotel extensions programm’
It adds ‘for Costa this year we expect to open c.200 net new stores worldwide and install around 950 Costa Express machines and we plan to open a further c.230 net new stores worldwide and install around 1,000 Costa Express machines next year.’
Whitbread says ‘our strong freehold backing provides us the opportunity to recycle capital and we expect to carry out a sale and lease back transaction during next year. We remain on track to deliver on our growth milestones, which will enable us to create sustainable shareholder value.’
Langton Comment: Slowing Costa sales are likely to grab the headlines.
This should not have been unexpected (given the warm weather, particularly in December) but, whether it was factored into share prices or not will be seen later this morning.
The numbers are by no means poor but the reality of the situation is that, in addition to the warmer weather derailing short term numbers, the coffee market in the UK must be more mature than it was, even if it is not mature in the absolute sense of the word.
Furthermore, as we have seen in casual dining, the market leader tends to be there to be shot at and, over time, new entrants may be something of an issue.
However, Whitbread has reassured that it will deliver numbers in line with expectations. And its shares now trade on a perhaps more reasonable 15.6x Feb 2017 earnings with a yield of around 2.5%.
And in Costa and Premier Inn, the group does have two potentially international brands. That is something of a rarity across much of the leisure space and would-be holders are likely to remain attracted to the stock.
Pub, Restaurant & Drinks Producer News:
• Domino’s Pizza FY numbers, says ‘e-commerce continues to drive an excellent group performance’
• DOM FY: System sales +15.8% at £877m, LfL sales +11.7%, underlying EPS 35.7p, dividend 20.75p vs 17.5p last year
• DOM FY: Group says ‘UK performance continues to underpin growth with 9 successive Qs of double-digit LfL sales’
• DOM FY: Says has opened 61 stores in the year and is seeing ‘improving performance in international businesses’. CEO David Wild reports ‘2015 was a terrific year for Domino’s Pizza Group; the UK performance was outstanding, reflecting continued investment in our e-commerce platform. This underpins both our like-for-like results and the success of our new store programme. Digital continues to be at the heart of our business, driving more customers and higher frequency of orders. Our cash conversion is strong and we have today announced that we are ready to resume share buy backs alongside a dividend that is up 18.6%.’
• DOM FY: CEO David Wild reports ‘we have made an encouraging start to 2016, although we are conscious of increasingly tough comparatives through the rest of the year. I would like to thank the DPG team for their hard work. I also want to pay tribute to our franchisees whose tireless endeavours ensure that our customers continue to enjoy great pizzas at great prices every day – whether ordered online or by phone, delivered to the door or collected in store.’
• A new report from the CEBR indicates that an increase in beer duty in this month’s Budget could harm the pub and brewing industry. The Centre for Economics & Business Research suggests that an increase would undo the momentum gained from three years of tax cuts and could even return beer sales to an all-time low by 2020. The government’s current commitment is to raise beer duty in line with inflation, although the CEBR finds that a 1p cut could create 13,000 jobs around the UK and save 550 pubs from closure.
• BBPA chief Brigid Simmonds commented on the conclusions: ‘This important report adds even more weight to the convincing case for a cut in beer duty in the Budget. The fact that 550 pubs are at risk if the tax on beer is raised as planned, should be real pause for thought in the Treasury. Instead, a 1p duty cut would boost confidence and investment, adding to the momentum that three beer duty cuts have already given to the brewing and pub sector.’
• Morrisons is back in the FTSE 100 following a strong share price performance, while Sports Direct has dropped out.
• Barburrito has secured sites in Edinburgh and Derby, following its 13th opening in Hammersmith Broadway last week, as it seeks to cement itself as a national brand. The sites were previously occupied by the Pinto brand, which Barburrito’s acquired last year, and will be brought under the latter’s banner this summer. Chief executive Morgan Davies said: ‘We are delighted with the recent launch in Hammersmith and thrilled to secure our 21st site, with the announcement of two new fantastic locations in one week. We launched as the UK’s first burrito bar and are working hard to ensure that we are the number one burrito brand in the UK.’
• FT reports that grocers are the most shorted stocks across European stock markets. Energy stocks are the second most.
• IEA suggests that commuters should be charged more for using congested Tube stations in London. It says ‘Tube passengers do not pay the full marginal costs they impose on other users as a result of congestion. Indeed, those with a low value of time can impose very costly delays on travellers with a high value of time, creating substantial efficiency losses.’ Not sure how that will go down.
• Corney & Barrow managing director Ed Gardner has told M&C that the 11-strong group is looking to grow again following a period of downsizing and refurbishment. Commenting on current trading, Gardner admitted that ‘things have become a little more difficult in the last six or eight weeks,’ but that Euro 2016 and the Olympics are expected to herald a strong summer’s trade.
• Revolution Bars Group might increase its growth target next year and is looking to make better use of its existing space by adding rooftop bars. Speaking to M&C, CEO Mark McQuater identified Scotland as a key target for expansion but that only sites with all-day trading potential as it continues to focus on its food and drink offer.
• Christopher Snowdon, Head of Lifestyle Economics at the Institute of Economic Affairs, claims a sugar tax would be ineffective in tackling obesity.
• Boost Juice Bars’ parent company, TD4 Brands, has received a further £2.4m from the Business Growth Fund. The money makes for a total of £4.9m contributed by the BGF to the company, which has grown from 10 sites to 32 over the last three years.
• Co-op is investing a further £75m in lower prices across 200 of its own products.
• Tui travel brands Thomson and First Choice have added Dubai to their portfolio for winter 2016-17 with flights from Gatwick, Manchester, and Birmingham.
• A representative of the relatives of those killed in last year’s Tunisia terror attack has said there is ‘likely to be civil claims’ made against Tui.
• Nigel Farage believes domestic tourism would be ‘fantastic’ after a Brexit but accepted that outbound holidays would become more expensive. His comments came as Caroline Bremner, head of travel at Euromonitor, warned that a Brexit could have far more damaging consequences for the UK travel industry, with a potential 15% decline in inbound visitor numbers.
• Ladbrokes reports Coral figs for 16wks to 16 Jan. Says revenues +16% at £333.3m. EBITDA £62.4m (+14%).
• Ladbrokes re Coral. Says Coral Retail EBITDA +31% after adjusting for new regulations. Machine income +4%
• Coral: Online EBITDA of £18.5m was £6.6m or 55% ahead of last year and 194% ahead after adjusting FY15 for the full year impact of Point of Consumption tax
• Pool betting operator and technology supplier Sportech has seen FY EBITDA fall 4% from £24m to £23.1m, ‘in line with expectations’. Revenue is also down 4% to £100.2m, while adjusted PBT has fallen 18% to £11.8m and adjusted EPS has slipped by 20% to 4.4p due to ‘increased depreciation and interest costs’. The group disposed of online interests in New Jersey for a pre-tax gain of £8.1m and it says the modernisation of its football pools division is nearing completion. Sportech’s debt is down 10% and the group says it has received bid-spec interest.
• Sportech: CEO Ian Penrose commented: ‘We continue to evaluate opportunities to deliver the full potential of our divisions whilst ensuring we maintain prudent financial ratios. In this regard, over the past twelve months we have considered approaches for the Group as well as for The Football Pools. Despite this, we have remained focused on our operations and we will continue to investigate any proposals that recognise the value of the inherent potential of these businesses. We look forward to moving into a year of growth in 2016.’
• Online gaming provider 888 has promoted Itai Frieberger from COO to CEO. Brian Mattingley, Chairman, commented: ‘We are delighted to announce the appointment of a new CEO. Itai has played a vital part in 888’s success to date and has unique market insight and experience to lead the next chapter in 888’s progress. Itai is admired throughout the online gaming industry and has been instrumental in the Company’s development in recent years. He is therefore, without doubt, the natural choice to take 888 further forward in the rapidly growing online gaming market.’
Finance & Markets:
• US shares trade cautiously after payroll processing firm ADP suggested c214k jobs added in US in Feb. Official numbers on Friday
• VIX at its lowest level of the year
Global (and UK) Hotel Market: The Top of the Cycle?
FT says industry ‘braced for demand crunch’
A typical cycle:
• Bottom – low rates, low occupancy
• Signs of life – occupancy levels picks up
• Optimism revives – operators jack rates
• The good times – rates & occupancy levels both rising, REVPAR soars
• Top – grey clouds, occupancy stalls, rates still rise, REVPAR edges up
• The slide – panic, rates slashed, occupancy still falling, REVPAR collapses
• Occupancy is falling in the US, falling in London
• FT (here) reports US has enjoyed 7yrs of REVPAR growth
• It says equilibrium may be reached this year, oversupply next
• Deals (Marriott/Starwood, Hilton REIT, IHG special dividend) suggest operators searching for non-trading-related value creation
• Marriott boss Arne Sorenson says ‘there is obviously more anxiety in the marketplace’.
• ‘Disrupters’ such as Airbnb are an irritant
• In UK, Travelodge is recovering & new entrants (Tune, easyHotel in London) are taking share
• Operators fear a ‘demand shock’ and, by their nature, shocks can’t be predicted
• But cycles are cycles, corporate room buyers will get the upper hand & it will be payback time
Retail Roundup from Nick Bubb:
Other News: Plenty of things to catch the eye this morning: Whitbread announce that Costa Coffee saw LFL sales growth of only 0.5% in the 11 weeks to Feb 11th, “reflecting lower footfall on the high street and an unusually warm winter”; AO World announce that non-exec Chairman Richard Rose is to step down; Poundland announce that Kevin O’Byrne bought 321,107 shares at an average price of 179p yesterday and Ocado announce that one of its long-term backers, the Roditi family, has increased its stake from 13% to 14%.
FTSE Watch: In last night’s quarterly FTSE index review, Morrison’s, as expected, got back into the FTSE 100 index and the embattled Sports Direct was chucked out. But, ironically, on the day that Poundland CEO Jim McCarthy announced his retirement and Darty announced a bid approach from French rival Conforama, two changes in the FTSE 250 index caught the eye: the beleaguered Poundland was chucked out and the suddenly popular Darty got onto the Reserve List. Nick Bubb – firstname.lastname@example.org
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:
• Take-away points from the Sheps’ H1 numbers:
o London (or at least Kent & the South East of England) is still strong
o Accommodation is a good market – at least for new entrants and pub companies
o There is still some caution re the medium term outlook
• Sheps says ‘managed pubs have again enjoyed an exceptional period with strong like for like growth which has been sustained over several years.’ it says like for like sales grew by +6.5% (2014: +6.8%)
• Accommodation sales were +11.2% on the back of a 14.5% increase last year.
• Re caution, the group says ‘we have every reason to believe that the strong profit performance in the managed houses will continue although the additional cost impact from the National Living Wage and Apprenticeship Levy is estimated at £0.1m in the 2016 financial year and rising to around £1.1m between now and 2020.
• It goes on to say ‘we remain cautious about the outlook for consumer spending as heightened security concerns and risks in the economy may dampen confidence.’
• FT now agrees with Langton. This is past its peak.
• Strange market where higher oil is good, threat of price rises is good etc. But it is what it is. Currently markets going better on the back of higher oil and rising gilt yields. Go figure.
• Interestingly 10yr gilt yields rose by around 10bps yesterday.
• This was as a result of investors edging some capital out of ‘safe-haven’ assets.
• It is consistent with a more ‘risk-on’ attitude and, to some extent, it is what is driving markets.
• Corporate bond spreads have been narrowing after a Feb spike (which coincided with the sell-off in equity markets).
• This indicates that credit conditions are loosening a little and that the fear of recession has abated somewhat.
• Commodity of the day, Wheat: Clearly an important input (both for livestock and for other food-stuffs). It exhibits a feature seen across a number of other soft commodities in that the price had its recent peak in July last year, then proved to be volatile & is now a little less so. Nonetheless, prices are now some 30% lower than they were in the middle of last year.
• Oil price up, gold price down. Deemed to be good for equity markets.
Random information, hopefully not all of it useless:
• More retirement savings needed? Yes, probably. And, when or if it happens, it will shunt spending power into the future but that’s not altogether a bad thing and, for operators targeting the grey pound, it could be helpful.
• FTSE (and most other global markets) seems to have broken out of its trend of lower lows and lower highs. We’re currently trading above recent highs seen in late January.
• FTSE100 now up around 14% on its mid-Feb lows. That’s what happens with serious rallies, they tend to creep up on you, happen when many observers are trying to maintain that they are not underway.
• Nikkei & Shenzen both up 4.1% yesterday. S&P now at 8wk highs. Looks as though the bulls are in charge – at least for the moment.
• Sterling managing something of a rallyette vs $ & €. Nothing to should home about. Is up about half a percent or so after a c12% drop.