Langton Capital – 2016-03-10 – Restaurant Group, Thomas Cook & other:
Leisure Wrap & Other:
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. As always, contact us if you’d like further details:
• Fundamentals may be pulling the share price in one direction but, if bid rumours gain traction (today’s Telegraph), then they may pull it the other way.
o RTN mentioned cannibalisation. It said that it is better to eat one’s own revenues than it is to let a competitor do it for you.
o This is true. But it does play into the hands of those suggesting that there is a degree of saturation out there – even on leisure and retail parks.
o The High Street has been competitive for years and, whilst RTN does not really operate in that market, some High Street operators may look away from their normal markets (at leisure and retail parks) in order to avoid rising property costs.
o RTN (p24 presentation) suggests that Bill’s, for example, has moved from 35 to 72 units in little more than a year.
o RTN reassures that returns at new units are every bit as good as they have been in recent years – but this is not the whole story.
o If Stoke, the example that the group gave, is anything to go by, then the appearance of a new (and strongly-performing) site in the vicinity can hit revenues by as much as £15k (around 40%) per week.
o The group suggests that around 1% of LfL sales have been lost to cannibalisation.
• Corporate action:
o A trade bid might just be cannibalisation squared.
o Private equity does indeed own a chunk of the eating out market.
o It may be hungry, no pun intended, for more.
o RTN’s earnings may be slightly less exciting going forward but they are relatively predictable and the group is very cash generative.
o A bid for the company is by no means out of the question.
• So what does this mean?
o Shareholders who bought into RTN didn’t hitherto do so on a bid story. They made the purchase in the anticipation that Frankie & Benny’s would pave over the world.
o This isn’t perhaps now going to happen so it would be natural to see a churn of shareholders.
o Excluding those, of course, who allow their rationale to ‘evolve’ to what may be the new reality.
• Overall, and whilst aware that there could be major sellers (and buyers) out there, we would not want to be too short of these shares at the moment.
• Coincidental to RTN’s comments yesterday about leisure parks, Cineworld this morning has reported full year numbers
• Whilst the group operates in a number of markets in addition to the UK, it does comment on the upcoming film release schedule.
• It says ‘I am happy to say that when we look forward, we can do so with optimism…Hollywood looks more committed than ever to quality productions, which include many sequels as well as many original movies.’
• It continues ‘overall, the film slate for 2016 looks solid, and includes a strong family film slate.’
• This is consistent with RTN’s comments.
• Cineworld adds ‘notable releases include “Fantastic Beasts And Where To Find Them”, “The BFG”, “Star Wars: Rogue One”, “Captain America: Civil War”, “X-Men: Apocalypse”, “Batman v Superman”, “Finding Dory”, “The Secret Life of Pets”, “Ice Age 5”, “Angry Birds”, “Warcraft” and “Alice Through The Looking Glass”.’
• Thomas Cook points to bear in mind.
• Has had a turbulent few months with violence in Tunisia and Egypt causing disruption that has spilled over into the Turkish market.
• This disruption has caused a wave of re-booking across the holiday industry but this has been largely dealt with.
• The concerns in the stock market have arguably yet to abate.
• Today we run with a GfK story suggesting that ‘safe’ destinations for family holidays (Spain, Portugal etc.) look like selling out.
• This will be good for margins and, ultimately, for profits.
• Elsewhere, only 4% of Chinese adults have a passport.
• That number’s unlikely to go down & TCG has a JV with Chinese private equity company Fosun – which also has a 5%, at some point to be 10% stake in Thomas Cook itself.
• This JV, over the longer term & with a fair wind, could turn out to be the biggest business that TCG has ever operated.
• TCG is forecast on consensus numbers to earn around 13p this year suggesting that the group’s shares are trading on around 8x earnings.
• One would suggest that, with China in mind, this is not expensive.
Random information, hopefully not all of it useless:
• Oil price holding above the $40 level. Bizarre markets but that’s deemed to be good news. A bit of inflation would be taken the same way.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Restaurant Group shares take a pounding. Down 23% to 420p. Would be looking reasonable value but earnings estimates are under review
a. Telegraph runs story suggesting RTN could be ‘vulnerable to private equity bidders’. PE already owns a major part of the eating out market
2. Fleurets director Paul Newby has been appointed the new pubs code adjudicator and will be in charge of a c£1.6m budget.
3. Conservative party members have joined with opposition lawmakers in blocking government attempts to relax Sunday trading regulations.
4. Drinks company C&C Group is expecting FY16 operating profit to be in the region of €103m as Q4 trade ‘provides grounds for optimism’
5. Stock Spirits reports FY numbers. Total revenue €262.6m (2014: €292.7m), PAT €19.4m (2014: €35.8m).
6. Morrison’s reports FY numbers, says LfL sales down 2.0%. Q4 LfL better at +0.1% ‘despite deflation of over 3%’.
a. MRW FY. Total turnover down 4.1% at £16.1bn. underlying PBT £302m (vs £413m). EPS 7.8p vs 10.9p, DPS 5p vs 13.65p.
b. MRW FY. Says debt down by £594m to £1.75bn, has stabilised LfL sales, is listening to customers & customer satisfaction improving.
7. Around one in 10 people drinks in excess of the controversial new recommended alcohol limit of 14 units per week in just one day
8. The number of workers on a zero-hours contract for their main job rose by 104,000 to 801,000 in the year to late 2015.
9. Christopher Snowdon of the Institute of Economic Affairs comments that the rate of teetotallers among young people is notably high.
10. Tour operator Neilson is cutting its Turkey programme for summer 2016 due to reduced demand from UK holidaymakers.
11. GfK has warned families who delay booking their summer holiday that they could be priced out of ‘safe’ markets such as Spain
12. PPHE reports FY numbers. Says has seen an ‘improved year-on-year trading performance.’
13. Cineworld FY numbers. Revenues +13.9% at £705.8m, PBT £99.7m vs £67.3m. EPS +38.9% at 30.7p. Dividend 17.5p vs 13.5p.
a. CINE FY: Opened 18 sites in year (taking group to 2,011 screens) with 93.6m admissions, up 12.9% y-o-y.
14. 32Red, the online game operator, has seen FY15 revenue jump by 52% thanks to strong organic growth ‘accelerating throughout the year’
15. Rank Group announces launch of new digital platform. It says this is now operating across both Mecca & Grosvenor digital sites’
16. ECB meets today. Further stimulus is expected. Wider QE, perhaps lower rates.
a. NIESR suggests that GDP in the UK rose by 0.3% in the three months to end-February. It had been running at 0.4% in the 3mths to Jan.
b. House price rises to slow per RICS. Says tax changes could “take the heat out” of the investment market at least