Langton Capital – 2016-04-20 – GNK Tracker, Heineken, Stock Spirits, Brexit & other:
A Day in the Life:
So Windows 10 keeps insisting ‘Ask Me Anything.’
And that’s no doubt meant to resonate with the AMA generation used to flinging questions at nerds and third division celebrities trying to relaunch their careers on Reddit but, when I ask it simple questions such as ‘will you get lost?’ or ‘can you get stuffed?’ it comes back with maze solutions, tips for dealing with mislaid children and catering suggestions, not what I had in mind at all.
And I could go on but, as Punch is presenting over at Chancery Lane shortly, we’d better move on to the news:
Punch Taverns – H1 Results:
Punch Taverns has this morning reported H1 numbers for the 28wks to 3 March 2016 and our comments are set out below:
Punch Taverns has this morning reported H1 numbers for the 28wks to 3 March August saying that its ‘performance [was] in line with management expectations’
Group has seen ‘continued growth from a higher quality pub estate’ with average EBITDA per pub +3.0% and core LfLs +1.6%
Underlying EBITDA was £94m million (2015: £105m – down this year on disposals)
Group reports non-underlying profit of £59m on disposals this H1
Balance sheet, debt etc.:
The group says nominal net debt is down by £191m in H1 and down by £293m since the October 2014 refinancing
It says that it has cash on its balance sheet of £235m with debt amortisation of only £36m p.a. for the next 5yrs
Punch says its ‘disposal programme [is] ahead of target with £199 million of net proceeds’ comprising ‘£47 million – individual property and land sales; £12 million above book value, £53 million – package disposal of 158 non-core pubs (previously announced), £99 million – disposal of 50% holding in Matthew Clark (previously announced)’
Loan to Value is down to 59% from 64% in August last year
Property values exceed debt by £847m or 382p per share
More on Trading, Strategy, development, restructuring etc.:
Punch says its ‘retail division [is] operating ahead of expectations’
It has 121 pubs now identified to operate under the Retail contract with 50 open – and a target of 100 by year-end
Here it notes ‘profit and sales are ahead of management expectations’ with ‘anticipated pub EBITDA of between £90,000 and £110,000, representing a profit uplift of between £15,000 and £25,000 as compared to historical EBITDA under the tied tenanted and leased model’
Its Mercury pub division will manage lower profitability sites
Punch has a ‘growing commercial free-of-tie lease division with 41 pubs in operation with an average rent of £72,000’
It says its ‘strategic disposal programme is now substantially complete, with focus now on realising additional value from the non-trading parts of our extensive freehold property and land estate’
CEO Duncan Garrood reports ‘we are already making good progress delivering on the strategy we set out in November 2015.’
He says ‘we have launched new operating models, renewed our focus on customer service and delivered improved support to our publicans.’
Mr Garrood adds ‘the roll-out of our new Retail contract is progressing well with underlying profit and sales post conversion being ahead of our initial expectations.’
Overall, the CEO concludes ‘the combination of our growing cash balances, strong cash flow and limited scheduled amortisation over the next five years puts the Group in a stronger financial position going forward.’
Langton Comment: Punch has updated on its evolving business model and, so far, it would appear that things are progressing well.
Here the group, for understandable reasons, is following broadly the same course as Enterprise Inns in that it will introduce managed and retail units as well as FoT lease.
As regards trading, this appears to have stabilised.
Debt continues to be reduced and NAV is around 382p per share.
Debt amortisation is untroublesome and the group has cash on its balance sheet sufficient that it should be able to maintain and refurbish its units where necessary.
Here, we remain of the view that shareholders’ funds are the difference between freeholds and debt. A bout of inflation, whilst this is some way off, could move this number materially and the group should also be able to continue to de-gear under its own steam.
The MRO is now increasing in clarity and both Punch and Enterprise are adopting new business models. We note that Punch’s shares will comprise a large part of the small cap index and, as such, the upside represents a risk to those non-holders who are benchmarked against it. We would suggest that the shares are worth a look.
MeatLiquor on a Mission: Langton cops a Burger…
This to clients yesterday. It’s not all work and no play. And nor does every visit to a burger joint necessarily have to end with a stock recommendation. All we’d say here is that new entrants continue to make life hot and uncomfortable for the incumbents. Just ask Restaurant Group. This from a Langton staff reporter:
• Langton dined out at MeatMission in Hoxton over the weekend to check up on one of the loudest exponents of the gourmet burger movement.
• MeatMission leaves a particularly potent impression on your average East London diner, with its dark interior, raucous music, and pirate radio DJ booth overlooking an often boisterous crowd.
• It is this energetic, anarchic charm that raises questions over the operator’s scalability, however. One industry figure recently labelled the Hoxton bar as ‘scary’ (although he still enjoyed his Dead Hippie Burger).
• This description of MeatLiquor’s in-your-face style was not a criticism – its grungy tone is essential to its success. With nearly 50,000 followers on Twitter, clearly the concept has caught people’s imagination.
• Opening a Singapore site is either a rock ‘n’ roll risk or savvy management of a unique concept. It could also be interpreted as a tacit admission that MeatLiquor might struggle to grow conventionally in a way that is open to more vanilla rivals such as Patty & Bun.
• Expanding further onto the international stage would be a risky strategy, but the rewards could be huge for a brand that has the potential to become iconic.
• Go for the Buffalo Chicken Wings. Stay because you’ve had one too many Picklejack shots…
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Greene King’s Leisure Spend Tracker for March has suggested that ‘British households spent considerably more on leisure activities’.
• GNK Tracker: March uptick ‘due to the Easter holiday falling earlier this year’ with average leisure spend up to £216 last month (+10%)
• GNK Tracker: Spending on Eating Out up most in March (+18%) y-oy – largely, one would suppose, because of Apr to Mar Easter shift
• GNK Tracker. Sees uptick in spending also partly due to parsimony in February, a period ‘during which many households curtailed their spending following a busy Christmas period.’ As always, Easter ‘encouraged many British households to dine out together over the long weekend.’
• GNK Tracker: Drinking Out spend also up, was some 12% higher y-o-y. London spending said to be +25%, provinces +6%
• GNK Tracker says ‘Eating Out remains the main leisure activity that British households spend the most money on, increasing its share of spend mix from 40% to 43% year-on-year’. It says ‘households without kids increased their total leisure spending in March by £15 (8%) year-on-year, with households with kids increasing spending by £38 (18%).’
• GNK Tracker: Overall, says ‘Easter falling early this year saw many British households increase their leisure spending across the board, particularly in Eating Out. There was also the excitement of the Cheltenham Festival, which boosted Other Leisure spending, and the fact that the school holidays allowed many families to enjoy some quality time together out of home.’
• Heineken Q1 numbers, says ‘consolidated beer volume grew 7.0% organically, positive across all regions’. Premium segment +4.8%
• Heineken Q1. Says ‘this has been a good first quarter supported by a strong Vietnamese and Chinese New Year period and the earlier timing of Easter. There was good volume growth in Americas and Europe. In Africa Middle East & Eastern Europe, volume growth reflected easier comparatives in Nigeria, and the region remains challenging. Our full year expectations remain unchanged. Adverse currency development continues to weigh on results and foreign exchange markets remain volatile.’
• Pret A Manger is to open a vegetarian-only store in Soho after seeing double-digit growth in sales of its vegetarian items last year. Pret CEO Clive Schlee wrote in a blog post: ‘We are not trying to evangelise and I won’t be forgetting that our number one selling sandwich in the UK is the chicken caesar and bacon baguette! Our takings in the shop will probably drop, but the pop-up will signal that Pret is serious about providing veggie and vegan options. And who knows, we might just find the next bestseller in the process.’
• JDW Monday bought back 61,500 of its own shares for cancellation at 698p each. Since January, group has bought back c2.7m shares for a total considerations of around £18.5m at a price of c676p per share. On Tuesday, the group bought back a further 38,500. Yesterday, Enterprise Inns also bought back some 118.1k of its own shares for cancellation.
• Stock Spirits’ dispute with Western Gate, its biggest shareholder, has intensified with both parties releasing separate RNSs yesterday. The Stock Spirits board has suggested that Western Gates suffers from a conflict of interest as a result of its Eurocash business being the company’s largest customer, and is looking to exercise undue influence over Stock with the recommendation of its two potential non-executive directors.
• Luis Amaral responded pointedly to the statement, however, saying: ‘Stock Spirits’ statement today reflects their tendency to blame other people for the trouble they find themselves in. They need to spend less time sitting remotely from their business making accusations, and more time turning around their core Polish business to deliver shareholder value for all. For example, they say that I have an “overriding” conflict arising from my position at Eurocash, but chose to ignore perhaps that Stock makes up just 3% of Eurocash revenues and a negligible contribution to profit.’
• A poll of AVLP members has found that 33% believe the impact of the MRO is the biggest risk facing the pub sector. Other risks include lack of funding (20%), potential rent increases from landlords (13%), and the cost of alcohol in the off trade (10%).
• The Pub Governing Body has announced that Poppleston Allen partner James Anderson has been appointed as its new Chairman of the PICA-Service.
• Remy Cointreau’s full year sales rose 9% to just over €1bn, with organic growth of 3% thanks to solid performances in the Americas and EMEA. The drinks producer also noted ‘improving trends’ in Asia in the second half of the year.
• The amount of domestic short breaks in the UK is set to increase this year as a result of greater safety fears over travelling abroad. A total of 73% of the 1,000 respondents participating in BDRC Continental’s latest Holiday Trends survey said they would take a short break of less than four nights in the UK. Wellness breaks and experiential holidays are increasingly popular, particularly with those aged between 18-34.
• Yahoo has posted a $99m quarterly loss and revenues were limited to an 11.6% drop to $1.08bn, as the group seeks offers for its core internet arm. Yahoo’s chief executive Marissa Mayer said in a statement: ‘Our 2016 plan is off to a solid start as we continue to focus on driving efficiency, lowering costs, and improving long-term growth. In tandem, we made substantial progress towards potential strategic alternatives for Yahoo.’
FINANCE & MARKETS:
• World markets: UK & Europe up yesterday, US also stronger. Far East mostly down in Wednesday trade
• Oil price up over last day but falling at present. Price around $43.20 per barrel
• Bank Governor Mark Carney has suggested that Britain’s economy could struggle to grow if it were to leave the EU