Langton Capital – 2016-05-05 – JDW, beer sales, SAB, Goals, London hotels & other:
A Day in the Life:
You can’t fit a very big brain into a pigeon’s head.
And, whilst parrots would appear able to do much more with a similarly limited cranial cavity, pigeons make very little effort and, I would posit, were it not for the fact that they have about 16 eggs each, twice a year, they would be extinct.
Because the dog catches them on the grass. Not pleasant, and various cars clip them from time to time, cats are after them, they get hit in market squares by four-year-old boys wielding sticks and, as if that weren’t enough, the clearly market outline of what must have been a dusty pigeon on our kitchen window over the weekend shows that occasionally they attempt to commit suicide by colliding with solid objects at speed.
They do, however, make the dog feel clever. Oh’ to be a pigeon. On to the news:
JD Wetherspoon – Q3 Conference Call:
Q3 Update – Conference Call:
Following its Q3 update this morning, JD Wetherspoon hosted a conference call for analysts and our comments thereon are set out below:
Is the margin ‘normalised’ now at around 6.4%? Co declines to give formal guidance. Say (again) that this is a function rather than an input.
Implication re margin is that LfL sales growth is currently sufficient to hold margins.
Further moves on pay? Group will ‘let he dust settle’ & make a decision later in the year. Likely ‘late summer’.
Margins tend to be higher in Q4; will this occur in 2016? Group declined to elaborate further
Disposals ‘will not really move the dial’. They are being disposed of as a result of strategic rather than short-term trading reasons. Declines to list buyers at this stage.
How much of your LfL growth was due to price rises? The split between volume and price ‘is not normally given’. Prices did go up earlier this year but they had softened during last year and are not up markedly.
Euro 2016? Tend to be broadly neutral. Tend to be ‘within 1% of whatever the run rate is’.
Strategy. All matches on but with sound only for the home nations.
Have your higher wages allowed you to retain staff? CEO says stats have improved.
Further price rises? The group is not allergic to raising prices but the consumers has a lot of choice out there and price rises could have a negative impact on volumes.
Balance Sheet, Debt & Outlook:
Debt has risen from earlier estimates on the back of share buybacks and a number of freehold reversions.
The £5m exceptional cost on disposal will be non-cash.
Cash proceeds on disposals (around half freehold) are not included in debt estimates at this stage.
Buybacks; you are only £60m or so from Tim’s shareholding going through 30%. This would represent a passive breach. No further detail.
At what level would you no longer be comfortable with debt? Group is ‘not looking to re-gear the company’. Don’t expect radical changes.
Langton View: JD Wetherspoon has reassured that sales are currently strong enough to hold margins – albeit at low levels.
Debt is rising but for understandable (and non-alarming) reasons. It is unlikely to rise markedly further.
The Euro 2016 football will have a neutral impact but, and taking into account the fact that the group has reported that the market is competitive, it feels as though comps are a little easier and trading is satisfactory.
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Restaurant Group AGM is a week today. Will be interesting to gauge mood of audience, level of participation etc.
• Q1 beer sales were 1% down year-on-year according to the BBPA’s latest ‘Beer Barometer’, marking the smallest first quarter drop since 2008. Greater sales stability was particularly noticeable in the on-trade, which slid just 0.2% on Q1 2015, while off trade sales fell by 1.8%. The drop is the smallest since 2008. BBPA CEO Brigid Simmonds says that ‘three successive beer duty cuts from Budget 2013, and a freeze in this year’s Budget, have helped to build confidence in the industry’. It saw greater sales stability, particularly in the on-trade. Ms Simmonds comments ‘beer sales are certainly doing better overall, and there are good prospects for Q2, with Euro 2016 and The Queen’s 90th birthday celebrations a key draw for pubs. To avoid any return to the sharp declines in sales of recent years, we will need continued focus from the
• The number of alcohol-related admissions for under-18s have halved for males and is down by 42% for females since 08/09, according to Local Alcohol Profiles. The report also shows admissions for under-40s have fallen by 12.5% over the same period of time.
• Vertical integration back on the cards? A number of brewers appear ready to take their first steps into retail. Makes eminent sense to us
• SAB Miller reports co plus AB InBev plus Coca Cola plus South African government have reached agreement on terms for SAB takeover. The merger with AB InBev will create the largest soft-drinks bottling company in Africa. SAB Miller CEO Alan Clark reports ‘I am very happy that we have reached this agreement and hope we now have a clear path to the conclusion of this transaction and the creation of Coca-Cola Beverages Africa. As the location of CCBA’s headquarters, South Africa will be the heart of this business and our belief is that our commitments will provide a strong footing from which the business will flourish in South Africa and across the continent.’
• IEA reports government’s decision to clamp down on tipping practices in restaurants is ‘opening up a new front in pay regulation’. It suggests that there could be unintended consequences, ‘for example, enforcing that employers cannot deduct anything from tips could actually just lower fixed pay for staff.’
• Kona Grill reports Q1 numbers, says restaurant sales +19.7% with same store sales +3.6% after 2.2% last year
• Kona Grill reports Q1 net loss of $1.7m vs loss of $0.9m last year, loss per share 15c versus 8c in 2015
• Kona Grill Q1. CEO Berke Bakay reports ‘same-store sales growth of 3.6% reflects a great start to the year and demonstrates the strength of the Kona Grill brand in a soft casual dining environment as we outpaced the industry benchmark by 420 basis points, our highest rate of outperformance since 2014. We have now also extended our track record of same-store sales gains to 12 consecutive quarters and have achieved growth in 22 of the last 23 quarters.’ He continues ‘the combination of strong same-store sales and the favorable commodities environment resulted in a 140 basis point improvement in operating profit margins to 18.5% at our comparable restaurant base.’ Group says it expects to open 8 new restaurants in 2016.
• Enterprise Inns yesterday bought back 106k of its own shares for cancellation at around 86p
• Scarborough has been described as the pubs and bars capital of the UK, according to ONS figures which show the sector made up 3.1% of businesses in the area.
• Philip Morris International and British American Tobacco have lost their challenge against new European laws banning the production of packs of less than 20 cigarettes. A number of new laws will also hit electronic cigarettes, including a ban on products with a nicotine content of more than 20/mg/ml.
• Supermarket promotions have dropped to their lowest level for over seven years as retailers shift to permanent price cuts in order to combat discounter competition. In the four weeks ending 23 April 2016, just 29% of spend at UK supermarkets went on products with temporary price cuts or multi-buy offers.
• Yesterday we made reference to Next’s comments re a consumer slowdown. They can be found here here
• WM Morrison Q1. LfL sales ex-fuel for the 13 weeks to 1 May were up 0.7% (+1.2% inc. fuel), although total sales fell 1.8% as the retailer closes stores. The group continues ‘to simplify and speed up the business’, which has helped drive a 3.1% increase in LfL transactions and strong volume growth. Looking forwards, WM Morrison will continue to invest in improving its shopping experience and expects trends of improving customer satisfaction and food price deflation to remain.
• Morrison’s. Dave Potts, CEO, commented: ‘We are encouraged by progress across our six priorities. There is still much to do and our colleagues are working very hard to improve the shopping trip and save customers every penny we can. Customers are responding and satisfaction levels remain ahead of last year. We are of course pleased with a second consecutive quarter of positive LFL sales, which demonstrates our aim to stabilise trade is taking effect.’
• Millennium & Copthorne Q1 numbers down. Blames economic uncertainty and ‘the sharing economy’. Says outlook ‘uncertain’.
• Millennium & Copthorne reports Q1 numbers, REVPAR in constant currency down by 4.7%. Reported down 2.6%. Revenue £192m vs £189m last year
• MLC Q1: Reports PBT of £18m (2015: £19m). Says fall in REVPAR ‘driven by lower occupancy and room rates in most regions’. Says it has seen weakness in ’key gateway cities of New York, London and Singapore.’
• MLC Q1: Chairman Kwek Leng Beng reports ‘our hotel trading performance in the first quarter of 2016 was weaker than last year’. He says the group registered ‘disappointing results from a number of hotels in major gateway cities.’ Mr Kwek goes on to say ‘the decline in performance reflects challenging conditions facing some hospitality markets as a result of political and economic uncertainty, structural change within the industry including the growth of ‘sharing economy’ lodging, online travel agencies and industry consolidation. We were pleased to see higher property income in the first quarter.’
• MLC Q1: Chairman Kwek continues ‘the Group has responded to these conditions with a number of key senior executive appointments below board level, including a global head of branding & marketing, regional heads in Asia and the US and a Chief Financial Officer, who will be joining in July 2016. Once they have familiarised themselves with the Group’s business, these senior executives will implement our core strategy of driving revenue and profit from owning and operating hospitality assets over the long-term. This includes sharpening the brand offering through a recently re-launched online sales platform and loyalty programme as well as seeking ways to increase revenue from F&B and M&E, which are not included in RevPAR measurement and represent a substantial portion of the Group’s hotel revenue. The trading outlook however remains uncertain.’
• The slide in the value of sterling has yet to have a major impact on foreign travel, according to a report into Q1 figures by marketing specialist Sojern.
• Two prosecutions of parents who had allowed their children to come on holiday during school term-time have been thrown out by a court.
• Wonga losses doubled last year to £80.2m as the UK’s biggest payday lender continues to grapple with tougher industry regulation. The group, which has changed the way it assesses applications for credit and extended the repayment term for some loans, says 2016 will be a ‘turning point’ in its financial performance.
• Five-a-side football operator Powerleague has said that it intends to buy 13 new sites in the UK following a £40m investment
• Pools betting company Sportech has reported that the Court of Appeal judges have ruled unanimously in its favour in its £97m VAT repayment appeal re Spot the Ball games going back many years. HMRT has until 13 May to apply for permission to appeal to the Supreme Court & Sportech says it ‘will provide shareholders with any further updates in due course.’
• Crown Resorts, controlled by James Packer, has sold an $800m stake in Melco Crown Entertainment, a Macau gaming company. The group has been under pressure to reduce debt. It said ‘Crown will assess its capacity to make a distribution to shareholders, and at the same time maintain a strong balance sheet and credit profile to fund existing Australian development projects, including Crown Sydney.’
• Goals Q1. Reports will be able to announce new CEO shortly. Says current sales are ‘marginally negative’. Chairman Nick Basing says ‘on current trading, I can report that like for like sales are marginally negative for the first 18 weeks of the year. However, the significant decline in last year’s second half has been eroded. This first quarter of trading in 2016 compares against positive sales growth in the same period last year’.
FINANCE & MARKETS:
• World markets: UK and Europe down yesterday. US also lower and Far East mostly down in Thurs trade
• Oil bouncing a little but down over the last day. Trading at around $44.60 per barrel.
• UK construction PMI down to 52 in April from 54.2 in March. Construction is one of the most employment-sensitive industries out there
Retail Roundup from Nick Bubb:
Sainsbury: Gross sales at Sainsbury fell by 1% last year and underlying profits fell by 14% to ?587m, but that wasn’t quite as bad as expected and today’s upbeat final results statement is headlined “Significant progress made delivering our strategy in a competitive market”. CEO Mike Coupe says “The market is competitive, and it will remain so for the foreseeable future”, but there is no comment on current trading or the outlook, ahead of the Q1 update on June 8th. The analysts meeting is at 9.30am.
Yesterday’s Press and News: BHS and Philip Green remain in the spotlight.after the news that the Business Secretary Sajid Javid has ordered the Insolvency Service to bring forward its investigation of the collapse of BHS. The front page of the Times is headlined “Ban threat for tycoon at heart of BHS fiasco”, noting that Philip Green could be disqualified for 15 years from being a company Director if found guilty of misconduct.The FT focuses on the news that Philip Green has gracefully agreed to appear with his wife before the Business Innovation and Skills Select Committee, to explain his role in the affair. The other main topic today is the IPO of the fashion chain Joules, with the FT highlighting that it is pressing ahead despite the chill on the High Street…
Intu Properties: Given the blow they have suffered from BHS falling into administration, it was interesting yesterday to see that the big retail landlord Intu Properties remained upbeat in its AGM update, flagging that it was still on target to deliver growth in LFL net rental income for the year in the range of 2% to 3%. Intu said that “BHS (ten units) and Austin Reed (two units) entered administration in the period. These administrations amount in total to one per cent of intu’s rent roll and we have plans for many of these stores should they be vacated”. The group’s underlying operating metrics remained strong, as 43 new long term leases were signed in the quarter, in aggregate 10% above the previous passing rent. Signings in the period included Next agreeing an enlarged unit at intu Lakeside, increasing their space by 10,000 sq ft, to 71,000 sq ft.
Yester-tweet – Yesterday in a Nutshell:
(SOME OF OUR) EARLY TWEETS:
• JDW Q1. LfL sales for the 13w to 24 April increased by 3.8%, ‘in line with the most recent 6 week period reported in our interim results.’
• JDW Q1. Total sales increased by 5.5%, margin up a shade to 6.4%. YtD LfL sales +3.2%, total sales +5.9%.
• JDW Q1. Expects ‘reasonable’ outcome for the year. Debt position fine, group opened 8 pubs YtD and closed 19.
• AB InBev reports on Q1, says revenue +3.1% with revenue per hl growth of 4.9% ‘driven by strong premium brand volumes’
• AB InBev Q1: Reports ‘total volumes declined by 1.7%, with our own beer volumes down by 1.4%.’ This was partly driven by Brazil.
• Whitbread has acquired a 49% stake in London-based Healthy Retail Ltd, trading as ‘Pure’, for £6.8m, with the option to buy remaining 51%
• DP Poland yesterday updated on Q1 trading saying that it had now registered 14 consecutive quarters of >10% LfL sales growth
• DPP reports it is continuing its store roll-out beyond Warsaw & has signed a 3rd sub-franchisee
• DPP reports LfL sales in Q1 +23% with 26 stores now open in 6 cities. It says ‘new store openings in new cities are performing well’
• London has lost its tag as the ‘most expensive place to stay in Europe’ after average room rate across the capital’s hotels fell by 2% in 2015
• STR analysis into the impact of terrorist events on the hotel market shows that, on average, European hotel markets stabilised within 3mths
• US$ weakness now quite noticeable. Leading to commodity price increase (in US$ terms at least). Sterling weakness partially masked by $ drop
• Worth noting Next’s comments. Said today ‘poor performance of last 6wks may be indicative of weaker underlying demand’
• Next says could be seeing ‘potentially [a] wider slow-down in consumer spending.’ Hum, thanks for that. Won’t help RTN bounce much
• RTN drop. Reaction to price gouging, retail trends or specific to RTN? Not the latter so other operators, e.g. cinemas, may feel pressure
• RTN. CFO jettisoned but is it really the bean-counter’s fault? The numbers are a function of what the operators do (or don’t do), surely?
• RTN says will go to 2x divi cover. Got ‘strong’ b/sheet – but plenty of rent costs in there. JDW cover? Around 4x. Not an accident.