Langton Capital – 2016-05-11 – TUI, C&C, Wm Hill, Compass, London hotels & other:
A Day in the Life:
I think that the world splits between people who laboriously put all of correct punctuation in texts, like me, and those who use some kind of gibberish, nonsense shorthand full of numbers and abbreviations etc.
In fact, it’s all I can do to write etc. rather than etcetera so I’m not sure that I’m getting the most out of texting preferring, as I do, often to wait to get back to the office in order to write something sensible in an email.
Anyway, I could go on but, as we have a slew of companies reporting, we’re rather busy. I could pepper the comment with a number of examples but, WTF, I’d better get on to the news:
RECENT WEBSITE ARTICLES:
• Leisure sector slowing – here
• Conviviality goes wholesale – here
• Next PLC comments on consumer spending – here
• Contrasting JDW & RTN – here
• Tweets & past blogs – here
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• JDW Monday bought back 117,500 of its own shares for cancellation at an average price of 711p
• Compass Group H1 numbers. Sees ‘strong performance delivering growth and returns to shareholders’
• Compass H1. Revenues £9.7bn (+5.8%) with operating profits +6.4% at £735m. EPS 30.8p, up 8.1% on last year
• Compass Group H1. Has seen ‘another strong six months in North America with organic sales up 8.3%’. Also ‘good growth in Europe with organic revenue up 3.7%, Rest of World grew 5% excluding Offshore & Remote.’ CEO Richard Cousins reports ‘Compass has had another strong six months. North America continues to deliver excellent growth. Our business in Europe is growing nicely as we are rewarded for our investment in previous years to accelerate growth in the region. In Rest of World, reasonable growth in Business & Industry, Healthcare & Seniors, Education and Sports & Leisure was partly offset by ongoing weakness in Australia, Brazil and our Offshore & Remote sector.’ Mr Cousins says FY16 expectations are unchanged and concludes ‘in the longer term, we remain excited about the significant structural growth opportunities
• Institutional Shareholder Service, a well-respected shareholder advisory group, has recommended investor’s back Western Gate’s plans to shake up the board of Stock Spirits. ISS is thought to have lent its support to proposals from Stock Spirit’s biggest investor to introduce two new independent board members. However, ISS is not in favour of a third proposal made by Mr Amaral for the distiller to review its merger and acquisition strategy.
• Shares of the newly-listed Hotel Chocolat shot up 28% on the company’s first day of trading, interrupting what has so far been a quiet year for IPOs.
• Moody’s reports sale of AB InBev’s upmarket European assets ‘dampens negative credit effect of SABMiller Acquisition’. It says sale will ‘likely allow for lower leverage at the acquisition’s closing, depending on the proceeds the sale ultimately generates. However, the sale will not improve leverage enough to affect the likely rating outcome, which we have indicated through the provisional (P)A3 rating assigned to bonds issued to finance the deal.’
• Moody’s says the Brown-Forman acquisition of BenRiach Whisky brands Is Credit Negative. It says ‘we expect Brown-Forman to fund the deal with cash on hand and short-term borrowings, which will increase pro forma debt/EBITDA to slightly above 2.1x as of the fiscal third quarter that ended January 2016.’
• Technomic has reported that limited-service restaurants are currently the fastest-growing segment in the US
• Budweiser is to replace its name with ‘America’ on the front of its 12-oz cans and bottles from 23 May until the presidential vote in November. The move comes during a markedly combative presidential race and coincides with the summer months, which account for about a third of US brewery sales.
• C&C Group’s revenue for the year to 29 February fell 3.1% to €662.6m and EBITDA declined 12.4% to €122.6m, with net debt up 3.3% to €163m. Despite the fall in profits, the cider-maker’s dividend is being raised by 18.7% to 13.65c and it is set to expand its share buyback programme. Although the group’s Vermont business has struggled, market trends in Scotland have normalised and management says the group is ‘positioned to deliver earnings growth and strong cash generation in FY2017.’
• Be At One chairman Steve Locke has said to MCA that the group’s expansion momentum is being supported by the continued closure of nightclubs across the UK. The Piper-backed cocktail bar chain now has 30 sites, and it says the majority of its openings outside of London are in closed nightclub sites. Locke called the shift a ‘cultural move away from the traditional nightclub visit to a more intimate, experience-led night out’.
• Costa Coffee has promised to reduce the added sugar content in its drinks by 25% by 2020 and several have already been taken off its menu or reformulated.
• Walkabout Bars has seen its new Customer Relationship Management system bring about a 9100% increase in customer email traffic to its website.
• Conviviality CEO Diana Hunter says the group’s acquisition of Bibendum means Conviviality now controls alcoholic drinks supply for 8% of the UK on-trade. The Bargain Booze owner has also recently acquired Matthew Clarke from Punch and, although stating that the two companies will continue to operate independently, Conviviality might look to capitalise on synergies across the two businesses.
• Enterprise Inns yesterday bought back 100k of its own shares for cancellation at around 91p per share
• TUI H1 numbers, group says ‘we are focussed on delivering our TUI Group strategy in becoming a content centric, vertically integrated tourism business.’ It adds ‘the agreement to dispose Hotelbeds for € 1.2bn and confirmation today of our intention to dispose Specialist Group enables us to focus fully on our growth strategy and to strengthen our balance sheet.’
• TUI H1. Sees ‘improvement in H1 operating result and growth in Summer 2016 revenue’. Says model is ‘resilient’.
• TUI H1. Says ‘summer 2016 trading remains in line with our expectations.’ Should see 10% increase in underlying EBITA this year
• TUI H1: Revenue +2.7% at €6.8bn, EBITA loss of €237m, down from €283m last year – helped by earlier Easter. CEO Friedrich Joussen comments ‘we are focussed on delivering our TUI Group strategy in becoming a content centric, vertically integrated tourism business.’ He adds ‘the improvement in our H1 operating result demonstrates once again the delivery of our growth plans and the resilience of our business model, with UK, Riu and Cruises performing particularly well.’ He concludes ‘we therefore continue to expect to deliver at least 10 % growth in underlying EBITA in 2015 / 16, and reiterate our previous guidance of at least 10 % underlying EBITA CAGR over the three years to 2017 / 18.’
• AlixPartners reports lower REVPAR across major UK cities in Q1 this year compared with last. It says ‘for the first time in four years, the average RevPAR for the 12 cities reviewed in the Hotel Bulletin declined compared with the previous year (3%).’
• Lower oil price impacts hotels. AlixPartners says lower Q1 UK REVPAR ‘was skewed by Aberdeen which recorded a 37% decline’. It says supply is still an issue adding ‘Premier Inn has continued to expand aggressively adding over 500 bedrooms this quarter, and now has more than 64,000 bedrooms in the UK. In contrast, Travelodge only added 167 bedrooms this quarter but is set to open more than 2000 during 2016.’
• UK hotel outlook: AlixPartners says ‘the hotel sector has long been seen as a barometer of the wider economy, albeit with inevitable regional variances. Buoyed by several years of largely universal consecutive RevPAR growth the overall mood of the UK hotelier has been bullish.’ It adds ‘however, recently there has been a slight shift in sentiment, particularly in the investment community where a much greater sense of caution is being adopted over future growth prospects.’ AlixPartners concludes ‘some commentators believe the market has reached a peak, whether in terms of asset values or trading.’
• Royal Caribbean Cruises is selling a 51% stake in Pullmantur and CDF to Madrid-based private equity firm Springwater Capital.
• European cruises are suffering from a fall in demand from American passengers, according to Norwegian Cruise Line Holdings. Security fears following terrorist attacks in Mediterranean destinations such as Turkey, Egypt, Tunisia plus those in Paris and Brussels might be partly to blame. Wendy Beck, executive vice president and CFO of Norwegian Cruise Line Holdings, said: ‘Continued strong demand in the Caribbean, Alaska, Bermuda, and Hawaii is offsetting softness in Europe which comes mainly as a result of lower demand from North American consumers.’
• Europcar reduced its Q1 losses to €20m from €69m in Q1 2015 following a reshaping of the capital structure of the car rental company. The group, which IPO’d last summer, saw total revenue increase by €4m to €418m in its eighth quarter of consecutive growth.
• Asset management firm TT International has built up a short position in Thomas Cook ahead of the tour operator’s first half results. The firm has amassed a c£8.8m position, joining Silverpoint’s £10.8m bet, meaning 1.45% of Thomas Cook’s shares are now out on loan.
• STR data indicates that US hotel industry revenue exceeded an estimated $189bn in 2015 and was up by nearly $14bn year-on-year. ‘Industry revenues and profits continue to reach record highs,’ said Joseph Rael, STR’s director of financial performance. ‘Additionally, we saw profit margin finally surpass the previous peak from 2007. Of course, at this point in the cycle, we’re seeing both revenue and profit growth starting to slow, and we expect growth to continue to taper over the next couple of years as well.’
• The British Hospitality Association (BHA) has said it has high expectations of Sadiq Khan, the new London Mayor. Ufi Ibrahim, CEO of BHA, is eager to see the new Mayor continue to champion tourism, adding: ‘The BHA has high expectations of the new Mayor of London and Assembly members. London is the world’s most-visited capital city, generating over £36b in tourism revenue and £14b Gross Value Added by the hospitality industry.’
• Egypt’s tourism minister has welcomed a UNWTO call for the lifting of certain travel bans on visits to his country. Tourism minister Yehia Rashed echoed calls from UNWTO encouraging visits to London and said ‘I fully support the UNWTO’s positive message today that all unnecessary bans on travel and tourism should be lifted.’ He said ‘Egypt has taken significant positive steps in addressing security issues and the UNWTO’s support is to be warmly welcomed.’
• Morgan’s Hotel Group, owner of the Delano and Mondrian brands in the US, has been sold for $800m to LA-based SBE Entertainment
• William Hill updates on 17wk trading, says it ‘remains in line with previous full-year operating profit guidance of £260-280m’
• Wm Hill says group net revenue down 3%, gross win margins in football good ‘but impacted by European football & Cheltenham’.
• Wm Hill reports Q1 online revenue decline of 11%. It says ‘as previously highlighted, the Online business continues to be impacted by time-outs and self-exclusions; we are monitoring this closely but, at this stage, these trends remain unchanged.’
• Wm Hill retail has ‘had a good start to 2016. Though turnover was lower, the gross win margin was in line with expectations’. Overall, CEO James Henderson comments ‘it has been a tough start to the year in Online, which is being impacted by both regulatory change and a gross win margin below normalised levels for the period due to a disappointing Cheltenham festival and unfavourable European football results. Trends in recent weeks remain in line with the guidance we gave in March.’ He continues ‘in Retail, it is pleasing to see gaming growth improve again and we are on track with the roll-out of our self-service betting terminal before the EUROs’.
• Nokia shares fell by 7.2% yesterday on a poor trading update. Sales down more than expected Q1. Group expects higher margins
• Disney a little disappointing, misses Wall St estimates for first time in 5yrs. Shares fell by >5% on the news
FINANCE & MARKETS:
• Sterling could fall by 20% if UK leaves EU says NIESR. Scare tactics continue but betting on an exit is narrowing
• NIESR says inflation in UK could be 3.8pps above norm if UK exits the EU
• UK trade deficit rose in Q1 to an 8yr high per ONS. Says imports up £1.9bn with exports only £500m higher. BCC reports ‘in spite of the small improvement seen in March, the UK’s trade deficit worsened over the quarter and remains unacceptably large.’
• Eurozone economic recovery showing signs of losing steam as industrial production down in both Germany & France in March
• World markets. UK & Europe up yesterday and US markedly better. Far East lower in Wednesday trade.
• Oil price recovering to challenge recent highs. Currently trading at around $45.50 per barrel
London Hotels, implications for the wider leisure market:
• Staffed as we are by mean, northern accountants, price-gouging is anathema to Langton
• We prefer ELP but gouging is a feature subject to the following rule: you gouge when you can
• Ask RTN or any London hotelier where the market was in an upcycle until c-mid last year
• But now it’s not. It shouldn’t mean 7 lean years – but directionally, it does
• WTB said last week that the London market was soft, STR has been making similar noises
• MLC said Thursday REVPAR Q1 was down ‘driven by lower occupancy and room rates in most regions, including the key gateway cities of New York, London and Singapore.’
• IHG said today ‘flat RevPAR in the UK reflects a solid performance in the provinces, offset by softer industry-wide trading in London, predominantly due to supply increases.’
Conclusion on hotels:
• Here’s a radical thought; there are too many beds in London
• No doubt demand will catch up – but when?
Implications for the wider leisure market:
• Oversupply will adversely impact London hoteliers’ margins but what about wider leisure?
• More hotel beds may not be bad news overall – in fact, it may be good news.
• Because (ask the airlines), when you have a costly asset, you need to fill it
• You may delay discounting to avoid customers comparing prices over the breakfast table
• But somebody will crack and industry prices will fall – volumes, however, may not
• London visitor numbers are running at record levels – here
• And, if a larger number of visitors spend less on their hotel rooms, they have spare cash
• We would suggest the outlook for MERL (also Sterling lower) remains bright
Retail Roundup from Nick Bubb:
Vertu Motors: The Motor retailers have been under pressure on the supermarket recently, on fears that the private new car market is slowing down, but the fast-growing Vertu Motors has reassured the City with its finals today (which are headlined “Strong aftersales performance drives record revenues and profits”). In y/e Feb, total sales reached the heady heights of £2.4bn, up 17%, with underlying PBT up 24% to £27.4m, in line with earnings growth. And CEO Rob Forrester says “Our acquisitions have been integrated quickly and efficiently and are performing encouragingly. March and April have been good months. We see a stabilisation of the new car market at these high levels. The Board looks to the future with confidence”.
John Lewis Partnership Sales Watch:
BDO High Street Sales Tracker: The BDO High Street Sales Tracker for w/e Sunday May 8th reports that the return of warmer weather failed to provide that much of a boost to store trading overall, although Online sales growth of 20% picked up. Store Fashion sales were only up by 3.9% LFL last week, despite a weak comp, and so overall Store LFL sales were just 1.9% (including Homewares and Lifestyle sales).
Hotel Chocolat: First dealings in the Hotel Chocolat IPO yesterday saw the price jump to a healthy 25% premium, capitalising the business at a heady £214m at 190p, or about 18x EBITDA. It is clear that many investors were scared of missing out on another Fevertree (the gin mixer business that has been a smash-hit success on AIM since the IPO at the end of 2014). It remains to be seen how many Hotel Chocolat core investors were just “flippers”, but the trading volume yesterday was only 4m shares, little more than 10% of the 37.5m placing last week, which is a good sign. However, Day 1 success doesn’t necessarily guarantee a successful IPO (look at what happened to Boohoo and AO.com)…
News Flow This Week: Tomorrow brings the SuperGroup Q4 update (and City expectations seem rather subdued, given the recent significant weakness in the share price, even though the cold spring weather shouldn’t really have disadvantaged Superdry that much, given its focus on outerwear).
BRC Conference Watch: The prestigious annual BRC Symposium Retailing conference takes place in the City today, kicking off with an address from the BRC Chairman, Charlie Mayfield, who is also of course Chairman of the John Lewis Partnership. There are then a series of presentations, from companies like Hobbs, Shop Direct, NotontheHighStreet.com, Brand Alley and Hobbycraft, as well as luminaries like former Home Retail CEO, Terry Duddy.
Autumn/Winter Watch: You may very well think that the Spring/Summer season has only just started for the Fashion trade, but the Retail calendar moves apace and Marks & Spencer unveil their Autumn/Winter range to analysts and the press this evening, at their usual West End venue of “One Marylebone” (the Fashion pages of several papers have previews today). This time last year, M&S was getting some good PR for its “suede skirt” and the management team, under the then General Merchandise Director John Dixon and Style Director Belinda Earl, were quietly confident that the improved quality and style of the new Womenswear range would lead to positive H2 sales growth, with catwalk trends encapsulated by range themes such as “Entwined” (knitted dressing) and “Elegant Bohemia”…Nick Bubb – firstname.lastname@example.org
Yester-tweet – Yesterday in a Nutshell: Live Tweets on Website:
(SOME OF OUR) EARLY TWEETS:
• Revolution Bars has announced that Chris Chambers is to join the group as CFO. Sean Curran will leave in Sept 16.
• Bakery and café chain Paul has reported turnover in the year to end-December 2015 of £28.7m, EBITDA +49%. LfL sales +6.3%.
• Krispy Kreme is to be taken private at $21 per share by JAB Holdings, which is controlled by Germany’s Reimann family.
• Pizza Hut Delivery is planning a £40m expansion in the UK and Ireland over the next four years which will create around 3,000 jobs
• Campari acknowledges good Q1 numbers benefited from earlier Easter & early shipments to US. These will reverse.
• Around 1,000 Thomas Cook cabin staff are currently voting on whether or not to take strike action over the upcoming half term holiday
• Halifax data points to a further slowdown in UK house prices in April, as growth fell to 9.2% from 10.1% in the previous month.
• Greece coming back into the headlights as Eurozone moves towards helping with a new deal, due by 24 May
• Brexit betting shifts, poll by ICM shows 46% would vote to leave with as many as 11% still undecided.
• Greece debt deadline set 24 May. Deadlines? Debt? Greece? Haven’t we been here before? Markets loves to test ‘deadlines’, watch this space
• House prices. Headline is ‘growth slows’ but that’s y-o-y. On a monthly basis, prices fell by 0.8% in April versus March
• HMV now overtaken Tesco in sales of media products. Was no1 previously. Tesco perhaps returning to core competencies?
• Pizza Hut putting £40m into boosting home delivery. Unwelcome competition for Domino’s? There’s only so many home-pizzas we can eat…