Langton Capital – 2016-08-31 – Punch Taverns, Gym Group, 888, PPHE & other:
A Day in the Life:
So driving around looking for pub gardens that welcomed us along with our canine encumbrance, we came across a couple of signs saying that we were OK if we had one, well-behaved & clean dog.
Well that seems like a contradiction in terms because dogs just aren’t clean and, with the best will in the world, if they get a whiff of bacon and eggs and/or another dog or a squirrel, they’re not very well-behaved, either.
As you would expect, we could go into rather more, not necessarily pleasant detail there but, as we’re a bit rushed this morning, we’ll have to move on to the news:
PUNCH TAVERNS – F.Y. UPDATE:
• Punch Taverns has this morning updated on trading for the 52wks to 20 August 2016 and our comments are set out below:
• Key numbers:
• Punch Taverns has this morning reported on trading for its full year to 20 August saying that its ‘performance [was] in line with management expectations’
• Group will report FY numbers on 8 November
• Punch has seen ‘continued growth from a higher quality pub estate’ with average profit per pub across the entire estate up c.4%
• It has reported ‘core estate like-for-like net income growth of 1.0%
• Further comments:
• The group reports that its ‘retail division [is] operating ahead of expectations
• Punch reports ‘177 pubs identified to operate under the Retail contract, with 97 pubs trading or in progress of conversion at 20 August 2016’
• It says its pub roll-out plans have been accelerated to c.150 pubs per year (up from previous guidance of 100-120 pubs per year)
• Balance sheet, cash flow…:
• Punch reports that it has further strengthened its balance sheet
• Nominal net debt has been ‘reduced by approximately £225 million (16% reduction in the year)’ with nominal net debt to EBITDA now at c6.6x vs 7.2x in August 2015
• Punch’s property estate has been externally valued by GVA at c.£2,030 million; c.£850 million in excess of nominal net debt.
• The group reports ‘the 2016 property valuation represents a net uplift of approximately £40 million on the prior year valuation, after accounting for pub disposals.’
• Debt now stands at around 58% of pub values (64% a year ago)
• Strategy, disposals etc.:
• Punch reports its ‘strategic disposal programme is now complete, having delivered ahead of expectations’
• The group has sold c£83m worth of property & land with £53m of pubs disposed and previously announced
• The group’s 50% holding in Matthew Clark (£99m) was also sold during the year
• CEO Duncan Garrood reports ‘the business has ended the year with a solid set of results, in line with our expectations, and which reflects the completion of our strategic disposal programme.’
• He adds ‘the roll-out of our Retail division is progressing well and we now plan to accelerate the roll-out to c.150 pubs per year.’
• Mr Garrood concludes ‘I look forward to updating the market fully when we present our full set of results on 8 November.’
• Langton Comment: Punch has updated on its full year numbers and on its evolving business model and, so far, it would appear that things are progressing well.
• There has been some performance ahead of expectations and, though numbers are not yet forthcoming, that should come as something of a pleasant surprise to the market.
• 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 debt amortisation is untroublesome. Punch 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.
• Both Punch and Enterprise are adopting new business models in response to the MRO. Whilst this adds uncertainty, performance, to date, has been ahead of plan.
• 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, which have been optically very cheap for some time now, are worth a look.
PUB, RESTAURANT & DRINKS PRODUCERS:
• The latest CBI quarterly Service Sector Survey highlights the importance of Brexit negotiations to the hospitality industry, which is itself of increasing importance to the wider UK economy. The sector’s confidence lies at its lowest since 2009 in the wake of the referendum result, with just 15% of operators optimistic about market prospects in the last quarter compared to 75% in January. Despite the reported apprehension, employment and business volumes improved slightly during the period.
• Heineken has acquired Carlsberg’s former brewery in Vung Tau, Vietnam, as it looks to tap into the country’s young population and vibrant culture.
• Sports pub app MatchPint and CGA Strategy have compiled sales data from over 2,000 UK pubs in an attempt to discern the value of showing sport in pubs.
• The Co-operative Group will trial a charity food donation scheme as part of its drive to ensure all food that is fit to eat is given to local causes.
• TDR Capital has purchased a minority stake in forecourt operator Euro Garages for £1.3bn.
• PwC research shows that 59% of 18 to ¬34-year-olds in the North ¬East consider themselves to be eating healthier compared to last year.
• MCA survey on hospitality trends post 23 June Brexit vote suggests ‘there is still little clarity on what Brexit will mean – or even what Brexit is.’
• Brexit & F&B. MCA panel suggests ‘record spending levels at lunch and dinner, with breakfast also in strong growth. The data also reveals that 62% of customers expect to eat out just as often as they do now in 12 months’ time.’
• Post Brexit ‘a quarter expect to reduce their eating out visits…while 13% expect to eat out more often’ per MCA. Steve Gotham says ‘an immediate crash in the eating out market following Brexit was always going to be highly unlikely given the momentum the market had built up in terms of the consumer economy.’
• MCA suggests desire to spend is still there but operators are less optimistic. Steve Gotham says ‘buoyancy on the consumer side contrasts, however, with more patchy performances from operators. Expansion in supply, more retail/foodservice blurring and hybridisation are all upping the ante and intensifying competition. It is likely that the growth in supply is exceeding demand in certain areas – and interestingly, it is frequently the larger, more established chains that are finding life tougher.’
• UK operators have little choice other than to remain committed to the UK but the MCA quotes one operator as saying ‘if anything, the weeks after Brexit – and particularly the few days immediately after the vote – were probably stronger than if it hadn’t happened. From very early on there seemed to be an attitude of just getting on with it. It was wall-to-wall coverage of how Brexit was going to change everything, but people weren’t seeing that played out in their own lives. I think that will continue for some time.’
UK PUBS – A GREAT INSTITUTION BUT…
Pubs have to be worked at, operators can’t rest easy:
• The above should be taken as read – but sometimes, it isn’t…
• Operators have limited control over weather, football, smoking bans, supermarket prices etc.
• But they can determine their own behaviour – and if you can’t fill your beer gardens now?
Langton in the Lakes. On the ground findings. A few humble don’ts:
• …stop serving food at 2pm if you say you’ll serve till three
• …let your website get out of date / give incorrect information
• …leave your two Belgian Shepherds guarding the beer garden (and keeping it empty)
• …have workmen drilling skirting boards (and creating clouds of dust) over lunchtime
• …let the grass grow to thigh-height whilst advertising ‘beer garden to rear’
• …burn trash (cardboard & worse) in beer garden incinerators August lunchtimes
• …remember you’re serving drinks that can be had at a fraction of the price in the off-trade
• …acknowledge that punters need a reason to visit
• …remember that, even in tourist destinations, it’d be nice to see customers more than once
• Langton loves pubs
• Really, it does but, and it’s a big but, they need to work for their money. Some more comment here
LEISURE TRAVEL & HOTELS:
• PPHE Hotel Group has reported more or less flat like-for-like revenues as RevPAR fell 16% to £73 and EBITDA slipped by 7.4% to £32.5m in the six months to 30 June. The costs associated with the group’s acquisition of Arenaturist have been enhanced by currency rate fluctuations, while occupancy has stalled and revenue per available room has fallen in some key markets, including London.
• Booking data suggests destinations which have suffered terrorist attacks will continue to see a fall in international arrivals, with Turkey set to be the most affected. Bookings for September to December in the Mediterranean country are expected to be down 52% year-on-year, while France is expected to be down nearly 20% over the same period.
• ITC Travel, a maker of tailored holidays for the rich, has been bought by private equity firm NorthEdge in a deal valuing the operator at £30m.
• Hoseasons enjoyed a record summer of sales for the sixth consecutive year thanks to a 14% year-on-year increase in bookings for the self-catering specialist. The group says demand for domestic holidays has risen by 52% since 2010 and that ‘people continue to prioritise their holidays’ in what has proven an eventful summer.
• Avis has promised to refund the ‘Brexit charge’ of between £2.19 and £11 reported by Britons hiring cars in Europe since the UK’s vote to leave the EU. Avis said the fee was a system error and blamed ‘miscommunication’.
• Overseas tourists attracted to London by the weaker pound means that hotels could stand to benefit from the aftermath of the referendum. Hotel investment remains healthy thanks to strong demand for UK brands from Asian investors.
• London hotel prices fell 16% last month to an average price per night of £143 – the lowest level since March – according to Trivago.
• A study from GBTA Foundation and CWT suggests almost 70% of buyers’ travel programmes do not have a mobile strategy in place.
• 888 reports H1 numbers, says ‘outstanding Casino and Sport growth drives record revenue performance’
• 888 reports revenue increased by 19% to US$262.0m (H1 2015: US$220.0m) & says Casino revenue increased by 31% to US$137.4m. Sport revenue increased by 63% to US$25.0m.
• 888 H1 reports profit before tax increased +39% to US$27.8m with an interim dividend of 3.8c. CEO Itai Frieberger reports ‘888 has delivered a very encouraging performance in H1 2016, resulting in a 19% increase in Group revenue to a record $262.0 million. This strong outcome was driven by outstanding momentum at 888Casino and 888Sport where we achieved impressive revenue increases of 31% and 63% respectively.’
• 888 CEO continues ‘in line with our strategic focus we have made further excellent progress developing 888 in regulated markets and have grown regulated revenue by 29% against the prior year, reflecting strong performances in the UK, Spain and Italy as well as 888’s recent successful launch in Denmark.’ Mr Frieberger concludes ‘trading in Q3 has started well with average daily revenue until 27 August 2016 15 per cent. above strong previous year comparatives and 22 per cent. higher on a like for like basis. With this strong momentum the Board remains confident of delivering against expectations for the full year.’
• Gym Group reports H1 numbers. Says is seeing ‘continued strong growth in membership numbers and profitability’
• Gym Group reports revenue of £36.1 million, an increase of 25.1% (H1 2015: £28.9 million). Reports group adjusted EBITDA of £11.5 million, an increase of 35.2% (H1 2015: £8.5 million). Adjusted PBT is £4.6m, EPS is 2.8p and there is a maiden H1 dividend of 0.25p.
• Gym group opened 6 new gyms in H1 2016 to take the total estate to 80. CEO John Treharne reports ‘excellent progress has been achieved so far in 2016 as demonstrated by the growth in membership. Our rollout is on track with six sites opened in H1. We remain on target for 15-20 for the year and have a strong pipeline for 2017. Our existing sites are performing well which has contributed to the Group’s strong growth in profitability.’ CEO concludes ‘we are confident that our low cost, disruptive positioning in the market place, our well-developed roll out plans and our strong financial position bode well for further rapid and measured profitable development and progress, whatever the economic environment.’
• The boards of directors of Picture Holdco Limited and Pinewood Group have announced that they had reached agreement on the terms of a recommended cash offer by the former for the latter. The groups report ‘the Offer remains subject to the satisfaction or waiver (if capable of waiver) of the remaining conditions as set out in the Scheme Document including, amongst others, the approvals of the Pinewood Shareholders at the Court Meeting and General Meeting to be held on 19 September 2016. Subject to approval at the relevant meetings and the satisfaction or waiver of the other conditions set out in the Scheme Document, the Scheme is expected to become effective on 4 October 2016.’
FINANCE & MARKETS:
• Bank of England lending data suggests consumers borrowed less in July than expected. Borrowing nonetheless rose by £1.2bn.
• CBI suggests optimism across UK service companies fell sharply post the 23 June vote.
• Service firms’ investment intentions are at lowest level in 4yrs.
• Mervyn King reports Sterling’s fall my allow UK to re-balance away from imports. He comments ‘we are now in a better position to rebalance the UK economy. An unfortunate aspect of the campaign was the government forecasts of what the consequences of Brexit might be, which inevitably were highly speculative, in particular for the long run.’
• Bank of England data shows drop in demand for mortgages to 18mth low. Some 60,912 mortgages were approved in July, down from 64,152 approvals in June.
• US consumer confidence reached its highest point in almost a year in August according to the Conference Board, which gave a reading of 101.1 in August, up from 96.7 in July.
• World markets: UK down yesterday but Europe higher. US also up & Far East higher in Wednesday trade
• Oil price a shade lower at around $48.30 per barrel for Brent Crude
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Restaurant Group reiterates falling LfL sales at F & Benny’s were largely due to ‘own-goals’ e.g. menu decisions rather than competition
• ALMR is ‘encouraged’ by new drink guidelines and wants to ‘foster a “grown up” outlook towards alcohol’.
• Advisors on the AB InBev / SAB Miller merger may rake in fees of up to $1.5bn reports The Times
• Sales & IPOs: Be at One could be for sale for up to £60m, Hollywood Bowl could list for c£280m. Parkdean may change hands
• Food and Drink Federation’s last set of pre-Brexit figures show the UK’s branded food and non-alcoholic drinks exports rose to £2.4bn in H1
• Survey of 2,042 people aged 18-24 shows > third of young people have debts of almost £3,000 and have significant concerns about money
• The NIESR has suggested that a reasonable GDP performance in Q2 to end-July was largely down to a strong April
• NIESR expects economy to slow to around 1% growth in 2017 from 1.7% in 2016. Chance of recession c50%
• A YouGov/CEBR poll has suggested that consumer confidence picked up in August after falling in the wake of 23 June vote
• Analysis firm Springboard reports shoppers out spending over Bank Holiday Sat & Sun down 4.1% y-o-y
• Fed Chair Janet Yellen has said that the case for a rate increase had grown stronger in recent weeks.
• German finance minister Wolfgang Shaeuble has reiterated his view that low ECB rates are doing more harm than good.
• Other Tweets: Back from holiday glance at commodities. Oil brushing $50, sweet softs (sugar, OJ) strong, inputs (milk, wheat, corn) rather weak
• Back from hols o/view: Sterling tried to strengthen but didn’t. Meat prices low, both red (beef) & white (pork). Inflation, where art thou?
• Ocado shares up on rumoured Walmart bid. Some suggestion ASDA ‘price war’ move will come after having just put prices up in recent weeks
• Exiting hardly vote of confidence & corporate activity last refuge of scoundrel? See Be at One, Hollywood Bowl, Parkdean and/or Center Parcs
RETAIL NEWS WITH NICK BUBB:
• GFK Consumer Confidence Watch: The much-awaited monthly GFK Consumer Confidence survey was published overnight and shows a 5 point recovery from -12 to -7, but this outcome is quite skewed by a collapse in the Savings Index and the survey is sub-titled “Brits carry on shopping as motivation to save collapses”. The survey was completed between Aug 1st and Aug 16th, ie just after the MPC cut interest rates to 0.25% on August 4th…
• News Flow This Week: After the Bank Holiday weekend, things remain quiet, but today is the last day of dealings in Home Retail, for what it’s worth (with the Sainsbury/Argos deal finally completing on Friday), whilst the latest quarterly FT Actuaries index review is announced this evening and McColl’s have an IMS update tomorrow.