Langton Capital – 2016-09-09 – JD Wetherspoon, GNK, summer weather & other:
A Day in the Life:
Plenty going on but, in part that’s the problem. Will have to move straight on to the news today:
JD WETHERSPOON – FULL YEAR NUMBERS:
• JD Wetherspoon has this morning reported full year numbers for the period comprising the 52wks to 24 July 2016 and our comments thereon are set out below:
• Headline Numbers:
• JD Wetherspoon has reported revenues for the 52wk period to 24 July up by 5.4% at £1.595bn.
• LfL sales were up by 3.4% over the year as a whole. Sales (we believe LfL, detail to follow) are +4.1% since year end
• PBT is reported at £80.6m (up 3.6%), EPS is 48.3p (against some 47p last year and estimates of around the same again this year)
• Dividend is 12p, unchanged from last year.
• Current Trading
• The group (with chairman Mr Martin as a Brexiter) says ‘the gloomy economic forecasts for the immediate aftermath of the referendum have been proven to be false’
• The company says ‘since the year end, Wetherspoon’s sales have continued to be encouraging and increased by 4.1%.’
• Mr Martin adds ‘despite this positive start, it remains to be seen whether this will continue over the remainder of the year, given the strong like-for-like sales in the last financial year and what remains a very low-inflation environment.’
• The group says ‘we will provide updates as we progress through the year, but we currently anticipate a slightly improved trading outcome for the current financial year, compared with our expectations at the pre-close stage.’
• Balance Sheet, Debt & Outlook:
• JDW reports that net interest was covered 3.3 times by operating profit before exceptional items
• It spent £124.8m on capital projects in the period (2015: £173.3m), with £55.2m invested in new pubs and extensions to existing pubs (2015: £106.3m).
• Group reports free cash flow, after capital investment of £33.5m on existing pubs (2015: £44.8m), £6.9m in respect of share purchases for employees (2015: £6.8m) and payments of tax and interest, decreased by £19.3m to £90.5m (2015: £109.8m).’
• Re the unchanged shareholder pay-out, JDW says ‘in view of the high level of capital expenditure and the potential for advantageous investments, the board has decided to maintain the dividend at its current level for the time being.’
• During the period, some 5,694,546 shares (representing 4.8% of the issued share capital) were purchased by the company for cancellation, at a total cost of £39.4m, including stamp duty, representing an average cost per share of 692p.
• Mr Martin says ‘over the last 10 years, my shareholding has increased from 21.2% to 29.5%, as a result of the company’s share ‘buybacks’. The company is considering seeking a rule 9 ‘whitewash’, under the UK City Code on Takeovers and Mergers, allowing further buybacks.’
• Debt totalled some £650.8m (2015: £601.1m), an increase of £49.7m.
• The group details ‘factors which have led to the increase in debt are investment in new pubs and extensions of £55.2m, investment in existing pubs of £33.5m, the acquisition of freeholds of £36.1m, share buybacks of £53.6m (including £14.2m in respect of shares purchased at the end of the last financial year) and dividend payments of £14.2m. Year-end net-debt-to-EBITDA was 3.47 times (2015: 3.37 times).’
• There is plenty of headroom with total facilities in place of some £840m
• Langton View: JD Wetherspoon has beaten numbers and has given what for it is a relatively upbeat picture re current trading.
• Margins for the year are down, as expected.
• The group has bought back 5.7m shares in the year but debt remains at reasonable levels. The group’s shares have been strong recently and they trade at a somewhat demanding c19x current year’s earnings.
• Chairman Tim Martin, who favours Brexit, has said that the more ‘lurid’ projections re economic collapse have not come to pass and says that current trading is reasonable.
• The Whitewash proposals suggest that share buy-backs are set to continue.
• Overall, JDW remains best-in-class at what it does but, if the UK economy slows, its customers could find themselves with less money in their pockets and a PER of approaching 20x EPS may be something of a stretch.
GREENE KING UPDATES ON 18 WEEKS TO 4 SEPT:
• Greene King has updated on trading for the 18 weeks to 04 September 2016 saying ‘in the first 18 weeks of the year, Pub Company delivered like-for-like (LFL) sales growth of 1.7%’
• This included a ‘strong start to the year as customers enjoyed the European Football Championships and better weather. Growth was driven by our Local Pubs estate.’
• GNK adds ‘in Pub Partners, LFL net income was up 4.5% after 16 weeks, while in Brewing & Brands, own-brewed volume declined 0.5% over the same period.’
• Greene King reports ‘we continued to make strong progress with the integration of Spirit including the delivery of further planned synergies and over a quarter of our managed pubs now operating with the ‘best of both’ IT system. We also completed 41 brand conversions in the year-to-date with encouraging sales uplifts.’
• Some softening. The group comments ‘as expected, uncertainty surrounding the UK’s future withdrawal from the European Union has translated into a softening of some economic indicators and a reduction in consumer confidence. While the broader implications remain unclear, a number of recent industry surveys have flagged risks to leisure spend and we are alert to a potentially tougher trading environment ahead.’
• Overall, the group says ‘we remain confident of delivering another year of strategic and financial progress.’
PUB, RESTAURANT & DRINKS PRODUCERS:
• AlixPartners & CGA Peach report that UK’s casual dining brands are still expanding ‘despite pre-Brexit vote jitters’. The report adds ‘managed restaurant groups continued to see strong growth in the 12 months to June this year, with numbers of sites up 5.6% year-on-year.’ Peach’s Peter Martin reports this expansion ‘equates to a net addition of 284 new establishments, or more than five new openings a week – a performance that significantly outstrips the market.’
• CGA Peach reports ‘small to medium multi-site operators have been particularly active on the openings front, with their dynamism in contrast to more staid, established independent operators, which have seen a decline in numbers. In the Asian arena, Thai brands like Thaikhun and Busaba Eathai and Vietnamese concepts like Pho have drawn trade away from traditional Indian and Chinese establishments.’
• AlixPartners CGA Peach says ‘drink-led venues continue to struggle in many parts of the country, and their numbers fell by 1.6% in the year to June, but perhaps more significant is the news that the country’s overall supply of food-led licensed premises, in contrast to the growth in managed restaurant chains, has fallen too, by 0.3%, due largely to a fall in numbers of independent single-site businesses.’ Paul Hemming of AlixPartners adds ‘trading immediately post Brexit appeared robust but competition remains intense. and the market will continue to monitor closely developments in consumer leisure spending. However for operators the most pressing impact comes from the fall in the value of Sterling. Many menu items are imported, either from Europe or beyond and the Pound’s devaluation is likely to result in cost increases of the order of 15%, which will
• Richoux reports H1 numbers, turnover up 5.7% but loss after tax of £0.59m. Group chairman Philip Shotter says ‘in line with a number of other restaurant groups, trading conditions have been difficult during the period as we continue to face the challenge of increased competition at a number of sites as well as increased property and staff costs, the latter due largely to the impact of the living wage’
• Richoux says ‘a decision has also been made to recognise impairment charges against three sites which are underperforming’.
• Ed’s Easy Diner, which has recently voiced its intention to close three sites, is working with travel food specialist SSP to open ten new restaurants in travel hubs across the UK by 2020. SSP also signed a five-year deal with healthy fast food chain Leon earlier this year that will see more Leon sites in UK stations.
• Aston Manor has reported that the cider industry ‘remains very challenging’
• Wright & Bell’s first site the Kitty Hawk – a 15,000 sq ft ‘department store of dining’ in Finsbury Circus — is set to open in November, writes MCA. Kitty Hawk will boast a grill restaurant, New York style bar, patisserie and coffee shop, and deli.
• Pernod Ricard UK’s managing director Denis O’Flynn has described the UK’s newly reduced alcohol guidelines as ‘counterintuitive’. Speaking at a round table event in London earlier this week, O’Flynn said the company had a ‘serious issue’ with the latest guidelines, adding ‘In essence the guidelines put consumption limits for both males and female at the same level. Physiologically I’m not sure about that.’
• Pret a Manger has appointed Pano Christou as its new managing director for the UK from 1 October. Christou has spent the past two years as the group’s UK operations director and first joined in 2000, as an assistant manager.
• Kings Park Capital has purchased a stake in better burger group 7Bone Burger Co and is helping to fund its future roll-out, writes Propel.
• ONS figures show the number of people saying they are on zero-hours contracts has grown by 21% to 903,000 people, although some of the growth might reflect increasing awareness of the term. A Department for Business spokesman that almost 70% of workers on zero-hours contracts were happy with the number of hours they work, however, the Resolution Foundation argues that more support must be provided for those with insecure working conditions.
SUMMER WEATHER – BETTER THAN 2015, LET’S LEAVE IT AT THAT…:
• So what was the weather like over the summer? It’s not a secret, here’s the Met Office data.
o Temperatures, 2015 was 0.3 degrees below av., 2016 0.9 above
o Rainfall – above average in both years
o Sunshine – sunnier in 2015
o Temperature, 2015 was 0.7 degrees below av., 2016 was 0.2 above
o Rainfall – above average in both years
o Sunshine – below average in both years
o Temperature, 2015 was 0.2 degrees below av., 2016 was 0.6 above
o Rainfall – average in both years
o Sunshine – 2015 was ‘dull, 2016 was 10% sunnier than average
• What does it mean? Well we have to ask ourselves why on earth we live in a country that can be (and is) regularly below freezing in August
• Temperatures don’t vary far from average – but the little that they do counts for a lot
• Don’t listen to any twaddle about droughts, there’s plenty of water out there
• But more seriously…2016 was a better summer than 2015
• Early summer was impacted by the Euros & the Olympics impacted July & August
• A ‘good’ summer boosts outdoor spend (beer gardens, bicycle sales, BBQ guff etc.)
• It hurts indoor spend – cinemas, restaurants, bowling alleys & the like
• We will get the Peach data in a week or so & JDW comments tomorrow
• The August Bank Holiday was good overall, spend will have been high
• We would expect pub operators to be moderately pleased with trading to date
LEISURE TRAVEL & HOTELS:
• Thomas Cook China has been officially unveiled at an event in Shanghai as a joint venture between the travel group and Chinese stakeholder Fosun. The business opened offices in Shanghai last October and aims to offer inbound travel to and within China, as well as holidays and tours for Chinese customers. A programme of 90 holiday offerings across over 40 destinations including South East Asia, Europe and the Americas have been unveiled on the company’s Thomascook.com.cn website.
• Thomas Cook China aims to capitalise on the growing travel sector in China, as Chinese consumers start to move away from traditional group tours towards more premium, personalised experiences. The JV also seeks to promote the country as a destination for global leisure and corporate travel. Group chief executive Peter Fankhauser said: ‘As we enter this highly competitive market, I am confident that the combination of Fosun’s fantastic local knowledge and Thomas Cook’s travel experience and 175-year brand heritage is a winning one.’
• Google has launched its ‘travel dashboard’, which shares consumer search trends publicly and shows information based on ‘hundreds of millions’ of queries. The tool collates data across 26 Europe, Middle East and Africa travel countries and is updated every quarter, allowing travel companies to research new travel trends and react to changes in demand.
• Hand Picked Hotels revenues grew by 3.7% to £62.4m in the year to 26 November as losses reduced from £9.1m to £3.5m. Occupancy rose by 1.2% and revenue per available room grew by 5.6%.
• Apple has increased prices on some of its products on the same day as it unveiled its latest iPhone 7, a move that contrasts with the usual price falls seen upon a big release. Observers have attributed the price rises on the fall in value of the pound and an Apple spokesperson commented: ‘Apple suggests product prices internationally on the basis of several factors, including currency exchange rates, local import laws, business practices, taxes, and the cost of doing business.’
FINANCE & MARKETS:
• FT suggests little to worry about re Brexit (at the moment). It says ‘the post-referendum disaster movie conceived by the Bank of England and many pundits is so far failing to follow the script.’
• Property developer Secure Income REIT has agreed to pay £196.2m to buy 55 hotels let to Travelodge Hotels Ltd
• The RICS has suggested that London house prices will be less weak than originally expected
• The European Central Bank has kept interest rates at zero for another month and has decided against extending its two-year €80bn-a-month bond-buying scheme. Annual inflation stands at just 0.2%, despite some €1tn of newly printed money being injected into the banking system through bond purchases since March 2015.
• Mario Draghi, president of the ECB, said he expected inflation rates to remain low for the next few months.
• World markets: UK market higher yesterday but Europe down. US also down & Far East lower in Friday trade
• Oil price off the top but still relatively strong. Brent Crude trading at around $49.50 per barrel
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Accountants Wellers suggest that the hospitality industry should turn its focus away from the cut tourism VAT campaign
• Barclaycard has reported ‘consumer spending reaches 13-month high as shoppers enjoy best of British summer’.
• Barclaycard reports that ‘consumer sentiment remains muted with only four in ten feeling confident in the UK economy’
• Stonegate has bought 10 pubs across England from JD Wetherspoon for an undisclosed sum.
• Chipotle shares rose yesterday as it was revealed that activist shareholder Bill Ackman had built a 9.9% stake.
• Closing units becoming a bit of a thing. RTN and Ed’s shutting sites. Why they were opened in the first place is a valid question
• Dart Group says results to be ‘slightly behind current market expectations despite good trading performance achieved in year to date.’
• Barclaycard says ‘spending on experiences and holidays boosted growth in August.’
• STR forecasts that the US hotel industry will continue to grow in 2017 ‘albeit at a slower rate’.
• B of England Governor Mark Carney has defended the Bank’s move to cut rates last month, suggests it headed off a recession
• NIESR reports British economic growth slowed in the three months to August & says there is a significant chance of a recession next year
• Halifax reports a further slowing in the rate of house price growth. Values fell by 0.2% in August but are +6.9% on a year
• Other Tweets: House prices. At a time of deflation, sluggish wage growth, how’s 6.9% annual rise justified? Sure, low rates. But what if they rise?
• Halifax & Nationwide disagree. Former says house prices tipping over, m-o-m prices falling. Estate agents still bullish. No surprise there
• Dixons sanguine on Brexit vote, says seeing ‘no detectable impact’. Same for many consumer-facing small ticket pushers
• Staid operators opening new, trendy restaurant sites is like dad-dancing. It’s kind of inevitable but it’s so, so wrong…
RETAIL NEWS WITH NICK BUBB:
• Today’s Press and News: There is plenty of coverage of yesterday’s Q1 update from Dixons Carphone in today’s papers, mainly on the news that they have seen no impact on trading post-Brexit, along with the news that the Autumn Statement from the new, but still embattled, Chancellor will be on November 23rd (although there are conflicting reports on how much room, post-Brexit, he has for manoeuvre around the public sector deficit). The Times flags that Qatar Investment Authority’s stake in Sainsbury has fallen by 3%, to c22%, after the sovereign wealth fund declined to pour money into new shares to help to fund the purchase of Home Retail. The Times also highlights the BDO High Street Sales Tracker result for August, showing the seventh consecutive month of decline, as Fashion retailers showed no sign of stopping their alarming slump, with LFL Store sales down
• John Lewis Partnership: Ahead of Thursday’s interims from good old JLP, we have put the H1 sales figures which have already been announced into our P&L model and assumed some gross margin decline in both Divisions, but, as ever, it’s hard to know what’s been happening to operating costs, Central Costs or Interest charges. Hopefully there will be no surprises here, so we expect overall Divisional operating profits to be broadly flat at £180m, before central costs, and we expect PBT to be slightly up at £100m pre-exceptionals. So the H1 figures should show modest progress and the outlook statement should report a steady start to H2, notwithstanding the uncertainty about Xmas trading at John Lewis and the pressure on Waitrose’s margins.
• Trade Press: Retail Week magazine today is devoted to a Personalisation special (the front cover headline is cleverly customised to each subscriber) and the Editor in his column singles out the home shopping company Shop Direct for being in the vanguard of the personalisation focus in the industry. In terms of news stories, RW highlights the M&S HQ job cuts and the moves by Sports Direct to tackle its zero-hours policy. Shop Direct gets a double plug in Drapers magazine, as the Editor thunders in her column about the M&S job cuts that “M&S would do well to take a look at Shop Direct as an example of a business that reacts quickly to shifts in consumer behaviour”. The main focus of Drapers today is a Property special, but the front cover flags the “Value of Modesty”, highlighting the specialist brands and High Street names aiming to meet the needs
• News Flow Next Week: After the recent excitement with Sports Direct, attention shifts to “Super Thursday” next week, which is less busy than usual, because of the demise of Home Retail and Darty, but still brings the key updates from Next and John Lewis/Waitrose on the back of their interims (as well as the Morrisons interims, the Poundland Q2, the ONS Retail Sales figures for August and the latest MPC interest rate announcement). Before then, Monday brings the ABF (Primark) pre-close, Tuesday brings us the JD Sports interims and the Ocado Q3 and then Wednesday brings the Dunelm finals and the SuperGroup AGM.