Punch ahead of FY numbers, SBUX, staycations & other:

A DAY IN THE LIFE:

Would like to drone on this morning about this and that but, as I inadvertently cut my thumb yesterday, I’m making a mess of the keyboard. On to the news:

PUNCH TAVERNS: TIME FOR A FRESH LOOK?

Stagnant share price despite investment & debt reduction:

• Punch’s shares languish on a PER of 5.7 (106p).

• Yet this lacklustre performance belies much activity. The group is diligently paying down debt & actively driving innovation across its estate of c3,500 pubs.

Movement on debt:

• Group has used cash (diddly squat interest received) to pay down £65m Class B4 notes (LIBOR +11%)

• This represents a move towards normalisation & will enhance PBT by c£8.5m

• The market does not believe Punch has changed, but the accounts show otherwise

• Debt is ‘high’ at c6.6x EBITDA – but Punch has a large freehold estate. Debt represents mortgages on LTV of c60%

• Debt reduction rate of c19% in 1yr is material. Debt is down c63% since 2010. It has fallen c46% since the 2014 re-fi

Movement on trading:

• Group LfL income has been growing since H1 FY14.

• Punch is adapting. It has tenanted, leased, managed & franchised units

• Trading is stable & a re-rating is arguably overdue.

Other:

• Punch’s TNAV is 284p (shares are 106p)

• Group debt is fixed; inflation could be helpful

• The market either doesn’t know about Punch Tavern’s progress, or it doesn’t care – and therein lies opportunity.

• Less debt => more cash => more investment => positive LfLs => re-rating

• FY numbers are Tues 8 Nov

PUB, RESTAURANT & DRINKS PRODUCERS:

• Starbucks reports Q4 & FY numbers. Says Q4 LfL sales +5% in Americas, +4% in USA, +6% in China & +4% globally.

• Starbucks Q4 EPS +26% (including extra week). Group says it believes trading in fiscal 2017 will be ‘strong’

• SBUX Q4: Revenues +16% at US$5.7bn. Group opens 690 net new stores globally. Takes total to >25k stores in 75 countries

• SBUX Howard Schultz reports ‘Starbucks record Q4 and fiscal 2016 financial and operating results in the face of ongoing economic, consumer and geopolitical headwinds, and the significant investments we continue to make in our people and our business, once again demonstrate the power, relevance and resilience of the Starbucks business and brand’.

• SBUX reports sales down 12% in Europe despite 14th week. It says ‘the decrease was primarily driven by the shift to more licensed stores’. It says ‘the margin decline was partially offset by sales leverage driven by the shift in the portfolio towards more licensed stores and the impact of the 53rd week in Q4 FY16.’

• Scottish brewer Innis & Gunn has reached its £1m equity crowdfunding target in just 48 hours, with more than 500 investors contributing to the campaign. The Scottish brewer commented: ‘we’ve never made shares available before and I couldn’t think of anyone better to offer them to than the people who want to help us discover where we can take the beer of tomorrow.’

• Moody’s has revised its outlook for the US restaurant industry from stable to positive, with industry operating growth expected to grow between 2% and 4%. ‘The outlook revision for the US restaurant industry is based on our view that operating income growth will be 2% to 4% over the next 12 to 18 months, compared to our previous call for 5% to 6%,’ said Moody’s analyst William Fahy. ‘Consumers are wrestling with higher non-discretionary spending needs, while restaurant companies face higher operating costs, predominantly labor and challenged traffic trends,’ he added.

• Wahaca’s founders have promised to find the source of the suspected norovirus outbreak that has led to nine of its sites in London, Manchester, Brighton and Cardiff being shut down temporarily. Selby and Miers said: ‘We are incredibly sorry that people have been unwell. In the nine years since we first opened Wahaca we have never had such an unprecedented incident, and we are doing everything we can to get to the bottom of how this may have happened.’

• Horizons’ latest Ones to Watch suggests that the booming coffee market could be ‘reaching its peak’.

• Sainsbury’s plans to introduce contactless payment to its stores in early 2017. The supermarket chain initially slated a full rollout for the first half of 2016 yet failed to meet this target.

• The UK service sector ‘moved up a gear’ in October, according to the services PMI, although inflationary pressures are ‘rising rapidly’. Chris Williamson, the chief business economist at IHS Markit said: ‘An encouraging picture of the economy gaining further growth momentum in October is marred by news that inflationary pressures are rising rapidly. The increase in prices threatens to curb both corporate hiring and consumer spending, as firms seek to reduce staff costs and households see their pay eroded by rising inflation.’

• Property agent Savills has suggested that rents will rise considerably faster than house prices over the next 5yrs. It says in London, rents will rise by 24.5%, and house prices by 10.9%.

LEISURE TRAVEL & HOTELS:

• Confidence in the UK economy has rebounded from pre-Brexit lows, with more than one in two consumers still planning an overseas holiday in the next 12 months. The latest Holiday Confidence Index from First Rate Exchange Services, based on a survey of more than 5,000 UK adults, points to a 14-point rise in confidence in the economy compared with its last survey in April. First Rate Exchange Services has also advised that the buoyant results must be read in the context of incoming inflationary pressures linked to the increased cost of importing food and fuel.

• A study of more than 2,000 US consumers conducted by Travelzoo suggests that US tourists are set to spend an extra £1bn in the UK. The falling pound has made the UK a much more affordable tourist destination, and consequent increases in tourism spend could help to create thousands of new tourism jobs.

• A senior MP has assured travel industry figures that the industry can expect ‘a decent outcome’ to negotiations on air traffic rights with the EU. EasyJet’s Carolyn McCall has warned that ‘No one knows what will happen,’ prompting Iain Stewart MP, parliamentary private secretary to international trade secretary Liam Fox, to tell the GTMC conference in London that he is ‘confident there will be a common-sense arrangement.’

• The US hotel industry posted an 8.1% jump in occupancy to 67.2% in the week to 29 October, while RevPAR grew by 12.7% to $84.62, thanks to a Halloween calendar shift. This revenue per available room growth was compounded by a 4.3% rise in average daily rate to $125.98.

• Terra Firma has acquired Welcome Hotels, which has 12 three and four-star sites focused on business travellers across Germany.

• Paris’ hotel industry suffered a 15.1% fall in revenue per available room through the first nine months of 2016, per STR. This was driven largely by a 12.4% drop in occupancy to 69.1% as the city’s hotel industry continues to recover from last year’s Bataclan terrorist attack.

• EasyJet has reported passenger numbers +6.9% in Oct but load factor down from 93.3% to 90.2%

OTHER LEISURE:

• Paddy Power Betfair updates on Q3, says revenue +25% at £404m or +15% in constant currencies

• PPB reports Q3 ‘growth driven by sports including a strong conclusion to the Euro 2016 tournament.’ Underlying EBITDA +53% w. margin 28%

• PPB Q3: Says synergy benefits accelerated and ‘full year profit guidance: underlying EBITDA now expected to be between £390m and £405m’. CEO Breon Corcoran reports ‘this was another good quarter for Paddy Power Betfair. We are continuing to focus on building a stronger combined operation by exploiting the unique assets and capabilities of each legacy business, and on using our scale to better serve our customers.’ Mr Corcoran concludes ‘work is underway to combine the best of Betfair and Paddy Power’s technology into a multi-brand, multi- channel, multi-jurisdictional platform that will start to unlock the full potential of the Group’s scale and will lead to increased pace of development and faster roll out of new products.’

• Goals Soccer reports that Kevin Allcock, formerly at Stonegate Pub Co, will join the Company as Operations Director

FINANCE & MARKETS:

• The High Court has ruled that Parliamentary approval necessary before Article 50 is invoked. HMG is to appeal to the Supreme Court.

• Thoughts are that, if the Supreme Court upholds yesterday’s decision, legislation will need to clear both the Commons & the Lords. PM Theresa May has said ‘we have no intention of letting this derail our timetable.’

• B of England Governor Mark Carney has told the BBC that the Brexit court defeat is ‘one of many twists and turns that are likely to happen’ as UK proceeds to Brexit

• Don’t you ever find yourself waiting for wiser heads to prevail only to find there are no wiser heads?

• Mrs May is being urged to call a snap election in order to secure a mandate for Brexit.

• Bank’s MPC leaves rates at 0.25%, leaves cumulative QE at £435bn.

• Bank says growth next year could come in at 1.4% vs earlier estimate of 0.8%. It cut its 2018 estimate from 1.8% to 1.5%

• Bank now sees inflation next year coming in at 2.75% next year. Says household spending growing faster than earlier anticipated

• NIESR says hard Brexit could lead to a drop in trade with other EEA members of around 60%

• SMMT boss Mike Hawes says the UK motor industry faces “death by a thousand cuts” if input prices rise post Brexit

• US S&P Index has its worst losing run since 2008, falls for 8th straight session

• World markets:: UK down (but mid-cap market higher). Europe down for 9th straight day, US down and Far East down in Friday trade

• Oil lower with Brent Crude changing hands at around $46.50 per barrel

• Sterling up on Brexit knock-back. Trading at around $1.246 to the US$. Trading just over 112c vs the Euro

• Eurozone unemployment held steady at 10% in September

YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:

• Punch. Group bought back £65m of c15% PIKs last week with cash earning c1%. That should enhance profits by maybe £8.5m.

• JDW shares fell sharply on update Weds but halved losses by day’s end. Markets near all-time highs but GNK shares near 4yr lows.

• Whitbread shares said to be over-sold following lacklustre trading update last week. They have since fallen further

• Wm Morrison updates on Q3 to 30 Oct, says LfL sales ex-fuel +1.6%. Incl. fuel, LfL sales were down 1.2%.

• ‘Beer Barometer’ from BBPA for Q3 shows a 3.4% fall in beer sales y-o-y, although last year’s Q3 benefitted from Rugby World Cup

• Millennials increasingly choose to watch TV rather than visit pub per poll of 2,000 adults by satellite TV service Freesat.

• The number of plastic carrier bags used across the UK has fallen from 8.5bn to 1.1bn over the last two years, per IRI market intelligence.

• Jet2’s rapid expansion has seen it close in on Thomas Cook and create a new ‘big three’ in travel per Atol data

• UKinbound figures show confidence levels among the UK’s hospitality and tourism businesses are at a 12-month high

• Nationwide reports house price growth stalled in October. Price of the average house actually dropped by twenty quid.

• US Fed keeps rates on hold. Rate rise in December still on the cards

• Petrol and diesel prices increased sharply in October by 4.4p to 116.7p for petrol and by 5.2p to 118.7p for diesel, the highest since July 2015

• Later Tweets: World markets: Europe down for 8th straight day yesterday but bouncing today. Trump fears edging into prices?

• UK construction PMI positive but confidence on the wane. Surely one’s a lead-indicator & the other isn’t?

• Punch. Market seems to have missed the £8m upgrade implicit in last week’s bond repurchase. FY figures next Tuesday

• What’s GNK doing near 4yr lows? Spirit euphoria well & truly evaporated. Good company but no magic fixes out there

• October tough per JDW. Also lower beer sales per BBPA (comps. Incl. Rugby in 2015). Expect some caution in statements

• Trump fears spook US$. Sad that it takes something like that to make Sterling look *strong. *Definition: small bounce after 20% fall.

RETAIL NEWS WITH NICK BUBB:

• Weather Watch: It has turned much colder over the last few days, but memories about “the weather” are always notoriously short-term, so, ahead of Tuesday’s BRC-KPMG Retail Sales survey for October, we turned to the Retail weather consultants Planalytics for their regular monthly overview of how last month’s weather “should” have affected trading on the High Street. And their headline for October this year was “Extremely dry month helps footfall”, flagging that, surprisingly, “Weather-driven demand was in line with last year”. Temperatures averaged 10.4°C for the month as a whole, which was much lower than September and a tad lower than normal for October, but they were actually bang in line with October last year. It was the 10th driest October in the past 50 years and about 30% drier than last year, but overall “weather driven demand “was only in line with last year: cough/cold
treatments and boots were -1% on last year, while outerwear and hot cereals were +1%, but the dry conditions through the month enabled consumers to continue outdoor maintenance projects later than last year and gardeners enjoyed late autumn gardening, which was a bonus for garden centres and DIY stores.

• BDO High Street Sales Tracker: We flagged on Wednesday that John Lewis did OK in Fashion last week, helped by the two new store openings, but today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for w/e Oct 30th flags that Fashion Store LFL sales were down by 5.2%, albeit against quite a tough comp. Boosted somewhat by robust Homewares and Lifestyle sales, total Store LFL sales were down by 2.7%. Online sales were up by a relatively sluggish c14% overall.

• Howden: We have been asked why the City was disappointed with the Howden trading update yesterday, even though periods 7 to 11 saw LFL sales growth of c2%, despite toughening comps since June and the softer trading conditions seen in the housing market in recent months. Well, the answer is that the City expected more than 2% LFL sales growth: as prices rose by about 3-4%, people expected at least 4% LFL growth. Even so, a c5% slump in the share price seems harsh, given how weak the shares have been in recent months and the group’s stellar long-term growth record…

• Trade Press: There is no Drapers magazine today, alas, but Retail Week magazine has been published as usual and the eye-catching headline is “Piling on the Pounds”, with a photo of a hand taking a pound coin out of a purse, to flag up a feature article about inflation (“as price rises loom, what strategies will retailers adopt and how will consumers react?”). RW also have features on the fact that a new must-have product is needed by Apple and that M&S lingerie looks like one bright spot for the High Street stalwart. In terms of News stories, RW focus on the news that John Lewis Retail Director Mark Lewis is quitting the business to take over as boss of Moneysupermarket.com, a group of 125 shareholders filed a claim this week for more than £100m in damages from Tesco following the 2014 accounting scandal, The Entertainer toy chain is to launch concessions in the 3 Debenhams
stores in Cyprus and Majestic Wine is rolling out “click-and-collect” and next-day delivery propositions as it continues its multi-channel drive. In his column, the Editor has 2 pieces, one arguing that we should “expect few sparks from the Marks’ interim results” and the other thundering that “the question in UK retail boardrooms should not be about how Amazon ‘gets away’ with making no money over Christmas, but about how to protect and extend their own market shares”. Finally, the RW website has an exclusive that the first Bunnings Homebase store conversion will be in St Albans early next year.

• News Flow Next Week: A busy week kicks off with the BRC-KPMG Retail Sales for October first thing on Tuesday, closely followed by the M&S interims/Strategy Review and the ABF (Primark) finals. Wednesday then brings the Sainsbury interims and the Burberry interims and then on Thursday we get the Halfords interims and the SuperGroup Q1 update.