Langton Capital – 2016-11-09 – More on Punch Taverns, Trump, rabbit holes & other:
More on Punch Taverns, Trump, rabbit holes & other:
A DAY IN THE LIFE:
Don’t want to be presumptive, and all that but, if Trump takes the White House, then lightening might have struck twice inclusive of the Brexit vote.
We only need to change the National Anthem to The Birdy Song and it’ll be a treble to be proud of as the rest of the world looks on and wonders just what the crazy Anglos are up to these days.
Anyway, Winter is Coming though, as it’s been raining all night out there in London and we have snow on the moors in Yorkshire, it might be here already. Button up tight guys, there’s a chill in the air. On to the news:
PUNCH TAVERNS – FY ANALYSTS’ MEETING:
• FY Results:
• Following the release of its full year numbers, Punch Taverns this morning hosted a meeting for analysts and our comments are set out below:
• Key trading numbers:
• See earlier Flash Note for fuller details.
• Group confirms that core LfL EBITDA +1.0%. Adds that, even if the c300 pubs that had been moved to the Mercury estate were included, the number would still have been +0.2%
• Overall EBITDA was down only due to pub & Matthew Clark disposals
• Underlying trading was ‘broadly stable’ and cash flow, even after spending c£60m on maintenance capex, was £45.7m
• The group reports that c2/3 of group pubs have yet to benefit from any capex spend over recent years – as the group has been consistently hitting its 20% hurdle rate for return on capex, this bodes relatively well for future profits
• Strategic progress, managed houses etc.:
• The group says the Pubs Code ‘should be a positive’
• It is adding a little cost & delaying lettings this year as lettings that were already in progress had to be renegotiated post the 21 July 2016 implementation
• Punch ‘has the resources to make its community pubs special’
• The group is now focused on the customer (i.e. the tenant) and lines of communication are much better
• The retail contract (franchise) model allows Punch to keep the offer, pricing & quality more consistent over time and across the estate. Uplifts here to EBITDA should be around £20k in year 2.
• We will see more tenancies, fewer leases in future
• Around 40 publicans to date (out of a possible 160) have asked for Free of Tie numbers
• The Mercury estate (non-core pubs) should be in growth from end-17
• Balance sheet, cash flow…:
• Punch’s property portfolio has been independently valued at £2.03bn. This represents a £37m uplift over the last couple of years. The valuation seems fair and disposals last year were being made for above book value
• TNAV is therefore c285p per share
• Group has identified a further £100m of property values (development of land, upper floors etc.), which is not included in the above £2.03bn
• Overall, debt is manageable and is coming down. There are no major amortisation events in the next 5yrs
• The remaining PIKs (coupon 15%) may be redeemed for cash or swapped for a cash note with a lower coupon
• Langton Comment: Punch has confirmed that debt is manageable & falling and trading is stable.
• Punch’s shares trade on a PER of little more than 5x and net assets are some 175p higher than the share-price.
• There are plenty of shares to choose from out there but, at some point, attention will focus on Punch and its shares are likely to rise.
PUB, RESTAURANT & DRINKS PRODUCERS:
• Punch gets reasonable press. Points out group is winning ‘gruelling 3yr [actually longer than that] battle with debt’.
• Simple question. Department stores; if they didn’t invest, would you build 000s of them now? Thought not.
• Ed’s Easy Dining’s administration is expected to leave its creditors £27.9m out of pocket.
• Fitch Ratings has downgraded McDonald’s debt saying that the outlook is stable but that the boost provided by breakfast sales will not continue forever
• Can you have your cake & eat it post Brexit? Toblerone says not as Mondelez cuts size of bars. The number of peaks will decline with bigger gaps between them in order that the bar weigh should weigh less as lower Sterling increases cost of imports. Toblerone said in a Facebook post “like many other companies, we are experiencing higher costs for numerous ingredients”. Walkers has said that it will be putting up prices as have Birds Eye, Marmite & others.
• Grilled cheese street food operator The Cheese Truck has beaten its crowd-funding target of £100k by £30k. The company’s CEO told Big Hospitality ‘I was really blown away at the support. It wasn’t what I was expecting. I imagined we’d have a few investments made by friends and family, but there are 180 investors in total which is really fantastic. We’ve had such amazing support and it was so quick.’
• Latest Markit/CIPS services sector PMI says ‘the dominant UK service sector moved up a gear at the start of Q4 2016.’ It says ‘the rate of growth of total business activity accelerated to the fastest since January, as did new business expansion. The sector continued to generate more jobs, albeit at a weaker rate than the trend shown over the past three years.’ Reading was 54.5 where any reading >50.0 implies expansion.
• Markit qualifies reading by saying ‘though solid overall, growth at start of Q4 was slightly weaker than 20yr long-run average’.
• Markit Oct PMI says ‘latest data also revealed a marked buildup of inflationary pressures in the sector, linked to the weak pound, as input prices rose at the fastest rate since March 2011.’
• The Food Foundation, Nourish Scotland and WWF yesterday launched a new initiative today to promote healthier eating including the consumption of more vegetables. The move comes after reports that a quarter of secondary school age children are eating less than one portion of veg a day.
• Food Foundation suggests we should eat more home-produced food. It would be healthier, it maintains. It says ‘the combination of higher food prices and pressure on UK horticulture production, in a situation where our children are already eating much too little veg, threatens to make our children’s diets even worse than they already are.’ The Federation adds ‘the government now has an opportunity to re-think agricultural subsidies as we leave the European Union, and link them directly to supporting the public good.’
• Carlsberg is to overhaul its draught beer dispensers launching an ‘innovative and convenient beer dispense solution for bars and food-led outlets, called DraughtMaster, which is set to be a step-change in the availability of quality draught beer in the UK on-trade.’
LEISURE TRAVEL & HOTELS:
• Hotel transaction volumes have fallen sharply reports the latest Hotel Bulletin from HVS, AlixPartners & AM:PM. It says investors are playing a waiting game in the wake of the vote to leave the EU.
• Hotel transactions fell to £522m in value in Q3 reports HVS. Number is around half of that recorded in Q3 2015. HVS says ‘there is still no strong indication of what form Brexit will take and this uncertainty has led to indecision and delays in hotel property transactions’. It adds ‘while the sterling depreciation recorded since June will have materially impacted overseas investors, many will be looking to take advantage of favourable exchange rates, making it a good time to buy in the UK. However, economic uncertainties in the UK such as a rise in inflation and the potential of rising costs means that decisions are instead being delayed.’
• Hotelbeds Group says it is seeing “strong sales growth” from UK customers. MD Carlos Munoz reports ‘despite fierce competition in a market that shrunk this year, it gives me great pleasure to confirm that once again we have both grown significantly and outperformed in our most important outbound market.’ The group says the fastest growing destinations for UK travellers were Spain, USA, Portugal, UAE and Mexico.
• US tourists could spend an extra £1bn in the UK next year, according to a survey of 2,007 US consumers by Travelzoo, which has found a 35% rise in UK destination searches. The US is already one of the UK’s top inbound tourism markets, with numbers rising 13% year-on-year to 510,000 in August.
• Tenerife tourism boss Alberto Bernabe has said that his island has this year welcomed 1.55m travellers from the UK to end-Sept
• TUI UK product manager Garry Wilson has told a WTM audience that Airbnb is not a direct competitor to tour operators. Regarding TUI, Mr Wilson reports ‘we invest millions of pounds every year on aircraft, new technology, hotels and on developing destinations with the host governments and tourist authorities in order that we can build a long-term sustainable proposition for customers and destinations.’
• Caroline Bremner, head of travel & tourism research at Euromonitor, has said that Brexit could reduce UK outbound traveller numbers
FINANCE & MARKETS:
• Lightening can strike twice & it maybe will post Brexit as Trump takes ‘commanding lead’ in some swing states
• Asian stocks were in decline and safe haven stocks were up as Donald Trump’s bid for the White House became increasingly more likely.
• World markets: UK mixed (big caps up, mid-caps down) yesterday. Europe & US up but Asia sharply lower on Trump fears
• Oil down sharply at around $44.80 per barrel
• The Euro, much-maligned pre-23 June as busted and weak, is looking like the strongest currency in the world
• Sterling up against a worried US$ at 124.8c. Little changed against Euro at around 111c per Euro.
• Seasonally-adjusted trade surplus in Germany rose to €24.4bn in September against estimates of nearer €22bn
• NIESR says GDP grew by 0.4% in the 3mths to end-Oct down from 0.5% in the 3mths to end-Sept. It says ‘robust consumer spending growth continues to support the economy.’ However, it adds ‘ooking ahead, this contribution from consumers is expected to wane over the course of next year due to a substantial rise in the rate of inflation.’
• ONS data shows manufacturing growth accelerated in September with growth of 0.6% versus 0.2% in August. The ONS says ‘there are no obvious signs so far of either the weaker pound or post-referendum uncertainties affecting the output of UK factories, which continued broadly in line with recent trends.’
• ONS reports that the wider measure of industrial output fell in September. The negative difference is brought about by reduced output from energy companies and North Sea oil and gas fields.
• UK Supreme Court is likely to rule on whether Parliament needs to debate Brexit prior to Article 50 in the New Year
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Punch FY modestly ahead of expectations. Says average profit per pub across the entire estate up 4% (helped by disposals)
• Punch FY LfL EBITDA +1.0%. Group says is ‘making good progress delivering on our strategy’
• Punch FY: Underlying EBITDA of £178m (vs £196m). U/lying PBT £53m (last year £61m). Managed houses ‘ahead of expectations’
• Punch to offer around 150 pubs per year for franchise. Says pubs here should generate £15-25k more profits
• Punch FY: PIKs repayment will boost profits. TNAV c285p. Group’s debt falling, trading positive, outlook reasonably positive
• Value of merger and acquisition deals between UK companies has plummeted 62% to a 30-year low EU Brexit vote
• KPMG & BRC release data suggesting retail sales up 2.4% y-o-y in Oct, the strongest figure since January
• Marriott reports Q3 numbers, says co (including Starwood) now has 1.6m room open or in its pipeline
• UK public debt will be £25bn higher as a result of the deterioration in finances since the March Budget warns IFS
• PM Theresa May has said she is “clear” she expects to start talks on leaving the EU as planned by the end of March
• Later tweets: Is it just me or might the High St begin to look a bit threadbare ex-Jessop’s, Woollies, Phones4U, Blockbuster, BHS & now 60 M&S units?
• Ongoing collapse of traditional retailing means night-time economy more important than ever in keeping the High St alive
• Halifax says house prices buoyant. Contrasts with Nationwide. ICAEW says confidence slipped a bit in September
• Punch confirms trading in line, LfLs positive, debt down & more debt reduction to come. Shares scarcely react
RETAIL NEWS WITH NICK BUBB:
• Sports Direct: We flagged yesterday that MPs on the Business Select Committee paid a surprise visit to Sports Direct’s infamous Shirebrook warehouse on Monday…and that the MP’s accused the company of planting a secret camera behind a plate of sandwiches to spy on them (“Spooks Direct”)! The press release put out by Sports Direct’s hapless PR adviser Keith Bishop at 8.52am yesterday morning, which denied any involvement in espionage, had somebody called Cameron Olsen as the company contact at Sports Direct. And who, we hear you say, is Cameron Olsen? Well, according to his LinkedIn profile, he has been the Head of Legal & Company Secretary for nearly 3 years, having joined the company back in 2004 to work on its brand trade-mark operation. Although he speaks Swedish, he went to school in Australia, then studied Law at Monash University in Melbourne (from 1994 to 1998) and then
• John Lewis Partnership Sales Watch: The weather turned colder again in the first week of November, and that great bellwether, John Lewis, continued to trade strongly, helped by the new iPhone. The sales growth of 9.7% gross in w/e Nov 5th was the sixth decent week in a row, with LFL sales over 7.5% up. Fashion sales were up by 8.6% gross, but Electricals sales were up by a “storming” 17.6% gross, whilst Home sales were up by 3.7% gross. Over the last 14 weeks, gross sales at John Lewis are running 4.5% (a bit over 2.5% up LFL), with Electricals sales running up by 9.3% gross. Over at Waitrose, however, sales were subdued again last week, with gross sales up by only 0.6% (over 3% down LFL) in w/e Nov 5th, even though “firework sales rocketed by 35%”. Over the last 14 weeks, gross sales at Waitrose are cumulatively up by 2.8% (slightly down LFL).
• Today’s M&S Press: There is saturation coverage of the M&S store closures etc in today’s papers, but some of the wittiest commentary we saw yesterday about M&S was Online: the Gadfly column on Bloomberg said “These are not just store closures, these are M&S store closures. Marks & Spencer has finally admitted that with a slump in clothing and home furnishing sales, it needs to shutter shops. But the cuts unveiled by new CEO Steve Rowe are too late, and probably too little”, whilst the FT’s stockmarket correspondent said on the Alphaville “Markets Live” webcast that “The strategy is…well, it’s typically M&S. As in, it’ll take ages and consume a mountain of cash to do very very little”. As for today’s papers, Lombard column in the FT thunders that sentimentalists have no right to mourn the closure of shops, unless they dress head-to-toe in a brand that appears
• News Flow This Week: Tomorrow brings the Halfords interims and the SuperGroup Q1 update…plus the much-awaited new John Lewis Christmas TV ad.