Langton Capital – 2017-01-13 – Mitchells & Butlers, Punch Taverns, costs & other:
Mitchells & Butlers, Punch Taverns, costs & other:A DAY IN THE LIFE: Bit busy this morning, on to the news: MITCHELLS & BUTLERS Q1 TRADING UPDATE: Mitchells & Butlers has this morning updated on Q1 trading covering the period comprising the 15wks to 7 Jan and further comments are set out below: • M&B reports that ‘LfL sales growth for the YtD has increased to 1.7%’ • It says this is ‘continuing to build on the progress reported earlier in the year’ and adds ‘trading over the festive period was particularly strong across all brands’ • Xmas LfL +4.7% (4wks to 7 Jan) More on Recent Trading: • M&B reports that total sales have increased by 2.3% in the year-to-date. • In the 15wks to 7 Jan, food sales LfL rose by 1.6% and wet sales rose by 1.7% • City centres may have performed well in the long run-up week to a Sunday Christmas Day Margins: • M&B cautions that ‘as previously advised, increased cost pressure is expected to lead to margins being lower than last year.’ Balance Sheet & Other: • M&B says ‘we have opened 1 new site and completed 69 conversions and remodels in the financial year to date.’ • It says ‘we expect to complete around 300 remodels and conversions in the full year.’ Conclusion: • M&B CEO Phil Urban reports ‘this is an encouraging performance, building on positive momentum from earlier in the year.’ • He adds ‘we are starting to benefit from the many initiatives we continue to put in place, which gives us confidence in successfully delivering our strategic priorities going into the new year and a performance in line with the Board’s expectations.’ Langton Comment: M&B has seen performance improve in the current year to date. The fact that the group refers to evidence that a number of its initiatives are working is encouraging. Xmas was clearly good. This is a theme across chunks of the industry and our belief is that wet-led units in particularly saw good trading over the festive period. As we have reported on a number of occasions, M&B is a big ship and it will take time to turn. Evidence of such a turn may be emerging. As regards its share price, we are now at a point where the group is trading at only around 7.5x current year earnings and it has a 2.9% (and hopefully growing) yield. M&B has an extremely attractive estate but it still has much to do. Nonetheless, today’s announcement should, all other things being equal, be taken well. PUNCH TAVERNS – A REMINDER OF WHERE WE STAND: • Punch has agreed to a break up bid from Heineken and Patron Capital at 180p per share. • The is irrevocable – except if a rival offers 200p or more. • Documentation is promised ‘by 20 Jan’. • The first closing date is then 21 days hence. • A rival offer, which would have to be at 200p or above, is likely towards the end of that 3wk period • Saying a second bid will come in the week beginning the 6 Feb is not unreasonable. • Given the benefits of vertical integration, Punch should be worth more to Heineken than to anyone else • A counter from Patron / Heineken at 210p to 220p could not be ruled out • Punch’s NAV is c285p • It would take a builder of such an estate c300p per share and perhaps 20yrs to build such a portfolio of pubs • The end-game could, repeat could, be materially closer to the 285p NAV level than it is presently. PUB, RESTAURANT & DRINKS PRODUCERS: • Fleurets reports ‘there has been a decrease in overseas visitors in comparison to the same period last year’ in Q4. It says ‘however, owing to the continuing surge in strength of the US Dollar and lingering weakness of Sterling, the levels of overseas visitors may yet increase to take advantage of this situation.’ • Fleurets says ‘visitors are choosing to holiday within the UK, spending at home as UK destinations increase in relative competitiveness’. • Fleurets says leisure property market ‘has been active and readily liquid for company transactions.’ It concludes ‘it will be intriguing to see what the first quarter in 2017 brings in the lead up to the triggering of Article 50 and further developments in the Government’s Brexit plans.’ • The UN has said that food prices rose in 2016 for the first full year in 4yrs. It says its index of foodstuffs was +12%. Various prices (rice, wheat and corn) remain subsidised by various governments but vegetable oil prices rose c30%. • NRN suggests the US restaurant market in 2016 ‘closed on a sour note’. Dec comps were the weakest in 3yrs. • Average US restaurant LfLs fell by 4.3% in December with Q4 down by 2.4%. This is the worst Quarter in 5yrs. The last time the industry saw a quarterly fall of >2% was at the height of the recession in 2009. • NRN says declining traffic is the main reason that LfLs are down. Traffic in December was down by 6.4%. Average spend was up by 2.1%. • Whitbread has completed the sale and leaseback to M&G Investments of two prime London Premier Inn sites. M&G is buying the 339 room hub in Tothill Street, Westminster, in exchange for a 25-year lease agreement for a total of £101.825m, while the 326 room in West Smithfield, Farringdon, is going to Aviva Investors in exchange for another 25-year lease for £102.86m. The deals were completed against a net initial yield of just under 4% against an annual rent of £4.20m and £4.24m respectively. • Nicholas Cadbury, Group Finance Director of Whitbread PLC commented: ‘Following the success of our forward funding deal of hub by Premier Inn at Kings Cross in July 2016, I am delighted to announce the sale and leaseback of two additional prime London sites in Tothill Street and West Smithfield. These agreements highlight the strength of Whitbread’s covenant and the strong asset backing to our balance sheet and align with our property strategy to carry out modest sale and leaseback transactions to recycle capital into strong returning new growth opportunities in the UK and Germany.’ • PizzaExpress is shelving its chicken concept Reys in order to focus on its core business, per MCA. LEISURE TRAVEL & HOTELS: • Britons have increased their spend on holidays to 17% of disposable income, according to research from Saga. Top of the things people want to tick off their 2017 bucket lists include seeing the Northern Lights (26%), going on a luxury cruise (16%), visiting Australia and New Zealand (16%) and seeing the Great Wall of China (14%). • More than 4,000 All Leisure Group customers will be paid out by Abta within six weeks starting this today. • Hoseasons has reported a new year ‘bookings boom’ after seeing overall sales grow by 26% during the first week of January. Hoseasons said it believed consumer concerns over currency fluctuations and the economic impact of Brexit, coupled with the addition of more high-quality lodges with hot tubs as contributing to the rise in bookings. • Travellers have been warned they could face delays and cancellations with severe weather forecast for many parts of the UK. • Global airline traffic for November showed the strongest demand growth in nine months as European carriers saw demand rise by 8.3% year-on-year, per IATA. The aviation body cautions that ‘uncertainty lies ahead’, however, with the threat of terrorism, economic instability, rising oil prices and ‘increasing protectionist rhetoric’. • STR’s December 2016 Pipeline Report shows 155,434 rooms in 1,017 projects Under Contract in Europe, marking a 4% decrease in rooms under contract. The pipeline report also shows a 19.4% increase in the number of rooms under contract year-on-year of 560,199 rooms in 4,621 projects under contract in the US. • Meanwhile, STR data shows mixed results in the US hotel industry for the week of 1-7 January, with occupancy down 3.2% to $117.08. Revenue per available room grew by 1.1% to $53.13. OTHER LEISURE: • ClubCorp, one of the largest golf operators in the US, has reportedly put itself up for sale. The operator has c200 properties FINANCE & MARKETS: • German economy picks up pace, grows at fastest rate in 5yrs. Economy expanded by 1.9% in 2016 against estimates of around 1.8%. • The number of Americans filing for unemployment benefits rose less than expected last week. Further evidence of a tightening labour market. • World markets: UK FTSE100 extends winning run to 13 sessions. All share down. Europe down, US down, Far East up in Fri trade • Brent up at $56.10 • Sterling little changed at $1.2157. Down vs Euro at 114.6c. • 10yr gilt yield lower at 1.30% (was 1.34%) but 30yr Treasuries in US see yield rise to 3.01% from 2.96% TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS: • M&B Q1 ‘LfL sales growth for the YtD has increased to 1.7%’ with Xmas +4.7%. Good but vs minus 1% comps & London strong • M&B is ‘continuing to build on the progress reported earlier in the year’. Food sales LfL +1.6% & wet sales rose by 1.7% • M&B cautions ‘as previously advised, increased cost pressure is expected to lead to margins being lower than last year.’ • M&B CEO Phil Urban reports ‘this is an encouraging performance, building on positive momentum from earlier in the year.’ • Punch reminder. Bid only irrevocable if no 200p counter offer. Document 20 Jan. Then 21 days to first closing & possible rival offer • Punch. Would take a builder of such an estate c300p per share and perhaps 20yrs to build such a portfolio of pubs • Fleurets reports ‘there has been a decrease in overseas visitors in comparison to the same period last year’ in Q4. • The UN has said that food prices rose in 2016 for the first full year in 4yrs. It says its index of foodstuffs was +12%. • NRN suggests the US restaurant market in 2016 ‘closed on a sour note’. Dec comps were the weakest in 3yrs. • Average US restaurant LfLs fell by 4.3% in December with Q4 down by 2.4%. This is the worst Quarter in 5yrs. • NRN says declining traffic is the main reason that LfLs are down. Traffic in December was down by 6.4%. Av. spend +2.1%. • Whitbread has completed the sale and leaseback to M&G Investments of two prime London Premier Inn sites. • PizzaExpress is shelving its chicken concept Reys in order to focus on its core business, per MCA. • Hoseasons has reported a new year ‘bookings boom’ after seeing overall sales grow by 26% during the 1st wk of January. • Later tweets: Market up for 12th day Weds to 10th consec. record. Down at present but wouldn’t bet against turnaround. Sterling bounce pulling market back • MKS bounces on better clothing & household performance. Food growth less impressive. Hit by Aldi lobster (etc.) offer? • Debenhams up for 2nd day. Better numbers but, if it didn’t exist, would you build such a company today? • Langton’s Shoreditch BBQ. Achingly trendy & we fit right in. Portions small, expensive & layout inefficient. The price you pay for fashion? • Daily email free on website. Original & best. Now incl. tweets. News, views & analysis. Sign up & no strings. www.langtoncapital.co.uk RETAIL NEWS WITH NICK BUBB:
• Sports Direct: We suddenly miss all the 7am company trading updates…and in their absence today have had time to look at the regular 7am announcements that Sports Direct has been making each day this week about its renewed share buyback programme. And having mocked its pitiful efforts in the autumn, we can report that the company has been more aggressive, buying in c£1.3m worth of stock each day, so the last 5 days adds up to 2.4m shares for a value of £6.8m. No doubt the frustrated “Mr Share Buyback” man locked up in the Leicester HQ of Next is eating his heart out…And we must also flag that Sports Direct maintained its policy of bizarre/bizarrely timed RNS announcements by issuing an update at 3.05pm on Monday, following the supportive comments from fund manager Crispin Odey in the Times on Saturday, to say that “Mike Ashley today welcomed recent backing by Sports Direct’s largest
• Toy Watch: We noted on Tuesday that Non-Food sales were broadly flat LFL in the BRC-KPMG Retail Sales survey for December, but it was interesting that the BRC highlighted that Toys & Baby Equipment was again the top performing sub-sector overall in December, driven by toys. However, the BRC flagged that “…all of the growth happened Online, as stores sales were slightly down. The price war continued, with Lego as the central battlefield, but retailers seemed to have managed to carve their own niche outside the most disputed products”. But not all the growth came from Amazon and Argos, because the privately owned toy retailer The Entertainer has reported that, despite strong comps, it saw LFL sales grow by 2.6% in the 5 weeks to Dec 31st. Gary Grant, the founder and MD of The Entertainer, said: “Considering the increase in promotional pressure in the toy category and the • Clear Speaking Watch: Following up our comment on Wednesday that Morrisons’ CEO Dave Potts’ incisive comment that “We stocked more of what our customers wanted to buy” is an early contender for the Lucy Kellaway Award in the FT for Clear Speaking in 2017…here’s how she started her 2016 Golden Flannel Awards (for horrible use of language in business) in Monday’s FT with something more uplifting: a prize for clarity. “I am calling this the Wan Long prize, after the Chinese meat magnate who once uttered the clearest sentence ever spoken by a CEO: “What I do is kill pigs and sell meat”. Mr Wan will surely approve of my winner, a BNSF railway executive in the US who told a conference: “We move stuff from one place to another””.
• Trade Press: It’s good to have Retail Week and Drapers magazines back today and, to show that there’s life in the old dog yet, Drapers has had a redesign and, although we hate re-redesigns of newspapers and magazines, the new-look Drapers looks good. The front cover is a double-page photo of all the young Retail executives in the Drapers “Next Generation” survey (a hand-picked “30 Under 30” group of ambitious young retailers). The main News story in Drapers is that “Online triumphed over bricks-and-mortar during the festive season, as multichannel operators and pureplay etailers enjoyed “bumper” sales in the run-up to Christmas”. The front cover of Retail Week is a graphic illustrating the main feature about “The consumer in 2017: How will shoppers behave in the year ahead?”. The main News story is that the December trading peak outshone Black Friday and there is also an • News Flow Next Week: The back of the post-Christmas trading updates was broken yesterday, but there’s still plenty going on next week. Tuesday brings the Greggs Q4 update and Wednesday brings the Burberry Q3 and the Game Digital AGM. On Thursday we get the Halfords Q3, the N Brown Q3, the Pets At Home Q3 and, in the Retail Property world, the British Land Q3. Then Friday brings the Bonmarche update and the ONS Retail Sales for December. |
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