Langton Capital – 2017-01-24 – Marston’s, Fevertree, 2017 outlook & other:
Marston’s, Fevertree, 2017 outlook & other:A DAY IN THE LIFE: Bit busy today, comment tomorrow. On to the news: MARSTON’S Q1 TRADING UPDATE: • Q1 Update – 16wks to 21 Jan 2017: • Marston’s has this morning updated on trading for the 16wk period to 21 Jan 2017 and our comments are set out below: • Trading: • Marston’s Premium & Destination pubs have increased LfL sales by 1.5%. Food is up 0.6%, drink sales are 1.4% higher & accommodation has traded very strongly • The group is vs a 3% LfL increase for the same period last year • Margins will be broadly in line with last year. The group has not been vouchering. M&B recently commented that margins would be lower (though JDW has seen them rise) • The group will open at least 20 new pubs and 5 lodges in the current financial year • Taverns LfL sales are up 1.5% vs 3% last year • Leased profits are up by 2% • In all cases, the group has outperformed its peer group as the Coffer Peach Tracker has sales for groups outside the M25 broadly flat over the same period • Own-brewed volumes are +3% and margins at the brewing operation are slightly higher • Balance Sheet, Cash Flow & Debt: • As mentioned, the group will open c20 new units this year and 5 lodges • More on Trading, Conclusion: • Whilst it’s still early in the financial year, Marston’s has traded well over the crucial Xmas period and forecasts are likely to be unchanged • It says ‘our performance in the financial year to date has been encouraging, including good trading over the Christmas and New Year period despite tough comparatives.’ • Margins look to be stable across the group’s pubs and are somewhat higher in brewing • The group says ‘since it is still early in the financial year our expectations for the full year are unchanged.’ • CEO Ralph Findlay reports ‘we traded well over the Christmas period with like-for-like sales growth for the fifth successive year despite tough comparatives.’ • Mr Findlay says ‘in Brewing, we have continued to outperform and once again have achieved good growth with a particularly strong performance in the off-trade.’ • Langton Comment: Marston’s shares are trading at c9.6x current year EPS and they yield 5.5%. • This, particularly for a freehold-based group, would appear to be factoring in a consumer slowdown that is not yet evident and which may not happen. • The consensus view is that consumers will be squeezed this year but, as we have commented a number of times, in the absence of big job losses, we could see large ticket spending being postponed whilst small ticket spend holds up. • Indeed, if some EU workers return home, there may be a shortage of labour in the UK over the coming years and, whilst this is not good news for inflation, it could buoy real wages. • Overall, we consider Marston’s shares to offer good value. • We have suggested before that the winners and losers in respect of sales (JDW & MARS vs RTN and perhaps MAB, arguably GNK now) are beginning to make themselves plain with the former comfortably beating the Peach Tracker on a regular basis and the latter underperforming – at least until recently in the case of MAB. • This is not achieved without effort and, amongst the first as it was to dispose of tail end units, to identify new build as an area of growth and to embrace franchises and everyday low pricing, Marston’s has worked hard over several years to achieve its current position. • Marston’s now has a smaller number of pubs overall but it has improved the quality of its estate markedly. It has transformed its business over recent years and it is now beginning to reap the benefits. Its tail has gone and its >150 new-build pubs are trading strongly. • Marston’s is growing EPS and cutting its debt. Its shares now trade on a single-digit multiple for the current financial year. They offer a 5.5% yield. Despite consumer spending concerns, they offer extremely good value. PUB, RESTAURANT & DRINKS PRODUCERS: • Fevertree updates on FY trading, says trade ‘accelerated in H2’ & will be +75%. • Fevertree says ‘FY revenue is expected to be circa £102.2 million, reflecting growth of 73% on 2015.’ • Fevertree says UK sales in H2 were +118%. Says Continental Europe +39% for the full year. CEO Tim Warrillow comments ‘we are delighted with our performance in 2016. Fever-Tree continues to gain market share in both the on and off trade and while we have experienced strong growth across all regions, our performance in the UK has been particularly notable culminating in a very strong Christmas period.’ He says ‘Fever-Tree continues to pioneer and lead the premium mixer category. We believe the global opportunity remains in its early stages and will continue to be supported by the long term premiumisation of the spirits sector as well as the growing movement towards mixed and long drinks. As a result, the Board remain confident of the future outlook for the business.’ • BDO says that 2017 ‘promises cost pressures right through the P&L as well as operational challenges with regard the availability of people.’ • BDO: Says ‘there is little doubt that 2017 will be a difficult year to navigate, but that will present opportunities to those with flexibility and rigour in their operations and finances.’ • BDO: Says technology will be a feature but says ‘consumer confidence and trading conditions [has] been affected by inflationary pressures, real wage increases, market factors and, of course, technology.’ • BDO: Says ‘expectations are that the government will chart a course of limited fiscal stimulus. It is committed to spending on infrastructure projects in an attempt to “future-proof” the economy over Brexit, perhaps to the tune of £15 billion, with pension fund-backed investments, ready-to-go road and rail projects and cyber security likely to feature.’ • BDO says ‘UK economic growth has slowed in the last year. Yet as manufacturing and construction have struggled at times, services have gone from strength-to-strength such that GDP growth has been steady in 2016.’ • Match Pint & CGA Strategy have reported that ‘football, and specifically the Premier League, is the biggest driver of sales in the on trade.’ They conclude that ‘the average pub saw incremental sales of over £34k last season.’ • Cake & eating it. The Punch Tenant Network has called on the pubs code adjudicator to clarify what will happen if Heineken’s bid for Punch succeeds. The network suggests that a successful bid could trigger MRO options for tenants. This is not clear from the legislation, which focuses on events such as rent reviews, new leases and sharp price rises. Heineken reports in the PMA ‘as we have consistently said, should we be successful in this acquisition, we will start with what is right for each of the pubs joining us; and we will work collaboratively with licensees to ensure they have the right drinks on offer to suit the specific needs of those pubs.’ • The ALMR ‘has welcomed the Government’s industrial strategy green paper and affirmed that the UK’s licensed hospitality sector can play its part in revitalising the UK’s economy.’ • The BBPA’s Brigid Simmonds has welcomed the launch of the Modern Industrial Strategy by the Prime Minister. Simmonds commented: ‘With the right tax policies, in particular a cut in beer duty and a fairer business rates regime, there is great potential for investment that boosts beer exports, as well as the pub estate, with huge potential benefits for our tourism industry.’ • English vineyards are among the top ten businesses likely to be hit hardest by business rates hikes from April this year, according to a league table seen by The Times. • McDonald’s has updated on Q4 trading suggesting that the success of its all-day breakfast has led to an erosion of later sales • McDonald’s reports Q4 LfL sales in US down by 1.3%. Customers may be switching to cheaper meals. • McDonald’s reports worldwide LfL sales +2.7% in Q4. For the whole of last year, LfL sales rose by 3.8%. CEO Steve Easterbrook reports ‘throughout 2016, we worked diligently to lay the groundwork for our long-term future.’ He says ‘our efforts yielded a more streamlined and focused organisation that generated solid fourth quarter and full year results, including our strongest annual global comparable sales growth since 2011 along with record franchisee cash flows in many of our major markets.’ • McDonald’s net income fell 1% to $1.19bn in Q4 with revenues down 5% at $6bn. The group is to focus on increasing traffic in 2017. • FT reports that the José Cuervo IPO is back on again. It is expected on February 8. Cuervo has 27.4% share of the US tequila market • BrewDog’s newly appointed UK and international managing director Gareth Bath has told MCA the brewer will continue to focus on the ‘freshness’ of its beers despite its ambitious plans for 2017. • The Wine and Spirit Trade Association (WSTA) has called on the Chancellor of the Exchequer to reduce wine and spirit duty by 2%. WSTA chief executive Mike Beale said: ‘Politicians will need to see first-hand the breadth and value of the industry to the UK if they are to understand the positive impact a 2% duty cut can have for our businesses and consumers. The only way they can do this is if businesses themselves engage directly with their local representatives. On top of the UK’s very high excise duty, wine has been singled out for worse treatment for a number of years and has been hit with historic duty rises of 56% since 2007.’ LEISURE TRAVEL & HOTELS: • Marriott International says that 2016 was its strongest year of rooms growth in its history, with a record 55,000 rooms opened last year, including the 381,000 gained via the Starwood acquisition. ‘2016 will go down as a remarkable year in Marriott’s history. We completed the acquisition of Starwood and posted record growth that underscores the strong preference that owners and franchisees have for our unmatched brand portfolio, best-in-class sales and marketing platforms, and the most dedicated associates in the industry,’ said Arne Sorenson, Marriott’s President and Chief Executive Officer. • The US hotel industry occupancy was flat (+0.1% to 65.5%) year-on-year in 2016, although a 3.1% bump in average daily rate to $123.97 helped RevPAR to rise 3.2% to $81.19. ‘In general, we view 2016 as an average year for the U.S. hotel industry,’ said Amanda Hite, STR’s president and CEO. ‘The three key performance metrics hit record highs, but at the same time, RevPAR growth (+3.2%) was just below the 30-year U.S. average (+3.3%). Looking ahead in 2017, we expect that growth to decelerate further as supply overtakes demand in terms of growth.’ • Peak booking period data from Hitwise has underlined the growing popularity of peer to peer accommodation site Airbnb. The travel insights firm found overall the sharing economy was the fastest-growing segment in travel in the key three-week period from Boxing Day when travel firms traditionally see high volumes of inquiries and sales. • Average UK room rates fell last year, per data from HRS, which shows a nearly 12% drop year-on-year as London lost its title as the most expensive destination in Europe to Zurich. London saw rates drop 9% from 2015 with rooms costing £150 a night in 2016. It remained the UK’s most expensive destination and second most expensive in Europe. Edinburgh (£107) and Manchester (£102) were the second and third most expensive destinations in the UK. • Vacation Rentals specialist website HomeAway says a survey of 1,000 people found that the majority are not intending to reduce their holiday spend as a result of the fall in sterling. • Hyatt Hotels has acquired wellness resorts business Miraval Group from KSL Capital Partners for an initial investment of $215m, with a further $160m to be invested over the next few years. • Spending by tourists to the UK in December increased by 23% as Asian and American Christmas shoppers took advantage of favourable exchange rates. OTHER LEISURE: • AMC Entertainment has agreed to buy the largest cinema group in northern Europe after entering a ‘definitive agreement’ with Stockholm-based Nordic Cinema Group for $929m. The purchase, which is subject to antitrust approval from the European Commission, will be AMC’s third major deal in less than a year, following moves for Odeon (£921m) and Carmike Cinemas in the US ($1.2bn). • Hong Kong-listed casino operators’ shares were up after Macau posted a 9% increase in visitors during December. • The Guardian is considering becoming a tabloid and outsourcing printing to a rival such as Rupert Murdoch’s News UK, per Reuters. • Yahoo will complete the $4.8bn sale of its core internet assets to telecoms firm Verizon in the second quarter rather than the first. The deal was thrown into doubt last year after Yahoo revealed two of the biggest data breaches in history, with hundreds of thousands of users affected. • Hollywood Bowl Group has invested £400,000 in the refurbishment of Bowlplex on Brighton Marina, which will now be called Hollywood Bowl. Steve Burns, CEO at The Hollywood Bowl Group said: ‘The Brighton rebrand is the fourth significant investment we’ve made in the Bowlplex estate since its acquisition last year, as part of our overall plan to rebrand the Bowlplex estate.’ The centre is a ‘new generation’ style of Hollywood Bowl, including 26 pre-bookable, fully computerised lanes, four exclusive VIP lanes, a new ‘Hollywood Diner’ concept and upgraded bar, and new décor. • LandSecs is selling its Nottingham leisure scheme Cornerhouse to Orchard for £65m. • Bernie Ecclestone is to stand down as CEO of Formula One. He is 86yrs old. FINANCE & MARKETS: • EY Item Club says UK will have 3yrs of ‘relatively slow growth’ as consumer spending is depressed & exports rise • A poll of economists conducted by Reuters has suggested that the Bank of England will hold rates at their current levels until 2019. • Donald Trump has torn up the Trans-Pacific Partnership • World markets: UK & Europe down yesterday & US also lower. Far East down in Tuesday trading • Brent little-changed at around $55.50 per barrel • Sterling down a shade at $1.2506. Trading at 116.3c vs Euro • UK 10yr gilt yields down at 1.37% (was 1.43%) with US 30yr treasury yields down by 6bps at 2.99%. • Eurozone consumer confidence rises in January TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS: • $MARS Q1: Prem & Dest +1.5% LfL, leased +1.5%, tenanted +2%, brewing +3%. Margin to be in line or up on last year • $MARS Q1: Wet sales good, accommodation even better. Co to open at least 20 new pubs & 5 lodges in current financial year • $MARS Q1: Group has outperformed its peer group. Coffer Peach Tracker has sales outside M25 broadly flat over same period • $MARS Q1: Says ‘our performance in the financial year to date has been encouraging, including good trading over Xmas & New Year’ • Fevertree updates on FY trading, says trade ‘accelerated in H2’ & will be +75%. UK sales in H2 +118% • BDO says that 2017 ‘promises cost pressures right through the P&L plus operational challenges with regard availability of people.’ • BDO: Says ‘there is little doubt that 2017 will be a difficult year to navigate’ • Match Pint & CGA Strategy have reported that ‘football, and specifically the Premier League, is the biggest driver of sales in on trade.’ • Cake & eating it. The Punch Tenant Network has called on the pubs code adjudicator to clarify situation post any Heineken takeover • McDonald’s has updated on Q4 trading suggesting that the success of its all-day breakfast has led to an erosion of later sales • McDonald’s reports Q4 LfL sales in US down by 1.3%. Customers may be switching to cheaper meals. • McDonald’s net income fell 1% to $1.19bn in Q4 with revenues down 5% at $6bn. The group is to focus on increasing traffic in 2017. • Average UK room rates fell last year, per data from HRS, which shows a nearly 12% drop year-on-year • EY Item Club says UK will have 3yrs of ‘relatively slow growth’ as consumer spending is depressed & exports rise • A poll of economists conducted by Reuters has suggested that the Bank of England will hold rates at their current levels until 2019. RETAIL NEWS WITH NICK BUBB:
• Dixons Carphone: We highlighted yesterday that, ahead of today’s trading update from Dixons Carphone, the hard-working IR team had circulated the following consensus for LFL sales growth in the key 10 weeks ended 7th January: the UK +3.5%, the Nordics +1.0% and Southern Europe +1.0% (to give a group average of +2.5%). Needless to say, that was substantially beaten, with the UK outcome +6% and Southern Europe +5% (mainly Greece), but the Nordics was -1%, disappointingly, because of a focus on improving margins, “although the Nordic market was a little quieter than normal across the period”. Interestingly, there is a big caveat to the UK success, as management point out that LFL revenue improved by c4% as a result of sales transferred from closed stores. This mainly affected Electricals, where year-on-year LFL sales for these products were +9%. That implies that the key driver for the
• Retail Sales Watch: We flagged yesterday that the ONS Retail Sales figures for December were again boosted by improbably strong 18.5% growth for “Small Retailers”, which meant that the Office of National Statistics reported total sales up by 7.1% last month, whereas the BRC-KPMG measure of gross sales growth (which focuses on Large Retailers) was only 1.7%…So, who was right? Well, the new consultancy group, Retail Economics (RE), which is run by the excellent Richard Lim (who used to be in charge of the monthly BRC-KPMG Retail Sales survey), has just come out with its own overview and their estimate is that gross Retail sales rose by 3.4% last month, year-on-year (non-seasonally adjusted, ex-petrol), which is clearly much closer to the BRC than the ONS (aka the “Planet ONS”). In fact, RE thunders that “We find it increasingly difficult to rationalise the incredible performance of |
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