Langton Capital – 2017-03-07 – Just Eat, Paddy Power, Wagamama, retail sales & other:
Just Eat, Paddy Power, Wagamama, retail sales & other:
A DAY IN THE LIFE:
It’s getting very light in the morning these days.
Of course, when the clocks go forwards, that will reverse for a while but it does seem like a waste of daylight and that will only get more pronounced as we get closer to 21 June.
Which, although it goes against the Brexit mood somewhat, suggests that maybe there is a case to be made for leaving the hour forward and adopting Summer Time in the winter and super-Summer Time in the winter.
But throw in the words ‘European Time’ and suggest abandoning Greenwich Mean Time and you can be sure that that will never happen. On to the news:
PUB, RESTAURANT & DRINK MANUFACTURERS:
• Just Eat, a global platform for online food delivery that now operates across 13 markets, has posted a 52% rise in revenues to £375.7m for the year to 31 December. Underlying EBITDA grew by 93% to £115.3m and net operating cash flow rose by 31% to £97m, while adjusted basic EPS rose to 12.2p (+85%), putting the high-growth group of a PE rating of just over 41x.
• Just Eat stepped up its strategy of bolstering organic growth with M&A by acquiring and integrating businesses in Italy, Spain, Mexico, Canada, and the UK in the period, meaning it processed orders worth over £2.5bn and saw active users growth of 31% to 17.6 million (FY15: +65%). Commenting on the group’s outlook, CEO David Buttress said: ‘Just Eat is in a very strong position, operationally and financially. We have the right business model to continue capturing further share of the £23.1bn of delivered food ordered in our markets. In 2017, despite another year of planned investment, we expect material growth in both revenues and Underlying EBITDA of between £480.0 – 495.0m and £157.0 – 163.0m respectively.’
• Budget lobbyists get in a few last cracks. Chancellor may have more to spend (or at least less to cut) in tomorrow’s Budget than earlier feared.
• The BBPA has once again warned that a return to beer tax hikes in the upcoming Budget would be a major setback for brewers and pubs. Many pubs are already grappling with rising input prices, labour costs, business rates, and auto-enrolment for pensions. The trade body is pushing for a 1p duty cut, which would see the £91m beer duty loss almost entirely covered by £89m in extra revenue from boosted employment and other taxes.
• BBPA Chief Executive, Brigid Simmonds, commented: ‘Our beer taxes are already three times the EU average, and pubs face big new cost challenges this year. British beer sales have stablised since the abandonment of huge tax rises led to huge sales losses under the beer duty escalator. Any return to tax hikes would be a massive setback for the industry and the 900,000 people we employ.’
• The ALMR has reiterated its call for sector-specific action on business rates and argues that the upcoming rates revaluation disproportionately targets pubs. ALMR Chief Executive Kate Nicholls said: ‘The nature of a fiscally neutral revaluation means that wherever there are decreases in rateable value, there must also be increases to balance this. Pubs, bars and restaurants are the businesses set to shoulder this substantial and inequitable burden. Phone calls from licensees to the BII helpline underline the scale of the problem: with sample of 30 pubs reporting over £300,000 worth of increases in rateable value compared to just £28,000 worth of reductions.’ Not mentioned by most commentators is that rates across large swathes of the North of England should have gone down.
• Wagamama has reported turnover +15.7% at £64.2m for Q3. LfL sales were up 9% in the UK.
• The Food and Drink Federation’s (FDF) latest survey suggests that business confidence among food and drink manufacturers has fallen. Concerns with regards to increased input costs, squeezed margins, and Brexit-related uncertainty appear to be weighing on the sector. The trade body argues that there is still opportunity for growth, however, should the Chancellor help to mitigate the sector’s challenges with measures to support food and drink exports and R&D investment.
• Fleurets has been named the active Leisure and Hotels agent for 2016 by EGI. Managing Director of Fleurets, Graeme Bunn, stated that the company is ‘thrilled’ to be awarded the title.
• Discounter sales growth in the UK is reported to be set to slow as new stores are taking sales from old. The latest Colliers International/MSCI UK supermarket investment report suggests that Aldi will be the most directly impacted.
• If the above is a) true and b) feeds through to fewer new openings, then stalled discounter growth should come as something of a relief to the UK’s large grocery operators. It is unlikely that any discounter stores (at least in the medium term) will be demolished, but the market could at least stabilise at acceptable levels. Langton wrote 2-3yrs ago that discounter levels of sales in more ‘mature’ markets had tended to level off at around 18% (or less). Aldi & Lidl alone have a little more than 11% at present.
• The value of retail sales, not including food, has fallen in the three months to the end of February for the first time since 2011. Both the British Retail consortium and Barclayscard figures showed consumer spending was slowing and that there was an increasingly focus being placed on essential items instead of leisure and discretionary goods and services.
HOLIDAYS & LEISURE TRAVEL:
• PwC’s hotel outlook forecasts an increase in ADR of 2.4% for London hotels in 2017, leading to RevPAR growth of 3.3% (£120). This comes after a strong end to 2016 for the industry which was influenced by the weak pound and stronger than predicted economic growth.
• For London hotels in 2018, PwC forecasts a further 2% increase in ADR, driving a RevPAR growth of 2.5%.
• For the regions in 2017, PwC indicates that a combination of overseas and domestic demand as well as a resilient economy will lead to RevPAR growth of 3% supported by an ADR increase of 2.9%.
• The 2018 forecast shows regional growth slowing down, with RevPar increasing by 1.7% and ADR up 1.5%.
• Finally, PwC anticipate deal volume in the industry to increase from c£3.7bn in 2016 to c£5bn in 2017.
• Eastern European hotels increased by 11% in value in 2016, while those in western Europe plateaued, per HVS. Nicole Perreten, senior associate at HVS stated ‘Many Eastern European markets are benefitting from the misfortune of Western Europe’.
• French air traffic controllers have embarked on a five-day walkout that will cause ‘severe delays’ and over 1,000 flight cancellations. British Airways has said ‘Unfortunately in addition to cancelling some flights to and from France, other short-haul flights may also experience some disruption, given how many flights would normally use French airspace.’
• President Trump’s travel ban resulted in a 6.5% reduction in flight bookings to the US in its first week. A survey conducted by the ACTE in February found that Trump’s ban was creating ‘fear and uncertainty’ in the business travel industry. The travel ban has since been suspended but the President intends to reinstate a revised ban this week.
• Hoteliers and investors are fighting Airbnb by launching a campaign to argue that short-term lets in apartment buildings across France are illegal. Short-term rentals of more than 120 days a year require specific authorisation in the country and are ‘generally… incompatible with French co-ownership rules’ according to Erwan Le Douce-Bercot, a partner and head of real estate for France at law firm Jones Day.
• Newcastle and Southampton have been unveiled as the 2018 homeports for Tui Discovery, a Thomson Cruises’ ship. Richard Sofer, managing director, said ‘The move to bring Tui Discovery to both the north and the south of the UK also shows our commitment to offering choice and flexibility to our customers’
• Paddy Power Betfair reports FY numbers to end-Dec, says revenue +18% to £1.55bn ‘with double-digit growth across all four operating divisions’
• Paddy Power says underlying EBITDA +35% to £400m ‘with EBITDA margin increased to 26% from 22%’
• Paddy Power reports underlying operating profit & EPS both increased 44%, to £330m and 331p per share, respectively. Total dividends for the year 165p.
• Paddy Power says it has completed the ‘key integration actions and operational changes required to realise cost synergies’ during 2016
• Paddy Power on current trading. Says ‘trading in 2017 to date has been in line with our expectations, with Group sportsbook stakes up 22% or 12% in constant currency’. CEO Breon Corcoran reports ‘2016 was a transformational year for Paddy Power Betfair with much of the integration of the businesses completed sooner and more efficiently than expected.’ He says ‘we have created a business with considerable scale that is stronger and better able to compete than either of the individual legacy companies. The Group is well positioned to deliver sustainable, profitable growth’.
FINANCE & MARKETS:
• The BRC has suggested that, whilst spending on food in the UK is rising, spending on non-food items is now on the slide. This could be a cause of some concern going forward as it has been consumer spending that has been largely responsible for keeping the UK’s economy going in recent months. Inflation is beginning to drive up the price of some products and consumers may be becoming somewhat more selective re their spending.
• UK new car registrations fell 0.3% in Feb this year vs last. They rose by a strong 2.9% in January
o The Times has reported that Vauxhall workers will be asked to take a cut in their pensions before any decision is made on the future of UK plants
o PM Theresa May has told GM that she wants to see jobs stay in the UK. Whether GM cares or not is an interesting point. The PM’s office said ‘the Prime Minister set out to Ms Barra the importance of the Vauxhall brand to the UK and reiterated her desire for the jobs at both plants to be secured for the long term.’ It continues ‘Ms Barra made clear that Vauxhall would remain a British brand and that the deal would recognise and respect all agreements regarding the workforce.’
o Business Secretary Greg Clark has said he is “cautiously optimistic” about the future of Vauxhall in the UK. The car group now appears to have too many plants across Europe. Some are likely to close. Nothing will happen for at least 2yrs.
• Brent $55.87 vs $55.60 yesterday
• Sterling down vs US$ at 122.39c (was 122.83c). Also lower vs Euro at 115.61c (yesterday 115.84c)
• UK 10yr gilt yield up to 1.22% from 1.20% on Friday (1.18% Monday)
• World markets: UK down on Monday. Europe also lower & US down. Far East up in Tuesday trade
• Later tweets: Bulk milk price continues to increase. Farmgate price across UK now >26p per litre. It was below 20p in June last year
• Jobs akimbo. Nothing to do with Brexit but Vauxhall jobs threatened & Edinburgh finance jobs going, some Mini production moves to Germany
• 90% chance of rate hike in UK next week. UK gilt yields still sluggish but long upward yield march has commenced
• Menu engineering needed as costs increase per Lynx. Cheaper products & Shrinkflation likely to feature…
• B&Q to experiment with High Street DIY stores. Has spent 3 decades putting 000s out of business! But if SBRY, TSCO etc. can do C-stores…
• Fat Face hit by costs post Sterling weakness. Looking to restructure debts. Unlikely to be the last co to seek to do so
RETAIL NEWS WITH NICK BUBB:
• BRC-KPMG Retail Sales for February (4 weeks to Feb 25th): We flagged yesterday that another weak LFL sales outcome was expected for last month and that we had pencilled in -1.0%, but today’s survey shows that that overall LFL sales were “only” down by 0.4% (after -0.6% LFL in January). In terms of the key Food/Non-Food split, the precise outcome for last month is, as usual, buried in the 3 month moving average, but the BRC highlighted that “a continuation of the slowdown in Non-Food sales was marginally offset by slightly stronger growth in Food sales”. Food LFL sales were up slightly last month (boosted by good Valentine’s Day trade), so Non-Food must have been over 1% down LFL overall in February, despite good Furniture sales. Clothing and Footwear sales were disappointing again, although the later fall of Mother’s Day this year did hold things back a bit. Interestingly, overall
• New Car Sales Watch: February may have been another mixed month for “big ticket “ retailers, but, as an indicator on the state of discretionary spending, it is worth noting that the February new car sales figures from the SMMT yesterday slipped slightly overall, with registrations down by 0.3% to c83,000 cars. And, interestingly, this was driven by private buyers, rather than fleet demand: fleet demand was 3.3% up, but private demand was 4.4% down. But Mike Hawes, SMMT Chief Executive, said: “February is traditionally one of the quietest months of the year and a steady performance was expected following another year of record growth in 2016. We expect to see the market bounce back in March as buyers take advantage of the new ’17-plate, as well as the last chance to buy a car eligible for current lower VED rates before they change on 1 April”. The big UK dealer Lookers will give an
• News Flow This Week: The latest Kantar grocery market data is released at 8am (for the 12 weeks and 4 weeks to Feb 26th). Tomorrow brings the Lookers finals, the start of the big “Retail Week Live” industry conference in London and the Budget. And then Thursday brings the Morrisons finals, the John Lewis Partnership finals and the Signet Q4 results, plus the prestigious “Retail Week” Awards in the evening.