Langton Capital – 2017-05-03 – JD Wetherspoon, Escape Hunt, crowd funding & other:
JD Wetherspoon, Escape Hunt, crowd funding & other:
A DAY IN THE LIFE:
Quite a bit going on this morning, what IMSs, IPOs and the like. We’ll move straight on to the news:
JD WETHERSPOON – Q3 TRADING UPDATE:
• JD Wetherspoon has this morning reported on Q3 trading for the period comprising the 13wks to 23 April 2017 and our comments thereon are set out below:
• JD Wetherspoon reports that for the 13 weeks to 23 April 2017 like-for-like sales increased by 4.0%
• Total sales rose by 1.3% over the period, reflecting the impact of pub disposals
• JDW comments that year-to-date like-for-like sales have increased by 3.5% and total sales have increased by 1.4%.
• The group adds that its operating margin in the 13 weeks to 23 April 2017 was 7.3%, compared with 6.4% in the same 13 weeks last year.
• JDW adds that its year-to-date operating margin was 7.8% compared with 6.3% last year.
• Balance Sheet:
• JDW reports that it has opened 9 pubs since the start of the financial year and has sold 36.
• It adds that a further 3 pubs have been closed and are being marketed. JDW says ‘we expect to open one further pub in this financial year. About £16m of exceptional, non-cash losses are expected in this financial year, mainly as a result of the disposal programme.’
• JDW says it ‘remains in a sound financial position. Net debt at the end of this financial year is now expected to be about £70m higher than the level at the last financial year end, mainly as a result of expenditure on freehold reversions (pubs where the Company was previously the tenant) and share buybacks.’
• JDW chairman Tim Martin says ‘as previously reported, the company expects significantly higher costs in the second half of the financial year, mainly for business rates, utility taxes, excise duty and labour.’
• Mr Martin continues ‘in view of these costs and stronger sales comparisons, the company remains cautious about the second half of the year.’
• He adds ‘nevertheless, as a result of better-than-expected year-to-date sales, we currently anticipate a slightly improved trading outcome for the current financial year, compared with our expectations at the last update.’
• The company concludes that ‘as a result of these higher costs the company anticipates it will require like-for-like sales of about 3 to 4% in our next financial year to maintain profits at current levels.’
• Langton View: JDW has continued the trend last seen towards both higher LfL sales and slightly improved margins. This has been driven by self-help and will have been aided by the sale or disposal of a number of bottom-end units over recent months.
• Improved metrics has understandably come as a relief to observers and has driven the company’s shares to all-time highs.
• The group does, however, caution that H2 trading is expected to become a little more challenging and it points out that it needs the first 3% to 4% of LfL sales simply to stand still.
• It is achieving these numbers at present but a glance at the table above will suggest that they (strong LfL numbers) cannot be taken for granted.
• JDW has been buying back its shares and it has been buying in the freehold on a number of previously-leased properties. This has aided earnings.
• We believe that the multi-year march towards lower and lower margins is over and, were it not for higher costs, forecasts would move higher.
• That being said, forecasts are likely for the moment to remain broadly unchanged and the group’s shares, trading at around 18x this year (and next year’s) earnings, look to be relatively fully-priced.
• JDW is a tremendous operator but it remains exposed to the price-sensitive end of the domestic economy. Taking some profits at above ten pounds per share might seem to be a reasonable course of action.
PUB, RESTAURANT & DRINK PRODUCERS:
• FT reports hotels & restaurants are face a ‘staffing and skills crisis without flow of EU workers’. It says that, although a 2yr barista-visa is being considered, it may not go far enough. It says this ‘is an astonishingly complacent idea.’ KPMG has suggested that 23.7% of workers in hospitality are from overseas.
• Crowdcube has reported that Millennia, the video games retailer that had been looking to raise £375k, did not reach its funding target beforet he closing date. Millennia joins Bubble& and Curious Restaurants, both of whom also failed to raise the intended funds.
• Derby Brewing, which is looking to raise £500k on Crowdcube, has updated would-be investors saying it believes the price at which it is offering equity is ‘excellent value compared to many of the previously successful funds on this platform.’ Derby points out that it has ‘an established, profitable business, which has consistently reinvested profits to help fuel significant growth over our trading history.’ Bubble& recently failed to make its target for investment and pulled its issue. Curious Restaurants also pulled its issue last month.
• Ruby Tuesday is to expand into Qatar. The company says it has signed a development agreement with Al Bairaq Trading Import & Export Co. to open units in the territory. CEO Jim Hyatt says ‘international franchising provides a great opportunity for Ruby Tuesday to strategically grow into new markets, leveraging the knowledge and expertise of local area operators.’
• Morrison’s is reported set to cut the price of 1,000 products by an average of 21%.
• Thwaites has announced that The Crown Inn at Pooley Bridge now ‘has a new look following a multi-million investment.’
• Brooklyn Brewery’s Scorcher IPA is to be launched in the UK on draft at pubs and in cans in the off-trade for the first time.
• The Italian mineral water company, San Pellegrino Group, has reported a rise in sales by 5% to €895m in 2016. The strong figures have been attributed to export sale growth, with increases in French and UK sales by more than 10%.
• Jamie’s Italian has created a new delivery-only range at three of its sites in an agreement with Deliveroo, reports the MCA. The new menu will feature 18 pizzas and with be rolled out to a further 22 locations by June.
• Mondelez’s sales fall in its largest markets, Europe and North America, in the first quarter of 2017 due to a stronger dollar. Revenue declined 0.6% to $6.4bn, better than the $6.37bn that had been anticipated by Bloomberg research. Chairman and chief executive, Irene Rosenfeld, said the results were a ‘solid start to the year despite challenging market conditions.’
• Shops discounted vigorously in April to counteract the effects of inflation and to encourage footfall, according to the British Retail Consortium. ‘Shoppers are seeing inflation in travel, fuel and when spending away from home, so retailers are cautious about passing on cost price increases. So there continues to be deflation in shop prices albeit we are already seeing inflation in food,’ said Mike Watkins, head of retailer and business insight at Nielsen.
HOLIDAYS, LEISURE TRAVEL & HOTEL
• The US State Department warned US citizens to be aware of a continued threat of terrorist attacks across Europe, potentially reducing the number of American tourists to the UK. The department warns: ‘Extremists continue to focus on tourist locations, transportation hubs, markets/shopping malls, and local government facilities as viable targets. In addition, hotels, clubs, restaurants, places of worship, parks, high-profile events, educational institutions, airports, and other soft targets remain priority locations for possible attacks.’
• Bookings for 2017 across all Royal Caribbean Cruises brands have hit record levels, with adjusted net income for the first three months of the year more than doubling to $214.5m.
• Airbnb will allow customers to filter search results so that they only display ‘business ready listings’. This update follows Airbnb’s data integration programme with Carlson Wagonlit Travel and American Express Global Business Travel.
• A joint WTTC and Travelport report has forecast that the global business travel industry, currently worth $1.2tn, will grow 3.7% over the next decade. The Asia-Pacific region is expected to grow 6.2% annually until 2027.
• Escape Hunt, one of the world’s largest escape rooms operator, commences trading on AIM under the ticker ESC this morning. Some 10.4m shares have been placed at 135p per share. The company will have a market capitalisation, at the issue price, of £27.3m.
• Paddy Power Betfair has this morning updated on Q1 to end-March saying revenue was +23% at £416m (+15% in constant currency, cc) with ‘growth driven by sports, with sportsbook stakes up 18% (cc +9%) and margins up 1.3ppts. Paddy Power says underlying EBITDA was +87% to £111m and underlying operating profit up 114% to £91m (cc +117%). CEO Breon Corcoran reports ‘reversing the trend of the past two years, results at Cheltenham 2017 favoured bookmakers and this contributed to good revenue growth. Combined with the annualisation of merger-related cost savings and continued focus on operating efficiency, this resulted in a doubling of operating profits in the first quarter.’
• Paddy Power CEO Breon Corcoran adds ‘since then, however, at high profile events such as the Grand National, Premier League football and the US Masters, results favoured customers, and overall gross win margins were weak in April.’ Mr Corcoran concludes ‘a key strategic focus for 2017 is the integration of our technology platforms. This project is on track and we expect both our European brands to be operating on a common platform by the end of the year, at which point customers will start to benefit from increased pace of new product delivery.’
• GoPro have reported sales growth of 19% yoy to US$219m following its restructuring, with a new camera to be released later this year.
• Apple’s iPhone sales have decreased by 1% yoy in Q1. Total sales fell to 50.8m units but revenue from iPhones rose by 1% to $33.2bn, thanks to ‘robust’ sales of the iPhone 7 Plus. The company reported a 4.6% increase in total revenue to $52.9bn, slightly below analyst estimates, with an 18% increase in sales of Apple’s services offsetting the decrease in iPhone sales.
FINANCE & MARKETS:
• UK manufacturing is growing at its fastest pace in 3yrs per the April PMI. The measure rose to 57.3 from 54.2 in March, well above economists’ expectations. Markit says ‘although only accounting for 10% of the economy, the upturn in the manufacturing sector represents some welcome good news after the sharp slowing in GDP seen in the first quarter.’ It continues ‘the big question is whether this growth spurt can be maintained, especially given the backdrop of ongoing market volatility and a number of political headwinds such as elections at home and abroad.’
• The Land Registry has shown that the number of newly-completed ‘luxury’ homes in London has fallen by 41% over the last year. The price of houses in this category has fallen by 8.7% to £1.9m.
• Greece has reached a preliminary agreement with its international creditors the conditions necessary before the next instalment of its multi-billion-dollar bailout can be released
• EU unemployment rate unchanged at 9.5% in March.
• EU manufacturing PMI higher at 56.7 in April
• Oil price down another 50c or so at $50.85
• Sterling little changed at $1.2916 and €1.1811.
• UK 10yr gilt unchanged at 1.09%
• World markets: UK up yesterday with Europe also higher. US markets up but many Asian markets closed today for holidays
YESTERDAY’S LATER TWEETS:
• Later tweets: Manufacturing activity in UK sharply higher but analyst Horizons expresses concern that consumers are set to spend less
• Crowdcube fund raising pulled by Bubble& on back of similar move by Curious Restaurants last month
• Escape Hunt shares set to commence trading tomorrow. Group is amongst largest escape rooms operators in the world
RETAIL NEWS WITH NICK BUBB:
• Halfords/Marks & Spencer: Today’s news from Halfords that CEO Jill McDonald is leaving may not have been a total surprise, as she never seemed completely well suited to the role, and Halfords CEO’s never seem to last long…but it is a shock to see that she is leaving the ranks of FTSE 250 CEO’s to become the MD of Clothing & Beauty at M&S in the autumn, reporting to Steve Rowe! It goes without saying that there is nothing in her CV that would have implied that she was a candidate for this key position, although Steve Rowe himself insists that “Jill’s first-class customer knowledge and great experience in running dynamic, high achieving teams make her exactly the right person to lead this all-important part of our business from recovery in to growth”. Jill McDonald gushes “I have long been an M&S customer and professional fan, so working with the brand was a career
• Sainsbury: Ahead of today’s finals from Sainsbury, the mood music in the City was that the Argos acquisition has gone well so far, but the core supermarket business is performing sluggishly. And CEO Mike Coupe, in the statement, meets the former issue head on by announcing that “We are therefore accelerating our plan to open a total of 250 Argos Digital stores in Sainsbury’s supermarkets and will deliver our £160m EBITDA synergy target by March 2019, six months ahead of schedule”. As for the latter, he insists that “Our food business remains resilient in a challenging market and we continue to innovate in quality and to invest in price”, although Saisnbury admit later on that supermarket sales declined by nearly 2% (Convenience grew by over 6% and Groceries Online grew by over 8%).