Langton Capital – 2017-05-26 – Restaurant Group Q1, Britvic, Fevertree & other:
Restaurant Group Q1, Britvic, Fevertree & other:
A DAY IN THE LIFE:
So, it’s Friday, the sun is shining & it’s a long weekend.
And subsequently it’s another 4dy week next, we could get quite used to them, and it’s half-term. Bits of Langton will be on a beach next week but do not despair, the email will continue, albeit perhaps in a slightly truncated form. On to the news:
RESTAURANT GROUP – AGM & Q1 TRADING UPDATE:
• Restaurant Group LfL sales down again but says outcome for year should be in line with expectations
• Restaurant Group will update on trading at its AGM later today saying LfL sales for the 20wks to 21 May are down 1.8%. The group’s LfL sales were down 2.7% in Q1 last year
• RTN reports total sales, including the impact of new openings, for the first 20wks are down 1.5%
• RTN reports in its first 20wks ‘we saw strong performances from our Concessions business, benefitting from strong growth in passenger numbers, and from our Pubs business, helped by favourable weather.’
• RTN reports ‘we continue to be focused on the turnaround of the Leisure businesses which benefited from cinema admissions having a good start to the year.’ The group says ‘over the remainder of the year, growth in passenger numbers and cinema admissions is anticipated to moderate.’
• RTN says ‘the implementation of our strategy is progressing well as we make the required investments in price, marketing and our offer.’
• Re the outlook, RTN reports ‘2017 is a transitional year’. It says ‘we continue to address the competitiveness of our Leisure businesses and are focused on achieving a sustainable volume-led turnaround.’
• RTN says ‘where opportunities to accelerate our progress present themselves, we will invest appropriately.’
• Re numbers, RTN comments ‘we continue to expect to deliver a PBT outcome for the full year in-line with current market expectations.’
• RTN stresses its ‘balance sheet remains strong and continues to benefit from good cash generation from our operations.’
• Langton comment: RTN is cutting prices, closing marginal units and focusing on value and in re-acquiring customers that it has lost over recent years.
• This is a sensible (and indeed the only really viable) strategy and the group says that it is making progress.
• However, delivery and execution remain key and, in an industry where much of the competition remains more relevant, nimbler and arguably more sharply focused on what the consumer really wants, this is not a given.
• Bid rumours (from PE, good cash flow etc.) will surface from time to time.
• The group’s shares trade on a recovery multiple of around 16x this year’s earnings. Arguably, this reflects a fair balance between the upside (should the group recover, maybe in FY18 but perhaps more likely in FY19) of should it be bid for versus issues that would emerge if its recovery were to be derailed. We see value elsewhere.
PUB, RESTAURANT & DRINK PRODUCERS:
• Pepsi is to place up to all of its 4.5% stake in Britvic in the market. The company is to sell up to 11.8m shares through an accelerated bookbuild placement with institutional investors. Pepsi reports ‘Britvic serves as PepsiCo’s bottler and distributor in the United Kingdom and Ireland and also manufactures and distributes its own portfolio of leading brands. PepsiCo’s decision was made as part of a routine review of its asset portfolio and has no impact on PepsiCo’s longstanding and valued bottling relationship with Britvic.’
• Pepsi says ‘Britvic has been a terrific bottling partner since 1987 and we look forward to the continuation of this mutually beneficial relationship.’ Britvic CEO Simon Litherland comments ‘the relationship between Britvic and PepsiCo is longstanding and has been mutually beneficial to both parties. We have been the sole bottling partner for PepsiCo in Great Britain for the last 30 years and in that time, we have delivered significant growth for PepsiCo, led by Pepsi Max, and successfully expanded our bottling agreement into new categories. Both Britvic and PepsiCo are committed to continuing to build on the success we have achieved to date into the future.’ Britvic will not receive any proceeds from the Placing.
• Fevertree announced yesterday that founding shareholder Charles Rolls sold 4.5m shares in the company at £16.25. Mr Rolls raised some £73m. He still owns some 12.9m shares in the £2bn market cap company. Mr Rolls that he will not, without Investec’s prior written consent, dispose of further ordinary shares in the Company for a period of 6 months (subject to certain to customary exceptions).
• Is Fevertree really worth £2bn? Founder Charles Rolls for one is taking some money off the table.
• Net migration into the UK fell sharply last year. Some F&B operators have reported that EU staff are going home. The Institute of Directors reports ‘alarmingly, the fall in net migration is being driven as much by people leaving as by fewer arriving. This is a big worry for employers who risk losing key members of staff in positions that cannot easily be replaced from the home-grown pool available.’
• Derby Brewing, which has cut its price by 60% and extended its Crowdcube offer by 14dys to 31st May reports re its fund raise that ‘we continue to be delighted with progress, as momentum continues to build, with £30,000 pledged yesterday, we would like to thank all investors for their investment and encourage anyone still considering investing or increasing their investment to get on board quickly, as we would hate anyone to miss out with only 6 days of our campaign remaining.’
• Elsewhere on Crowdcube, Vita Mojo is overfunded and Redchurch Brewery continues to raise money.
• BBPA comments on the Tower Hamlets postponement of its late-night levy saying ‘we had responded to the consultation and urged the Council not to go ahead with these plans. Whilst the delay is welcome, I will be urging the Council to have a fundamental rethink of the policy, taking the opportunity to reconsider and listen to views of local businesses especially given that a House of Lords Committee has recently published a report criticising the policy and recommending that the late-night levy is abolished.’
• The chief executive of Brakspear, Tom Davies, has announced targets of 20 managed sites by 2020, the MCA has reported. Brakspear operates nine managed units within an estate of 130 pubs so far, with two more to open this year.
• TGI Friday’s UK has seen LfL sales increase 10% in the last year. The private equity firm behind the chain, Electra Partners, has seen its investment in the company increase 33% since September 2016 to £120m.
• Wagamama opened its first restaurant in Italy yesterday as the Japanese-inspired chain looks to grow throughout Europe. The group now operates 170 restaurants in 21 countries.
• Amazon opened its seventh US bookshop in New York on Thursday and plans to have 13 stores by the end of the year. The online shopping site, which opened its first bookshop in Seattle in 2015, has also been cultivating a physical presence in grocery and convenience shops.
• JD Wetherspoons has agreed terms for three vacant properties on Oswald Road to extend Scunthorpe’s Blue Bell Hotel, making it one of the chain’s largest venues.
• Conviviality nearly doubled full-year sales to £1.5bn for the 52 weeks to 30 April in what has been a transformational year for the group. Conviviality has shifted from its foundations as a franchised off licence business into the UK’s leading drinks wholesaler and distributor, with recent acquisitions Bibendum and Matthew Clarke performing well. The group’s three arms, Conviviality Direct, Conviviality Retail, and Conviviality Trading reported sales increases of 6.4%, 6.1%, and 1.0% respectively.
• Diana Hunter, Chief Executive Officer of Conviviality commented: ‘We have come to the end of an unprecedented year of change and I am pleased to report a strong trading performance for the Group and for each of its business units. It is encouraging to see our customers and suppliers benefiting from the skills and the expertise of the enlarged Group, its scale and reach and its positioning as the UK’s leading drinks wholesaler and distributor.’
• Lavazza has bought an 80% stake in Kicking Horse Coffee in Canada, valuing the firm at US$160m. The Italian coffeemaker stated the move would help it grow in North America.
HOLIDAYS, LEISURE TRAVEL & HOTEL
• Royal Caribbean Cruise senior vice-president, Gavin Smith, has said that the cruise industry can benefit from the capacity squeeze in the western Mediterranean by responding to early demand from holidaymakers.
• Best Western has acquired Sweden Hotels for an undisclosed sum. Sweden Hotels has 59 properties in its portfolio, meaning that Best Western will now have 135 hotels in Sweden making it the largest hotel brand in the country.
• Increases in Hotel ADR has driven revenue growth for US hotels for the week ending 20th May, despite flat occupancy levels. Data from Hotel News Now has found that ADR rose 1.5% to $127.91, RevPAR climbed 1.5% to $90.26, whereas occupancy remained steady at 70.6%.
• Partner at law firm K&L Gates Brussels, Philip Torbol, implied that aviation could become the most difficult travel issue during Brexit negotiations. The lawyer said ‘Airlines are what’s most interesting – if there’s a risk, this is where there’s the biggest risk for some disturbance.’
• Luke Johnson has been appointed to the board of Elegant Hotels Group plc as a non-executive director with immediate effect. Chairman of Elegant Hotels, Simon Sherwood said ‘His [Luke’s] wealth of leisure industry knowledge and his outstanding track record of helping companies to achieve their ambitious growth plans will be hugely additive to the Group’.
• Brazilian ride-sharing app 99 has secured a $100m investment from SoftBank.
• Buchbinder, a German car rental business, has been acquired by Europcar Group. Buchbinder has a network of 152 outlets in Germany, of which 18 are airport stations.
• Wizz Air reported profits rise 1% to €225m in the year to March 31with revenue climbing 10% to €1.57bn due to a 19% increase in passengers to 23.8m. The company faced a €17m headwind due to the ‘negative translation effect’ on British pound revenues but said its ‘large and diversified network’ absorbed the hit. Profits for the current financial year are expected to be €250-270m.
FINANCE & MARKETS:
• UK GDP grew more slowly than first thought in Q1 this year. The ONS now believes that it grew by 0.2% (compared with earlier estimates of 0.3%). The ONS reports that there had been a slowdown “in consumer-focused industries, such as retail sales and accommodation”. The consumer is being impacted by rising inflation but there are hopes that growth was stronger in April.
• Car production in the UK fell by 18% in April this year versus the same month last year. The SMMT says that the underlying picture remains ‘strong’. Total production for the year to date is still up 1%. The SMMT reports ‘car production fell significantly in April due to the later Easter bank holiday weekend which reduced the number of active production days that month and also due to unplanned production adjustments.’ It goes on to say ‘overall, British car manufacturing remains in good health with the production outlook still very positive and significant new models due to go into UK production shortly.’
• The number of new homes being built in England is at 10yr highs.
• The CML has reported that mortgage approvals fell in April. It says that house prices ‘are moving sideways’.
• Oil price sharply lower at $51.29
• Sterling sharply lower at $1.2879 and €1.1498
• UK 10yr gilt yield also sharply down at 1.04% (was 1.07%)
• World markets: UK up yesterday (on a weaker Pound) but Europe down. US up but Far East mostly down in Friday trade
YESTERDAY’S LATER TWEETS:
• Later tweets: Oil price up, sugar price down. You win some, you lose some. Though if you’ve got a sweet tooth, petrol’s not such a good substitute
• UK inflationary expectations abating. Consumers expect 2.6% or so next year. May be that Sterling shock is now absorbed?
• Young’s shooting the lights out. LfL sales still running +4.7% into current financial year. Largely freehold estate to die for etc.
• Business models. Don’t make margin your mantra, wow your customer, make it impossible for them not to come back. Think it sounds easy…?
• See e/m for comments on shifting business models. Having a killer offer is easy if just typing words into a spreadsheet. Harder in practise
• Derby Brewing 90% of its way to funding target (having cut its price by 60% in 3wks)
RETAIL NEWS WITH NICK BUBB:
• Nick is taking a well-earned break, back Weds 31st.