Langton Capital – 2017-07-13 – JD Wetherspoon, London hotels, Brexit & other:
A Day in the Life:
A lot going on this morning, hope to comment tomorrow.
RECENT WEBSITE ARTICLES:
• Recent notes – here
• Ongoing tweets, older emails found – here
JD WETHERSPOON Q4 UPDATE:
• Q4 Update – 11w to 10 July 2016:
• JD Wetherspoon has this morning updated on trading for the period comprising the 11wks to 10 July 2016 and our comments thereon are set out below:
• JD Wetherspoon has reported that LfL sales rose by 4.0% in the period under review (11wks to 10 July)
• The group last updated on 4 May when it reported Q3 sales +3.8%.
• Total sales for the 11wk period were up by 3.8%, reflecting the impact of disposals
• Sales to date (to 50wks) are up by 3.4% and LfL sales are up by 5.5% and recent sales trends are shown below:
• Trading update
• The group reports that ‘the full-year operating margin before exceptional items and before a £3.8m gain on property is expected to be around 6.8%, compared to 7.4% last year’
• Balance Sheet, Debt & Outlook:
• JDW reports that it ‘has opened 13 new pubs since the start of the financial year, has sold 29 and has closed 11.’
• It says ‘we expect to open 16 new pubs in this financial year.’
• JDW adds ‘there will be around £13m of exceptional, non-cash losses in this financial year, which are mainly associated with pub disposals and closures.
• Re debt, etc., JDW reports ‘the Company remains in a sound financial position. Net debt at the end of this financial year is currently expected to be around £670m.’
• JDW has bought back 5.7m shares, at a total cost of £39m, since the start of the financial year.
• Chairman Tim Martin reports ‘as most people will be aware, an unusual number of forecasts for the UK economy have been made in the run-up to, and the aftermath of, the referendum. Most of the forecasts from representatives of institutions which are normally responsible for financial stability were extremely negative.’
• He points to bearish comments from the IMF, The Bank of England and The Treasury as well as the CBI and a number of brokers and other companies
• Mr Martin also says ‘the Chancellor of the Exchequer George Osborne repeatedly warned that mortgage and interest rates were likely to rise in the event of a leave vote and threatened an emergency budget to increase taxes and to reduce public expenditure.’
• However, Mr Martin says ‘in my opinion, the above individuals and organisations are either dishonest, or they have a poor understanding of economics, since democracy and prosperity are closely linked and the EU is clearly undemocratic.’
• He says ‘by voting to restore democracy in the UK, I believe the UK’s economic prospects will improve, although it is quite possible that the unprecedented and irresponsible doom-mongering, outlined above, may lead to some kind of slowdown.’
• The JDW chairman concludes ‘in spite of the dire warnings above, Wetherspoon trade strengthened slightly in recent weeks and we consequently anticipate a modestly improved outcome for this financial year.’
• However, he concludes ‘caution should be exercised in extrapolating current levels of sales growth for future years.’
• Langton View: JD Wetherspoon has previously indicated that H2 should see easier comps and this appears to be being borne out by slightly better LfL sales.
• Margins for the year are down, as expected.
• The group has bought back 5.7m shares in the year but debt remains at reasonable levels. The group’s shares have been relatively strong and they now trade on around 17x current year’s earnings.
• Chairman Tim Martin has pointed to ‘irresponsible doom-mongering’ as one of the greatest risks to the economy in the short term but says that JDW’s trading has improved.
• The operator remains best-in-class at what it does but, if the UK does go into (or has already gone into) a recession, then trading could suffer.
PUB, RESTAURANT & DRINKS PRODUCERS:
• The BBPA appreciates the speed with which Theresa May has been appointed PM but notes Brexit ‘still present[s] considerable concerns, to both business and consumer confidence’. Chief executive of the trade body, Brigid Simmonds, adds that, while the government has the tricky task of balancing free trade with free movement, it must also be mindful of regulatory costs already in the pipeline including the National Living Wage and business rates revaluation.
• Deliveroo is set to become a tech ‘unicorn’ once it finalises its fourth capital-raising since the start of 2015, which will likely value the service at over $1bn (£770m).
• Sapient Corporate Finance has advised LGV Capital on the sale and refinancing of Liberation to Caledonia Investments for £118m. Sapient Partner Fraser Anderson commented: ‘Although Brexit appears to have created a degree of turbulence in the markets, deals are still getting done. A strong management team with a clear strategy and attractive growth prospects such as Liberation will continue to generate considerable interest from financial investors.’
• William Borrell, owner of Kentish Town’s Ladies & Gentleman bar, says the vote to leave the EU has inspired a bout of ‘hardcore hedonistic drinking’ in London.
• Pokémon Go, the new augmented reality smartphone game, has gifted savvy US bars and restaurants an increase in trade from passing Pokémon masters. The game creates GPS-based ‘Pokéstops’ where players can pick up virtual in-game supplies, and some operators lucky enough to find themselves adjacent to such locations have been able to harness the increase in footfall.
• The IEA says that leaving the EU should lead to lower food prices as the UK will no longer have to deal with the ‘insidious’ power of a block of French farmers. Its report suggests that food prices in the EU are 17% above world market prices as a result of the CAP, meaning Brexit should allow ‘the vast majority of British people [to] benefit’.
• UK retail sales fell in June on the back of poor weather and the associated poor sales numbers for clothing per BRC/KPMG. The survey says ‘while the ramifications from the Brexit vote may well affect consumer confidence, retailers will be hoping the long-promised heatwave and potential stay-at-home holidays will be enough to drive shoppers back to the high-streets.’
• A snap FT survey suggests that retail sales are bouncing back a little in July. It points out that ‘clear information about the economic impact of Brexit will only start appearing in August. Much depends on companies’ willingness to invest and households’ readiness to make big purchases.’
LEISURE TRAVEL & HOTELS:
• Preliminary STR data indicates London’s hotel market continues to suffer, with a 2.5% increase in supply and a 1.8% drop in demand causing occupancy to fall 4.2% to 84.4%. Average daily rate also fell 1.9% to £155.40, driving revenue per available room down some 6% to £131.17.
• Thomson and First Choice are aiming to ditch traditional holiday brochures by 2020 and will be rebranded as Tui in the second half of next year.
• Spain has been named by Britons as the best holiday destination in the world after 19% of a survey of 1,000 voted it into first place, ahead of Italy (15%) and France (9%).
• Massive investment is required to regenerate neglected coastal communities, according to the British Hospitality Association, which is calling for a ‘seaside tsar’. The BHA says sweeping changes are needed to revive towns suffering from poverty, poor education, aging populations, and sub-standard housing.
• Brexit could cause a tightening of travel budgets as businesses look to ‘hedge the uncertainty’ of leaving the EU, according to the GBTA. The organisation says both domestic and outbound business travel will suffer in the event of a ‘mild recession’, although a weaker pound will make travel to the UK a ‘real bargain’.
• The warning comes as the GBTA publishes its annual travel spend report, which forecasts global business travel to remain resilient, anticipating a 5.8% rise in business travel spend over the next five years to $1.6 trillion in 2020.
• Staycity Aparthotels will continue with its rapid European expansion plans to take the group from 2,700 apartments to 4,000 by the end of this year. Staycity CEO Tom Walsh commented: ‘While the UK’s exit from Europe is likely to cause some uncertainty in both the property and the hotel sectors, particularly when it comes to investment, the UK is strategically an important destination for us to operate within so I can see no reason to change our plans.’
• Finnair plans to have wifi across its long-haul fleet by May of next year and will have its short-haul fleet up to date by 2018, at a cost of c€30m.
• Qatar Airways has announced that it has increased its stake in IAG to 15.01%. It reports ‘non-EU shareholders of IAG including Qatar Airways are subject to an overall cap on non-EU ownership as a result of the requirement for EU airlines to be majority owned by EU shareholders.’
FINANCE & MARKETS:
• World markets: UK mixed yesterday but Europe higher. US markets were up and Asian markets are up in Weds trading
• Oil price sitting around $48.15 per barrel
• The Bank of England Governor Mark Carney has denied in a Treasury Committee speech that he tried to swing the EU vote
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Some of our morning tweets: Brexit vote impact on pub & restaurant trading patchy & inconclusive. Football & weather may be more important
• Issue of capacity is unresolved. Plenty of casual dining units being built but very few, if any, being knocked down.
• A petition of nearly 200,000 people on the subject of term-time holidays means it will be debated in the Commons
• Serviced apartment operators are expanding their businesses via mixed-use developments that combine serviced offices & accommodation
• The IMF has warned that Italy faces two decades of stagnant economic growth. May hit pre-crisis levels in 2025
• Euromonitor International predicts 2.3m less visitors to UK during 2015-2020 as a consequence of leaving the EU.
• British Govt. has said that it believes it can trigger Article 50 without getting parliamentary approval. Some 1,000 UK lawyers disagree
• Markit has said that the UK economy is facing its stiffest conditions in 4yrs with business nervous.
• Interest rates likely to fall Thursday. Moneyfacts say savers (who are they?) should brace themselves for even tougher conditions
• Later Tweets: Coffee price edging up in US$ terms. Arabica up 17% on last 12mths in dollars & more in Sterling. Good job margins are so high
• Sweet commodity prices high (sugar, OJ), grains low (wheat, corn). Also red meat down, white meat, pork, anyway, down
• Counter-intuitive but Euromonitor is suggesting fewer incoming tourists into the UK (despite lower ££) than would have been case pre-Brexit
RETAIL NEWS WITH NICK BUBB:
• Burberry: Today’s Q1 update (for the 13 weeks to June 30th) flags that underlying Retail sales were only flat, but the embattled CEO Christopher Bailey seems quite pleased with that and. to be fair, the LFL sales decline of 3% (which neatly offset the net new space contribution of 3%) was not quite as bad as the City had feared. All three regions experienced a “low single-digit percentage” LFL sales decline, although Burberry note that the UK, which is their largest market in the European region, improved in the final weeks of the quarter, to deliver “mid single-digit percentage” comparable sales growth. And interestingly, Burberry conclude their update by flagging that “Following the recent announcements about new leadership roles, we are now in a position to commence the previously announced share buyback programme of up to £150m starting in FY
• Poundland: Ahead of tonight’s “PUSU” deadline from the Takeover Panel, the South African giant Steinhoff has announced that it has secured Board approval for a 220p bid, so it looks like it’s all over and Steinhoff already speak for 36% of the shares. The agreed price is a premium of c39% to the closing price of Poundland of 158.25p on 13 June 2016 (the Business Day prior to the first acquisition of a big stake in Poundland), but it is obviously well below the IPO price. So it is 3rd time lucky for Steinhoff, after its humiliating defeat over Argos and Darty…And although Steinhoff say they want to work with Poundland’s management, we imagine that the new CEO Kevin O’Byrne is already looking for pastures new…and the fate of the IR Director, the former Retail analyst Philip Dorgan, is easy to imagine.