Langton Capital – 2017-09-01 – More on RTN, mobile payments, overbuilding and other:
More on RTN, mobile payments, overbuilding and other:
A DAY IN THE LIFE:
There may be a new malady out there and, whilst I haven’t thought of a snappy Latin name for it yet, it’s working title is ‘panic-when-your-phone-battery-gets-below-thirty-percent.’
It begins with a bit of fumbling, a searching of pockets and the frantic quest for a plug. It can feature talking to complete strangers, believing its acceptable to lean over them to use the plug on a train that’s next to their groin whilst looking pleadingly at them, shrugging and grinning like an imbecile.
Later stages feature sweating, rapid eye movement, head shaking, drooling and, ultimately, the loss of control of all bodily functions meaning that army interrogators can now forget about stress positions and sleep deprivation now as they need only take the mobile phones from enemy soldiers & they’ll have them shivering like frightened puppies in minutes. However they need to remember that putting screens on maximum brightness & setting Bluetooth and WIFI to a continuous search and making phone owners watch their batteries drain down, is against their human rights. On to the news:
RESTAURANT GROUP H1 ANALYSTS’ MEETING
Following the release of its H1 numbers this morning, the Restaurant Group hosted a meeting for analysts and our comments are set out below:
• The group confirmed that full year margins will be some 150 to 180bps below last year
o This is on the back of reduced prices and input cost pressure
o Some £17m of additional costs are expected this year. Around 20% will be mitigated. Next year, a further increase of £13m is expected with 50% mitigated
• The group believes that it will be back in LfL sales growth ‘at some point during 2018’.
• Margins may still at that point be lower
Strategy & P&L implications:
• The group says that ‘marketing intensity has increased’ at Frankie & Benny’s
• Low-cost mains are 22% cheaper, LfL foods are 7% cheaper and volumes are up by 7%
• Frankie & Benny’s had not been in volume growth since 2012
• RTN says it has not seen ‘a targeted response’ by its competitors to the above changes
• The operator is now ‘less pricey than its peers’
• New products are being trialled & there will be a relaunch later this year
• Chiquito has a new menu and Coast to Coast, whilst still seeing negative sales growth, is declining at a lower rate
• Chiquito delivery sales are higher. Margin here will be lower
• Pubs were aided by hot weather in June and cinema co-located sites benefited due to easier comps and the screening of Beauty & the Beast
• Concessions were ‘solid’
Balance sheet issues:
• The group confirms that debt has fallen, despite below the line increases in provisions
• However, the full year 2016 dividend of 10.6p (or around £21.3m), was not paid until after the H1 end
• Capex may need to be stepped up – particularly if conversions from Coast to Coast are accelerated
• The group still has 29 closed sites to exit
• The group sees this as a ‘transitional year’
• It believes it is on track & says that it has a clear plan
• Current trading is in line & the dividend should be taken as a sign of the board’s confidence in the future
Langton Comment: RTN’s shares have risen on relief that 1) today’s results were not worse and 2) that the company felt able to say that it was making progress on its strategic initiatives.
Much remains to be done. Execution is an issue. Competitors are unlikely to leave RTN to its own devices and the consumer may retrench.
The above said, RTN’s shares are not expensive – at least with reference to the levels at which they have traded in the past.
However, there may be better value elsewhere. Marston’s, for example, is on a lower PER, a higher yield, and it is asset-backed.
PUB, RESTAURANT & DRINK PRODUCERS:
• Overbuilding. NRN reports that restaurant sales and traffic softened in July in the US. It also reports that operators were less optimistic about the coming months. NRN says ‘the combined results led to a decrease in the association’s monthly Restaurant Performance Index for the first time in three months.’ Traffic was weaker. NRN has previously said that oversupply has been a feature with more capacity being put on than was justified by demand. Sound familiar?
• Some 28 percent of restaurant operators in the US believe conditions will improve over the coming months whilst 20 percent believe that they will worsen, the highest level since October 2016.
• When in a hole, stop digging? NRN says that ‘despite the pessimism, operators [are] still working on or planning to grow. Sixty-two percent of operators said they made a capital expenditure on equipment, expansion or remodeling in the past three months.’
• Innovation or me-tooism? Mintel has suggested that, after the relative success of cold coffee and iced tea, cold brew cocoa could be the next major cold drink innovation.
• Pernod Ricard’s has increased its profits by 13% to above €9bn for the year ended June. Sales grew organically by 3.6%, increasing the group’s share price by 1.25%.
• The Spanish restaurant and bar chain, Camino, has had turnover decrease 1% in the six months to the end of May. The group blamed a fall in event bookings and large-scale refurbishments of nearby properties as the reason for the fall in sales.
• A monthly survey by Lloyds Bank shows that businesses are less confident about the economy and their own trading prospects. Overall business confidence among 200 companies with a turnover of at least £1m fell by 13 percentage points in August to its lowest level since August 2016, with the consumer services sector sentiment hitting a 14-month low.
• Barclaycard has marked its 10-year anniversary of launching contactless payments in the UK, a move that has saved buyers and sellers millions of hours of time. Over the last decade more than £60bn has been spent using contactless cards and devices, with this type of payments in pubs and bars up 60% in the last year.
• McDonald’s Corp has added new espresso-based drinks to its McCafé menu in the US.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• ADR increased 3.6% to €109.71 in European hotels for the first seven months of the year. Occupancy rose 1.9% to 70.6% and the STR reported a 22% increase yoy in the number of hotel rooms currently under construction. London ADR rose 6.6% in July to £165.42 whilst supply growth caused occupancy to drop 0.9% to 87.5%. In London, 27 projects are set to add 4,300 rooms to the capital’s portfolio.
• Luton Airport has been named the worst in the UK in terms of passenger satisfaction, according to a survey by Which?. The airport scored 29% on overall satisfaction and was described as ‘chaos’, ‘crowded’ and a ‘rip-off’. Doncaster Sheffield was rated the best at 87% satisfaction and described as ‘relaxed’ and ‘quiet’.
• Fosun International half-year profits grew by 34% to £687m with revenue increasing by 11.3%. The Chinese conglomerate is behind Club Med and Cirque du Soleil.
• STR reports US hotel KPIs increased for the week 20-26 August with occupancy up 3% to 69.5%, ADR grew 3.2% to $125.57 and RevPAR rose 6.3% to $87.28.
• Everyman Media reports H1 numbers, says revenue for the period rose by 55% to £18.8m with adjusted EBITDA +123% to £3.0m
• Everyman reports ‘one new venue added in the period, expanding the current estate to 21 venues’. It says it is ‘committed to a further 9 new venues plus the permanent venue at Kings Cross, and a strong pipeline established for future years, including a new venue in Glasgow to be opened in 2018’
• Everyman reports H1 adjusted operating of £3.0m vs £1.3m last year with a net profit of £438k. The company says that ‘trading since the period end has continued in line with expectations’.
• Everyman Chairman Paul Wise says ‘Everyman differentiates by focusing on delivering a high-quality offer, through its venues, content, staff and F&B. The Board’s long held belief in this model as being the bedrock for significant growth within the UK has been further strengthened in the last six months and our ambitions continue to grow.’
• Everyman says ‘trading since the period end has been in line with expectations, continuing a reasonable overall summer in the cinema market.’
• The online gambling group, 888 Holdings, will have to pay a ‘record penalty package’ of over £7.8m to the United Kingdom Gambling Commission as a result of the company’s ‘serious failings in its handling of vulnerable customers’. The UKGC stated that 888 failed to recognise visible signs of problematic gambling behaviour.
FINANCE & MARKETS:
• Eurozone inflation rose by 1.5% in August as it edged further towards the ECB’s target of 2%.
• Eurozone growth in Q2 marks the 17th straight quarter of expansion.
o Messrs Barnier & Davis have disagreed on the meaning of the word ‘progress’. One suggests that it means, well, progress. And the other doesn’t.
o Michel Barnier says UK’s demands on single market access are impossible.
o Barnier says UK approach is ‘nostalgic & unrealistic’.
o David Davis says ‘degree of convergence’ on Ireland. Both sides have agreed where it is.
o David Davis calls for imagination & flexibility. EU negotiators suggest no agreement is near.
o UK agrees it will pay divorce bill but Mr Davis’s team will go through it line by line.
• Oil up on Texas storm squeeze to $52.71
• Sterling little changed vs dollar at $1.2923
• Pound down a shade vs Euro at €1.0861
• UK 10yr gilt yield unchanged at 1.03%
• World markets: UK, Europe & US up yesterday with Far East mostly higher in Friday trade.
RETAIL NEWS WITH NICK BUBB:
• BDO High Street Sales Tracker: We flagged yesterday that John Lewis had another very decent time in Fashion again last week and today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains flags that w/e Aug 27th saw their Fashion Store LFL sales up by 1.6%, perhaps helped by the better weather at the end of the week, but the comp was very weak (-9.6% a year ago). Including Homewares and Lifestyle chains, total Store LFL sales were up by 1.5% last week (versus -7.1% a year ago), but overall Online sales were pretty uninspiring, “only” up by 12.9% (against 12.8% growth a year ago).
• Trade Press: Because of the Bank Holiday, neither Retail Week magazine or Drapers magazine have been published today, alas, but their websites have been busy covering this week’s news, with the RW team focusing on the Amazon/Whole Foods deal and the Dunelm CEO news. Drapers’ website looks at the new Arket opening on Regent Street and also reveals that the Polish fast fashion label Reserved is in talks with Westfield London and Westfield Stratford for a second UK store early next year, after it launches its first UK flagship on Oxford Street on 6 September (in the former BHS site).
• News Flow Next Week: As we move on into September, the pace of news picks up next week, kicking off with the BRC-KPMG Retail Sales for August and the Halfords IMS update on Tuesday, followed by the Sports Direct AGM on Wednesday. Thursday then brings the Dixons Carphone AGM, the Carpetright AGM and the Conviviality AGM.