Langton Capital – 2017-10-11 – Revolution, EasyHotel, Spending trends, staffing & other:
Revolution, EasyHotel, Spending trends, staffing & other:
A DAY IN THE LIFE:
I’ve been explaining the principles behind eating in restaurants to the dog. Good behaviour, don’t eat too fast (or from the floor, from other people’s clothing etc.) and always pay for your food…. and I think he gets it.
Certainly, he cocks his head to one side and looks quizzically at me, which I take as a good sign, and he’s drooling a bit, which suggests that he’s caught the word ‘food’ somewhere in the blah, blah that I occasionally aim in his direction.
I’ve told him that the buffet we’re proposing going to go to is an ‘all-you-can-eat, pay-on-exit’ affair and he seems to understand the ‘eat’ bit and the ‘all-you-can’ prefix is unnecessary in his case hence we’ll take a rather unfriendly, 8-stone dog with big, healthy teeth into a pub and tell him he can have what he wants.
Cake, eat it, no consequences etc., what could go wrong?
It’s like voting for Brexit after 7 pints. It seemed like a good idea at the time but the consequences could be messy and costly at best and could they could lead to us being shown the door by an angry chef waving a hatchet. On to the news:
LANGTON RESEARCH, GET IT WHILE IT’S HOT @ £200 + VAT:
Topical to say the least. See comments below from Prezzo parent Papa Topco.
Headings in our note include Why the Increase in Supply, evidence of oversupply, consequences of oversupply with a case study comprising a City of London walk.
It’s an easy (if at times queasy) read & if you’d like a copy at £200 + VAT (in money, beer or pizza subject to negotiation), then please drop us a line.
DELTIC CALLS OFF THE REVOLUTION:
• Deltic has confirmed that it does not intend to make a cash offer or merger proposal for Revolution Bars Group
• Deltic says ‘it is not possible to implement the Revised Merger Proposal without the full engagement and agreement of the directors of Revolution which, as at the date of this announcement, has regretfully still not been forthcoming.’
• Earlier, the Board of Revolution Bars reported that it still did ‘not believe that the revised merger proposal would create shareholder value for Revolution’s existing shareholders in excess of the certain and immediate value represented by the recommended 203p cash offer from Stonegate Pub Group Limited’.
PUB, RESTAURANT & DRINK PRODUCERS:
• The latest Barclaycard data suggests that spending growth has stabilised at 3% as consumers cut back on non-essentials by putting off big-ticket purchases and pulling back on ‘nice-to-haves’. Growth in spending on entertainment (8.2%) dropped to the lowest level in Q3 and pubs (7.7%) recording the slowest growth since March 2015, while restaurant growth was also slower at 11.4%. Consumers spent cautiously ahead of a potential hike in interest rates. Almost four in 10 respondents said they are worried about the impact of interest rates on their future spending power.
• Experts say that unskilled and untrained chefs must be targeted by the trade and educated to help solve the long-running recruitment crisis, per The MA. Recruitment and Employment Confederation chief executive Kevin Green commented: ‘Candidate availability has been falling for the past four years and with record employment, plus a showdown in the number of EU nationals coming to work here, a difficult situation is set to get worse. Our research shows that more than 450,000 workers in the hospitality sector are from the EU.’
• Commenting on the UK hotel market in Q3 this year, Fleurets says that it ‘has seen increased investment, reportedly totalling £2billion, with an anticipated yearend total of circa £5billion.’ Fleurets says this interest ‘has been driven by overseas investors influenced by the beneficial exchange rates.’
• Fleurets says ‘nightclubs are still considered a strong market’ and adds ‘major operators [are] still investing, including most recently, a £1million investment by Stonegate in their new super-club in Birmingham.’
• Fleurets reports on Q3 F&B market saying ‘the food and drink market has seen a measured increase in like-for-like sales during August of 0.2% across managed public houses and restaurants.’ It adds ‘recent reporting shows inflation increasing towards 3%; operators will therefore have to balance the need to pass on possible costs increases to the consumer, with a potential impact on total sales.’
• Commenting on ‘competitive socialising’, Fleurets says the market is growing and says ‘Waterworld Leisure have acquired Adventure Island Mini-Golf for £20million and now plan a further significant expansion of 20 sites within 5 years.’ It adds ‘Bounce, the ping pong themed venues (rebranding as Social Entertainment Ventures), plan to open 20 sites across America, the Middle East and China by 2020, again capitalising on this market growth. This company has Flight Club which is also expanding and All Star Lanes who have reported a 40% increase in EBITDA to the financial year ending 2016.’
• The ALMR has welcomed Liberal Democrat leader Vince Cable’s call for a 12.5% cap on business rates rises for pubs. Chief executive Kate Nicholls said: ‘Many eating and drinking out venues have been hit hard by huge increases in their business rates bills following the revaluation, with pubs particularly at risk. The main focus of much of the ALMR’s lobbying efforts has been dedicated to highlighting this issue and pushing for a complete revamp of the business rates system in the UK.’
• ‘A good first step would be for the Chancellor to announce a cap on business rates increases for pubs and the wider eating and drinking out sector including restaurants, bars and nightclubs. The Government would do well to listen to Vince Cable’s call for a cap, otherwise venues will continue to face massive increases in their bills, undermining investment and jobs.’
• Marston’s shares rose 4% yesterday on the back of its trading update. The group reported that sales growth had slowed and had turned negative over the tough-comparison weeks of September this year. Greene King shares also 4% better.
• Nisa has recommended that its shopkeepers agree a £143m takeover from the Co-operative Group.
• Food manufacturer Bakkavor is thought to be planning a UK stock listing.
EASYHOTEL REPORTS TRADING SLIGHTLY BETTER THAN ANTICIPATED:
EasyHotel has this morning updated on its full year trading being the 52wks to 30 Sept 2017 and our comments are set out below:
• EasyHotel comments that ‘the good progress achieved in the first six months of the financial year continued through H2’
• EasyHotel says ‘trading for the full year [is] a little ahead of the Board’s expectations’
• Total system sales are +39% with LfL revenue at owned hotels +13.7% and +8.6% at franchised hotels
• EZH says ‘during the period the Group benefitted from the smooth implementation of its new booking engine and yield management system across the entire network which has supported its positive trading momentum and enabled the business to scale efficiently as it continues to accelerate its growth plans.’
• As the table below shows, there has been a step up in both performance and in the rate of openings in the last year or so
• There would appear to be plenty more to come. See notes below on pipeline developments
• EasyHotel reports ‘five new hotels totalling 535 rooms were opened during the financial year – Birmingham and Manchester owned hotels and Brussels, Amsterdam Arena and Amsterdam Zaandam franchised hotels.’
• The company reports ‘all five hotels have been developed in the Group’s new brand format and have traded exceptionally strongly since opening.’
• Re its new openings, EZH comments ‘all of them are expected to reach maturity ahead of budget and the Group now plans to refurbish its Old Street, Glasgow and Croydon hotels of which Glasgow and Croydon will be completed during Winter 2017/2018 to reflect the new product look and feel.’
• Owned hotels in Liverpool, Ipswich, Barcelona, Leeds & Sheffield will open shortly. Liverpool will open this November whilst the other four hotels will open in calendar 2018.
• Liverpool is 78 bedrooms, Ipswich is 89. Barcelona is 204, Leeds is 93 and Sheffield is 131. The group continues to target a ROCE of 15%
• The group has 2,569 owned rooms under negotiation, some 1,223 of which have board approval for development
• Franchised hotels are in construction in Lisbon, Bernkastel-Kues, Reading, Belfast & Dubai
• EZH reports ‘our franchisee in Istanbul continues to look for a suitable going concern property’
• New agreements have been signed with future operators in Iran and Sri Lanka. EZH says ‘we have 2,263 franchise rooms under negotiation’
Re Old Street:
• EZH announced on 1 August that it believed ‘restoring and extending the office use on the upper floors of the Group’s freehold building at Old Street, London should maximise value from the property.’
• It says it ‘is retaining a smaller 92-bedroom hotel at the property and is applying for planning permission to add additional floors to the building, for use as office accommodation.’
• EZH adds it ‘intends to refurbish the retained 92-bedroom hotel, to complement the ‘new look’ format hotels it has recently opened in Birmingham and Manchester.’
• The group says ‘this is anticipated to improve Revpar in the hotel, and combined with the additional office space, is expected to optimise shareholder value from the site’.
• EZH says ‘following the successful £38m equity placing in October 2016, and the £12m refinancing of an existing bank facility, the Group’s balance sheet remains strong with capacity to finance up to 3 additional new projects from the Group’s identified owned hotel development.’
Conclusion & Outlook:
• EasyHotel CEO Guy Parsons says ‘it has been a year of accelerated growth for the Group, endorsing our strategy of offering comfortable, affordable accommodation in key tourist and business locations in the UK and internationally.’
• Mr Parsons says current trading ‘is very encouraging.’ He says ‘we are particularly pleased by the performance of our newly opened hotels, designed in our stylish new brand format, which are proving popular with our customers and trading ahead of expectations.’
• The group has 2,270 rooms now open (25 hotels), and a committed pipeline of 2,400 rooms.
• CEO Guy Parsons concludes ‘the Board is confident that we are very well positioned to continue expanding into the near future.’
• EasyHotel has a recognisable brand that is now being rapidly rolled out via a mix of own-managed hotels and franchised units. The group is professionally run, its new booking engine has been implemented smoothly, and its new-model units are ahead of expectations.
• The group listed in June 2014 at 80p when it raised around half of its targeted £60m. The group came back to the market in October 2016 when it raised £38m at 100p.
• The shares remain between these two prices suggesting that the hard work undertaken by management in the intervening period (some of which may have been misplaced but most of which, under new management has not) is in there for very little.
• The idea that ‘facility creep’ (free towels, Wi-Fi, TV, coffee etc.) will always create a space for new entrants at the budget end of the market has resonance. That new entrant needs to be cheap but also to be recognisable and to supply a consistently high quality and value for money product.
• EasyHotel has the opportunity to fill this very large market segment. And not just in the UK. The group is operating (or will soon operate) its own units in the UK & Spain.
• In addition, the group has franchised units in the UK, Spain, Germany, Holland, Dubai, Iran and Sri Lanka. It also has franchisees in Nepal, Hungary, Bulgaria & Belgium and other territories are likely to be opened up (via the low risk, low capital route of franchising) in due course.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Almost one-third of UK consumers intend to spend more money on their holidays in 2018, according to Abta’s new Holiday Habits Report. The study found that 31% of Brits are planning to increase their budget for next year’s holidays — up from 24% a year ago. Staying in the UK is the most popular destination choice with 66% planning a domestic break, while the other top hotspots will be Europe and North America.
• Thomas Cook will beef up its capacity for summer 2018 by 230,000 seats, split evenly between Luton and Leeds Bradford, and is ‘finalising plans’ for further growth at other UK airports. It follows the collapse of Monarch last week, which had operations from both airports and had its head office in Luton. Since then, both Jet2.com and Thomson have increased capacity at former Monarch bases.
• Thomas Cook has appointed Andrew Flintham, late of TUI, as its UK MD.
• Visitors to the UK have increased their spending in the country last year by £872m, data from VisitBritain/VisitEngland has found. A record 23.1m overseas visitors came to the UK between January and July this year, up 8% on the same period last year.
• The pilots union Balpa has requested a government probe following the collapse of Monarch, specifically questioning the role of financial backers, the Mantegazza family and Greybull Capital.
• The Pilots union Balpa, has stated that a Brexit ‘no deal’ speech would be disastrous for UK aviation. The general secretary for the group, Brian Strutton said: ‘Unlike most other sectors there are no World Trade Organisation or any other rules to fall back on for aviation if there is no deal. UK airlines could find they have to stop flying – it’s that serious. And this would impact passengers long before March 2019 because airlines couldn’t sell advance tickets and, frankly, would passengers risk buying them?’
• The Scottish government has been exploring the possibility of altering the much-disputed Air Passenger Duty to a devolved Air Departure Tax, discussion have stalled following EU approval. Finance secretary Dereck Mackay said: ‘We have set out a clear aim to reduce the burden of air passenger taxation by 50 per cent and to abolish the tax altogether when resources permit. That commitment will both help to boost international connectivity and generate sustainable growth’.
• A strike by public service workers in France is disrupting travel as the French aviation authority has asked airlines to reduce the number of their flights
FINANCE & MARKETS:
• The IMF has said that the global economic recovery is strengthening & has revised its forecast for global economic growth up to 3.6% this year & 3.7% next
• IMF expects UK growth to slow from 1.8% in 2016 to 1.7% in 2017 and 1.5% in 2018.
• NIESR suggests UK GDP grew by 0.4% in Q3, up from 0.3% in Q2. It says ‘although economic growth is likely to be a touch stronger in the second half of this year compared with the first, it is important to note that activity has slowed since last year and this at a time when real GDP growth in other major economies such as the Euro Area and the USA has strengthened.’
• NIESR expects bank rate to rise potentially next month.
• The OBR has said that economic productivity in the UK will increase only marginally over the next 5yrs
• UK trade deficit with countries other than the EU rose in August.
• Oil up a dollar or so to $51.68
• Sterling up vs dollar at $1.3196
• Pound down vs Euro at €1.1168
• UK 10yr gilt yield up 1bp at 1.37%
• World markets: UK up yesterday with Europe down and US up. Far East mostly higher in Wednesday trade
o Telegraph reports Britain could join NAFTA pose hard Brexit. The North American Free Trade Agreement, yes.
YESTERDAY’S LATER TWEETS:
• Later tweets: Marston’s Premium & Destination pubs have increased LfL sales by +0.9% in the full year, down 0.8% in the last 10wks.
• Marston’s FY margin lower, say 30bps. Taverns up +1.6% on the year, plus 0.3% in the last 10wks
• MARS slows opening programme in FY18. Says has ‘a degree of caution given recent subdued market conditions’
• Bladerunner fails to revitalise US cinema. Implications for leisure parks? Post hurricanes attendances still disappointing
• Domino’s Pizza Group has recorded Q3 sales up 20.8% to £286.4m, with UK LfLs growing 8.1%.
• EasyHotel has seen total system sales increase 39% to £29.7m in the year ended 30 September 2017.
START THE DAY WITH A SONG:
Yesterday’s song was the former lead singer of the Stone Roses, Ian Brown, with F.E.A.R. todays:
Was sorta hoping that you’d stay,
That the nights were mainly made for saying,
Things that you can’t say tomorrow day
RETAIL NEWS WITH NICK BUBB: