Langton Capital – 2017-12-15 – Fulham Shore, hotels outlook, Saga, new openings etc.:
Fulham Shore, hotels outlook, Saga, new openings etc.:
A DAY IN THE LIFE:
Moving office at the moment. Still pretty rootless. Added to which we were ‘in trade’ on Butlers Wharf last night looking at the pretty lights (and, it has to be said, drinking beer) & things are moving a bit slowly this morning. On to the news:
LANGTON RESEARCH, GET IT WHILE IT’S HOT @ £200 + VAT:
Langton is putting together a compendium of 60-seconds pieces.
These are all new (though we may put some historic 2017 efforts in the appendix) & will focus on two areas; companies & themes.
Themes will include discounting, cost pressures, overcapacity, the coffee phenomenon, delivery, the use of apps, Millennials, the grey market and so on and so on. There are more than you might think.
We’ll be busy over Christmas and the doc will be ready in early Jan but, if you would like a copy, please let us know. As mentioned, £200 plus VAT but free to clients.
THE FULHAM SHORE – H1 NUMBERS:
• Best in class but market was tough in summer. Some signs of improvement but headwinds remain. Will be a winner longer term.
• Fulham Shore has reported H1 numbers saying ‘we have continued to make progress in delivering our growth strategy and we have produced a resilient set of financial results despite a challenging market backdrop.’
• FUL reports revenue grew to £27.5m from £19.5m for the same period last year while Headline EBITDA increased to £4.5m (2016: £3.8m).
• FUL reports profit for the period was £0.6m (2016: £0.5m).
• The group says ‘growth has been driven primarily by new restaurant openings.’ It opened 3 Real Greek units and 7 Franco Manca pizzerias in the UK (with a further franchise unit in Salina, Italy) during H1.
• FUL had updated at its AGM in September that trading was getting tougher & that it was to dispose of its Bukowski unit. It reports ‘discussions have commenced with suitable parties and as such we have, in the results, impaired the asset by some £0.3m and reflected the property as held for sale and a discontinued operation in the interim results.’
• The group has invested £7m in H1, mostly in new openings. The investment includes £200k for a minority equity interest in Made of Dough, which is ‘a new pizza concept, as part of Franco Manca’s pursuit of best in class pizza operations.’
• The group does not intend to pay a dividend. It says these ‘will be paid to shareholders when the Directors believe it is appropriate and prudent to do so.’
• Re current trading, FUL reports that it has opened one new Real Greek since the H1 end and two new Franco Mancas. The group now has 58 units in the UK (16 Greeks and 41 Franco Mancas with an additional Bukowski unit (which is for sale)).
• Slowed openings (as announced in September). FUL reports ‘some of our planned openings this year have been delayed by as much as six months as we seek better deals from landlords thus protracting lease negotiations.’
• The group says ‘these delays have had the beneficial side-effect of improving our cash position and lessening our peak borrowings.’ It adds ‘we will keep under review our opening programme for the rest of the current and following financial years. We intend that our new restaurants will be selected to give us an average return on capital at the higher end of the scale previously recorded.’
• FUL confirms that summer was tough but it comments ‘revenue from these restaurants have seen slight improvements from the poor summer period of July to September.’
• Overall, trading is uncertain due to ‘rising inflation, poor consumer confidence and a weakening economy.’ Pre 2017 units have seen a decline in profitability & FUL says ‘we will respond to the economic climate in the next 24 months as we find it, as we believe these factors will continue to affect the restaurant sector in the coming years, limiting our visibility for the second half and beyond.’
• The group concludes that it is well-positioned. It says ‘we believe that our brands have significant customer appeal which is underpinned by the food quality and value of their offerings. As a result, and despite the challenging backdrop, we are confident that the Group will continue to grow over the coming years.’
PUB, RESTAURANT & DRINK PRODUCERS:
• Prezzo is offering 30% off food bills until Sunday. That’s a week before Christmas.
• Trading across restaurants may have been a tad better over recent weeks.
• Glendola Leisure has reported results for the year to 25 Mar 2017 saying that ‘the group has traded well in a very challenging economic environment which has seen increased costs and competition.
• Glendola reports turnover down 0.1% to £39.0m with operating profit nonetheless up to £4.065m (2016: £2.813m) and PBT of £3.397m (2016: £2.731m).
• Redchurch Brewery has reported numbers to 30 June saying that accumulated losses increased by £355k over the year in review.
• Events company Concerto has reported full year numbers to 28 February to Companies’ House. The group lost £592k before tax versus a profit of £301k in the prior year.
• Black Friday increased UK retail sales by 1.6% in November compared to last year, reports the ONS. The ONS also pointed out that the quantity of food sales fell by 0.1% on last year, but money spent on food increased, reflecting the recent increase in inflation.
• Newly-elected BBPA Chairman, Simon Emeny, told MPs and industry guests at the All Party Parliamentary Beer group Christmas reception that the sector was looking to the future to tempt Generation X into the pub. He warmly welcomed the beer duty freeze in the Budget, but continued by stating that more needed to be done to create a level playing field with online businesses when it comes to tax.
• RCapital and Boparan Restaurants Group have both poured cold water on rumours that they were interested in the sale of Byron, the MCA has reported. The c65 strong burger chain, Byron, has been placed up for with a valuation of between £15-25m.
• The national body for English and Welsh wine has announced it will be named WineGB.
• Tesco takes steps towards provoking a festive price war as it cuts the price of some key Christmas food ingredients to just 29p.
• The UK’s former chief drugs officer, Professor Nutt, has stated that he believes traditional alcohol will disappear from Western Societies ‘within a generation’, to be replaced by healthier alternatives. The Professor has developed a synthetic alcohol that mimics the positive effects of alcohol without the health implications and he is now looking to raise £7m to bring the product to market. We’re hoping this isn’t a joke.
THE UK HOTEL MARKET THIS YEAR AND NEXT:
• Fleurets has reported that it expects UK hotel transactions to top £5bn in 2017, some 30% ahead of last year. It says this is ‘supported by prevailing economic conditions, strong hotel trading levels, low interest rates and a wealth of capital competing for limited numbers of investment opportunities.’
• Fleurets says ‘whilst many challenges are standing on the doorstep, current conditions are encouraging strong purchaser demand and driving a broad spectrum of activity, for the time being at least.’
• Fleurets cautions that ‘more so than for London hotels, provincial hotels are closely aligned to the state of the UK and local economies, such businesses having a greater reliance on domestic demand, particularly from the corporate segments, including meetings and conferences.’
• It says ‘as a result of the uncertainty around Brexit and the slowing UK economy, alongside concerns over inflation and rising interest rates, there is growing pressure on the consumer’s wallet, which in turn has, and will, subdue hotel spending. That said, the negative effects have, to date, seemingly been outweighed by the number of visitors making the most of the weak pound.’
• Consultancy HVS, however, says 2018 ‘could be a tough year for the UK’s hotel operators with flat occupancy levels and increasing overheads, despite positive global and EU economic growth.’
• HVS reports that next year average room rates in UK could still see some modest growth. HVS chairman Russell Kett says that the combination of wage increases, staff shortages, increasing food and utility costs, the impact of higher property taxes and business rates as well as a strong pipeline of new properties will put pressure on UK hotels’ operating margins in 2018.
• HVS suggests that the UK leisure travel market will remain strong in 2018 but domestic consumer spending could be subdued due to negative real income moves and uncertainty re Brexit etc.
• HVS reports that there could be further consolidation across the European hotel sector as international investors attend to their portfolios.
HOLIDAYS & LEISURE TRAVEL:
• Saga is reported to be looking to test demand for holidays for younger people. It will launch a small range of family holidays next year. Saga spokesperson Maria Whiteman comments ‘we get a lot of requests from customers who want to go away for big events with their families.’
• As reported in more detail above, HVS London chairman, Russel Kett, believes London hotel operating margins will come under pressure in 2018, but says the year ahead still looks strong for the UK sector. Kett also forecasted further consolidation in the industry in 2018 as hotels become an increasingly attractive trading asset for institutional investors.
• GfK reports a 7% increase in outbound bookings for Summer 2017, allaying fears of a downturn due to sterling weakness. The analyst said there was growth in short, medium and long-haul bookings but a ‘decline in all durations over 12 nights’.
• An investor report published by Heathrow expects the airport to see profits grow by more than 4% next year to £1.83bn. The report forecasts passenger numbers to increase from 77.7m to 78.8m.
• Network Rail reported retail sales up 5.1% for the quarter to September 30th, marking its 22nd consecutive quarter of retail sales growth.
• A minority group of investors in Millennium & Copthorne Hotels have rejected the takeover offer valuing the company at £2bn. International Value Advisers, MSD Partners and Classic Fund Management own 34.8% of the company and call the City Developments Ltd offer at 620p ‘highly opportunistic’.
• STR US hotel data shows occupancy increased 2.7% to 60.7%, ADR climbed 4% to $125.07 and RevPAR rose 6.8% to $75.97; in the week 3-9 December.
• Jury Inn portfolio has been purchased by Swedish hotel group, Pandox, and Israel-based Fattal Hotels in a deal worth £800m.
• Microsoft has extended its event partnership for European focused Halo tournaments with Gfinity. The next Halo event will be held in Q1 2018, consisting of a four weekly tournaments and a three-day Open LAN event with a prize pool of $25000. The group’s Chief Executive, Neville Upton said: ‘Gfinity is delighted to announce yet another event partnership with Microsoft as part of the Halo World Championship 2018 in Europe next season. This extension of our already close relationship with Microsoft underlines our dedication and commitment to organising, promoting and executing world class esports events’.
FINANCE & MARKETS:
• MPC yesterday voted unanimously to hold rates at 0.5%. It also voted unanimously to hold QE at £435 billion
• Bank reports confidence among households and businesses may rise as a result of ‘agreement’ in last week’s Brexit talks
• ECB holds rates.
• The RICS reports that the number of new homes being put on the market has “continued to deteriorate” for the 22nd consecutive month
• Millennials in London may pay out £270k in rent before they own a house reports Landbay’s National Rental Survey has found.
• Scottish parliament votes to charge higher rates of income tax for those earning over £21k.
• Oil up 60c or so at $63.33
• Sterling up vs dollar at $1.3439
• Pound down vs Euro at €1.1404
• UK 10yr gilt yield down 3bps at 1.18%
• World markets: UK down yesterday with Europe & US also lower. Far East mostly down in Friday trade
PRIOR DAY LATER TWEETS:
• Later tweets: Bank of England holds rates. ECB does likewise. Bank suggests people a shade more confident
• November tracker shows pubs >> restaurants and provinces >> London. Grim time for London restaurants despite more tourists
• Retail sales numbers show a bit of a boost from Black Friday.
START THE DAY WITH A SONG:
Yesterday’s song was ‘Crazy’ By Gnarls Barkley. Today who sang:
River runnin’ free, you know how I feel,
Blossom on the tree, you know how I feel
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RETAIL NEWS WITH NICK BUBB:
• Planet ONS Watch (1): We noted yesterday that, in “the real world”, November (the 4 weeks to Nov 25th) was a reasonable month on the High Street overall for the big retailers (as per the recent BRC-KPMG Retail Sales survey), with Food sales buoyed by high food price inflation and Non-Food sales propped up somewhat by Black Friday discounting. But we discovered yesterday that life was even better last month on that strange parallel world, the Planet ONS, as per the Office of National Statistics Retail Sales figures for November…The more credible City economists were impressed with the stronger than expected 1.1% month-on-month rise in seasonally adjusted sales volume (+1.6% year-on-year growth), lapping up the ONS spin that this was due to a 2.9% jump in Households Goods volume (even though it was down 0.8% year-on-year…) and its lame comment that Black Friday promotions provided a
• Planet ONS Watch (2): But we ignored the silly ONS sales volume figures and focused on the year-on-year, non-seasonally adjusted, sales value figures and the highly unreliable ONS figures for “Small Businesses”…By value, total Retail sales were up by 4.8% in November, with Food retailers up 3.3%, Non-Food retailers up 3.4% and Non-Store retailers up by 14.8%. We found nothing to quarrel about in the Food figures, but the Non-Food figures looked very questionable, as the ONS said the split here was +1.2% for Large Businesses and as much as +10.6% for Small Businesses…Digging deeper, Households Goods sales by value were up 2.8%, but the Large/Small split was +0.3% and +8.0%, which obviously feels wrong, but the most glaring anomaly was in the Clothing Retailers split of +6.1% growth between Large/Small, which was, amazingly, +0.2% and +78.5%!! “Shurely shome mistake here”!
• BDO High Street Sales Tracker: Moving on to December, we flagged on Wednesday that John Lewis had a pretty flat time last week, but today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week (which includes the snow-hit Sunday) paints a much more sober picture of Store sales: w/e Dec 10th saw Fashion Store LFL sales fall by 5.2% (versus a weak comp of -4.4% LFL a year ago). Including Homewares and Lifestyle chains, total Store LFL sales were down by 4.8% last week (versus -2.9% a year ago). And overall Online sales were “tepid”, at +11% (versus +17% a year ago). Frustratingly, although the Store/Online split is valuable, BDO still doesn’t give a blended sales growth figure or provide an absolute sales figure.
• Trade Press: The front cover of Retail Week magazine today is a photo of Harrods’ boss Michael Ward (in a Christmas jumper), to flag up a feature on the transformation of the department store. Other features include “Retail’s Seismic Year (“The big events of 2017 that will change the industry for good”) and the Steinhoff scandal (“We look at the potential impact on the group’s UK businesses”). In terms of News stories, RW highlights the news that “Property megadeals signal shopping centre consolidation” (two blockbuster property deals are poised to change the face of the UK’s shopping centre sector: Hammerson/Intu and Unibail/Westfield) and “Christmas could be on ice” (after snow derailed trading on the third weekend before Christmas). In his column the Editor thunders that “Walmart dropping ‘Stores’ from name is a sign of the times”. And the “Store of the Week” on the back cover is
• News Flow Next Week: A quiet week lies ahead, with no company news scheduled, but the wretched CBI Distributive Trades survey for “December” is out on Wednesday and then the widely-followed GFK Consumer Confidence Index is out first thing on Thursday.