Langton Capital – 2019-10-15 – PREMIUM – Marston’s, Deliveroo, Rank, Thomas Cook etc.:
Marston’s, Deliveroo, Rank, Thomas Cook etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Bit busy with announcements this morning.
Just time to say that the pub group mentioned yesterday was none other than Sam Smith’s.
It had to be, really. Either Sam’s or the one run by a currently-prominent political campaigner and, as in both cases the proprietors own the properties in question, they can do pretty much what they like.
On to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
MARSTON’S FULL YEAR TRADING UPDATE: Marston’s has updated on Q4 and full year trading. 15 Oct 2019:
Marston’s has this morning reported its Q4 and year to date numbers and our comments thereon are set out below:
Trading – Summary:
• Marston’s is indicating that it believes PBT for the year will be around £101m. This implies a downgrade of circa £4m. EBITDA will be ‘broadly flat’ on the year
• Around £3m of this is due to somewhat less-buoyant trading in the group’s food-led pubs (in line with peer group comments and the Coffer Peach Tracker) and around £1m from higher interest and insurance costs
• PBT for FY20 will also be edged back to around £101m.
• The group reports that food-based sales will grow from a lower base and adds that £2m to £3m will be invested in on-site training, higher wages and digital marketing. Interest costs will rise modestly.
• The group reports that total revenue will be up c3% at around £1.2bn. Full year numbers will be reported on 27 November
• FY20 will feature a 53rd week but this ‘will offset the impact of the step-up in securitised interest (which reverses by c £3m in 2021).’
• Overall, the group says ‘we therefore expect underlying profit before tax in 2020 to be at a similar level to 2019, reflecting growth in underlying operating profits offset by increased disposal activity, additional pub investment and higher interest charges.’
Managed & Franchised Pubs:
• Total LfL sales are up 0.8%. This implies an increase of around 1.9% over the last 10wks
• Overall, margins will be lower. This was guided earlier in the year. Labour costs have risen and labour-scheduling, in a service business, can only go so far
Destination & Premium Pubs:
• Sales are +0.1% for the year as a whole, in line with the figure given for week 42
• Comps, however, were soft and the performance has been held back by sluggish food sales. Covers have been under pressure but wet sales have been strong
Trading – Taverns:
• Taverns LfL sales are up 1.9% for the year as a whole. They were up 1.1% at week 42 implying an acceleration to around +5.4% over the last 10wks.
• Wet-led sales have been strong. Q3 (which was reported at the end of July) was less good due to hot-weather comps and the World Cup last year
Trading – Beer Company:
• Beer volumes are up 1% overall. They had been +4% at week 26 but slipped in Q3 against hot-weather and World Cup comps
• At its Q3, Marston’s reported that its sales shortfall was largely as a result of reduced lager sales (Estrella Damm) into the off-trade. Unsurprisingly, the boost provided by the World Cup and continued hot weather last year was not repeated
Balance Sheet, Cash Flow & Debt:
• Marston’s reports that net debt should be around £1,399m at end-September, up around £14m on last year.
• A small increase in debt had been flagged up and some extra stock has been taken on ahead of 31 October, the latest Brexit deadline
• Marston’s was recently reported to be inviting bids for c150 tail-end pubs (for around £45m) and the group is indicating today that disposals should total around £70m (earlier estimate £40m) in FY20.
• The group has recently cut back on its opening programme in order to more rapidly pay down debt whilst maintaining its dividend.
• MARS has previously indicated its intention to reduce debt by around £200m. The higher level of disposals will accelerate this reduction, but the group will lose the EBITDA that the disposed pubs had previously generated
• MARS’ dividend is secure and, as the company is moving towards a position where it should generate around £50m p.a. after the payment of a maintained dividend, it will still be in a position where it can decide to either pay down debt further (by the £50m p.a.) or restart its new-build programme.
Conclusion & Outlook:
• CEO Ralph Findlay reports ‘our drinks businesses have performed well, achieving further growth against an exceptionally strong 2018.’
• He says ‘wet-led pubs have led the charge continuing their positive trajectory and food pubs have achieved modest sales growth.’
• Mr Findlay adds ‘operationally, we remain focused on further improving our proposition and plan to make additional investment in both our pub teams and digital marketing in the forthcoming year.’
• The group says debt will be reduced by £200 million and it concludes ‘we are making encouraging progress and have decided to increase the pace of our disposal programme this year to accelerate the achievement of this target.’’
• Marston’s strong performance in Q1 and Q2 faded over the tough comps provided by the hot weather and the World Cup last year.
• Today’s downgrades, whilst disappointing, reflect the reality that this was a tough year where margins have been hard to maintain.
• The group has benefitted from the recovery in wet-sales across the country as a whole but, again, comps have been hard to beat.
• Marston’s shares have been buoyed by the Greene King takeover approach and, given their performance and the tone of today’s statement, some further profit taking is likely.
• The shares are nonetheless not expensive. The yield is secure and, with debt coming down and a yield of 6% plus to support them, downside should be limited.
• Marston’s retains an estate of well-managed and well-maintained, largely freehold properties. It is selling product that the consumer would like to buy at a price they are prepared to pay. The moves it has announced today suggest that it intends to sharpen up its act in FY20.
• Lodges, craft brewing and food (in the longer term) remain growth areas. Marston’s is a major brewer and has a large wet-led element to its estate. Its managed houses are growing sales and holding margins. The group is well-placed to return to growth and to create further value for its shareholders.
DELIVEROO – A CLOSER LOOK AT ITS DECEMBER 2018 NUMBERS: Deliveroo issued a Press Release outlining the main points in its FY2018 accounts on 2 October. Here we take a closer look at some of the numbers. 15 Oct 2019:
• The bare numbers are as Deliveroo reported but there is a lot of red ink.
o Sales rose by 72% to £476m with growth in both the UK and in markets overseas – but losses have widened to a loss of £232m in calendar 2018, up from £199m in the year earlier.
o Deliveroo founder & CEO Will Shu has said the business has ‘continued to invest heavily in expansion, technology and new products.’
• Deliveroo says ‘the Group’s business operations capitalise on rapidly changing food consumption habits.’
• It says ‘its website and smartphone app enable consumers to enjoy food from their favourite restaurants, including many that did not previously take orders online.’
• It is expanding its Editions kitchens.
• The group has won a number of awards – but that is not always associated with financial success.
• Deliveroo reports ‘we were also top of the Financial Times 1000 — a list of the top 1,000 European companies achieving the highest compound annual revenue growth over the 3 years to the end of 2017.’
• Ultimately, profits will be important.
• Deliveroo intends to generate ‘significant further growth in sales from current and future customers in all markets. It is implementing several strategies to generate this growth, including: Further improvements to its online presence; Geographic expansion into new locations; and Large-scale, high impact marketing campaigns.’
• It accepts that new competitors pose a risk and says (as many companies do) that ‘as the Group is currently loss making, there is a risk that execution of its strategy could be inhibited by insufficient cash being available.’
• Deliveroo says it is ‘supported by an engaged investor pool and cashflow is carefully monitored and managed by the directors’.
• It says ‘the directors consider the Group and Company to be a going concern due to the available cash holdings which are considered by the Board to be adequate to allow the Group and Company to continue in operational existence for the foreseeable future’.
o This is an understandable comment but, as the group has now accumulated losses of £592m from incorporation (only in 2012) to December last year, the 2/3-billion-pound question is going to be – when does expenditure swing from being an ‘investment’ to being a straight loss?
o We are not trying to suggest that financing is an issue as Deliveroo secured US$575m in additional funding earlier this year in a round that saw Amazon take a material stake.
o However, we are just gently suggesting that, at some point, there could be an ‘oh, my God’ moment and funding may become less easy to source. Of course, this may: 1) never happen and if it did, then 2) any catalyst at this stage is unknown.
o If it were to happen, then the swing from a Going Concern to any other method of valuation, would be pretty extreme.
o Deliveroo says ‘we’re focused on our mission of becoming the definitive food company, and we’ve continued to invest heavily in expansion, technology, and new products to meet this ambition.’
o It says: ‘we are leading the field in innovation in food delivery, helping our restaurant partners to boost their sales and providing more well-paid work for riders.’
o However, we’d ask another question at this point: just how revolutionary is the idea of delivering food from a restaurant to a customer’s front door?
• If a model needs to make profits to survive, just how much do either 1) prices or 2) volumes need to rise for Deliveroo to make money?
• And how reasonable is no1?
• And, for that matter no2 as delivery capacity continues to flood into most of the group’s markets.
• At this stage in the group’s life, it would arguably look the same were it to be either 1) a great success or2) nothing but a money pit.
• But it is currently losing around £20m a month – and that will need funding.
• At some point, Deliveroo will have to move from being a concept to being a profitable business.
• Deloitte is the auditor (no change), there have been no director appointments or resignations during the year (calendar 2018) and funds were raised post year end.
GENERAL NEWS – PUBS & RESTAURANTS:
• The Competition and Markets Authority is investigating the bid by the c£3bn Stonegate Pub Company to buy EI Group. It (the CMA) has launched phase one of its investigation following the European Commission’s decision to refer the case to the United Kingdom.
• The deadline for the phase one decision is 16 December, with the opportunity to comment open until 25 October. EI Group is the largest owner of pubs in the UK with over 4,000 units. Stonegate has around 760 managed pubs and bars.
• UKHospitality has reacted to the Queen’s speech, with Chief Executive Kate Nicholls commenting: ‘Legislation on tipping threatens to add another unwanted burden on businesses at an already very hectic time. Any new measures need to have full input from the hospitality sector, the businesses who will be affected. We already have a clear, transparent and fair voluntary Code of Practice regarding the collection and sharing of tips. The Code makes it clear to businesses, employees and customers how tips can be fairly shared so that all team members get what they deserve and customers can be confident that the money they tip is going to the correct place’.
• Kate Nicholls further commented on immigration: ‘A points-based immigration system could be disastrous for hospitality if potential employees are prevented from coming here to work. Any future system needs to be nuanced enough to recognise the wide range of skills needed in hospitality and across the UK’s economy and to ensure that businesses can still recruit’.
• On the environment, Kate Nicholls said: ‘Hospitality shares the wider environmental concerns and we have already been working proactively to cut waste, promote recycling and tackle environmental issues. Voluntary measures have already worked to remove huge amounts of single-use plastic and we are working on measures to reduce carbon emissions for our sector’.
• Discounts widely available. Prezzo 40% off mains, Harvester 50% off. Pizza Express 2 for 1 on mains and Café Rouge 30% off food.
• European pork prices have reached a six-year high, increasing 35% since the start of the year to €1.82 a kg.
• McDonald’s and Starbucks are investing millions of dollars into developing eco-friendly alternatives to disposable coffee cups.
• The US restaurant industry has seen LFL sales decline 0.4% during Q3 of 2019, the first quarter of negative growth in two years. Victor Fernandez, vice president of insights and knowledge for TDn2K commented: ‘This is something we were expecting given the underlying relentless erosion of guest counts and the fact that the industry was headed toward tougher previous-year sales comparisons as we went into the second half of 2019’.
• The US based meal delivery group, DoorDash is expanding into the rent-a-kitchen space with the launch of DoorDash Kitchens.
• PizzaExpress has stated that 95% of its restaurants in the UK and Ireland are profitable after rumours circulated that 20% of its units are at risk of closure.
• UKHospitality has teamed up with Tourism Alliance to publish a joint guidance report for the hospitality and tourism sectors in the event of a no-deal Brexit. UKHospitality CEO Kate Nicholls remarked: ‘We are now less than three weeks from the scheduled withdrawal from the EU and, as it stands, we are leaving without a deal. Much can change in the coming days and weeks, but it is absolutely vital that businesses leave nothing to chance and prepare as comprehensively as possible’.
• The Sunderland-based soft drinks group, Clearly Drinks has invested an undisclosed sum into the flavoured water brand Revolution Waves.
• The BRC and Springboard report the number of shoppers heading to UK high streets, retail parks and shopping centres has fallen by 10% in the last seven years. Retail footfall dropped 1.7% last month compared with the same month last year, and 1.6% on a three-month basis.
HOLIDAYS & LEISURE TRAVEL:
• The Spanish Confederation of Hotels and Tourist Accommodation say at least 500 hotels will be shut down as around 1.3m holidaymakers will be unable to fly into Spanish destinations this autumn and winter due to the Thomas Cook collapse. The Spanish government previously announced a package of measures worth €300m.
• A report commissioned by the Committee on Climate Change (CCC) recommends scrapping air miles schemes as they encourage excessive flying and introducing an ‘escalating air miles levy’ to dissuade people from flying too much.
• STR reports London hotel occupancy -0.1% to 86.9% in September 2019, with ADR +7.9% to £170.63 and RevPAR +7.7% to £148.33.
• The investment group, Triton Partners is believed to be in advanced talks about acquiring Thomas Cook’s Scandinavian business. Thomas Cook’s Nordic operations trade under the brands Ving, Tjareborg and Spies, and collectively employ roughly 20% of what was a 21,000-strong workforce.
• Rank Group has updated on Q1 trading today saying that LfL net gaming revenue rose 10% year-on-year.
• Rank reports that digital revenue rose 16% and LfL NGR at the group’s venues rose by 9%. Rank says ‘the Digital segment continued to grow strongly. Grosvenor grew NGR 27% in the quarter supported by strong growth in customer numbers. We successfully migrated onto our new content management system in September. Higher average revenue per user helped drive Mecca digital’s NGR by 14% in the quarter.’
• CEO John O’Reilly comments ‘we are pleased with the growth achieved across our businesses in this key part of our financial year, as well as with the ongoing progress we are making with our transformation programme. The acquisition of Stride marks a pivotal moment in the development of our digital offering and having completed on 4 October 2019, we are now starting the execution of all our plans for integration and delivery of synergy benefits.’
• Vodafone says customers will not have to pay for mobile phone charges – some as high as £10,000 – that they wrongly received after using their devices abroad, much to their customers’ relief.
FINANCE & ECONOMICS:
• Sterling up slightly at $1.262 and €1.1439. Oil lower at $58.89. UK 10yr gilt yield down 6bps at 0.65%. World markets lower yesterday with Far East mixed in Tuesday trade.
• Brexit & politics.
o Queen’s Speech yesterday labelled a sham and a pointless wish-list for a minority government.
o Reuters reports EU diplomats as saying a full agreement is unlikely this week. That will scupper Timetable A, which has the Commons voting on the deal on Saturday.
o PM Johnson has said he will not resign if his Queen’s Speech is rejected by parliament.
START THE DAY WITH A SONG:
Yesterday’s song was No Surprises by Radiohead. Today who sang:
The pack on my back is aching,
The straps seem to cut me like a knife
I’m no clown, I won’t back down
I don’t need you to tell me what’s going down
RETAIL WITH NICK BUBB:
• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Asda win for the second week in a row. The Asda basket cost £87.43, £2.26 cheaper than second placed Sainsbury (with both selling Aberlour scotch whisky at £28 a bottle). Morrisons was third, on £98.41 (despite charging £36 for the whisky), Tesco was on £98.88 and Waitrose was well off the pace, on £104.07. The separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability was won by Morrisons, however, as its 30,000 sq ft store in Bridgewater in Somerset came top, with 67 points out of 100, in a low scoring week (the Sainsbury’s store in Wimbledon, did very badly on stock availability and only scored 48 points). Elsewhere in the magazine, The Grocer flagged that Lidl is actively exploring a move into Online Grocery next year and that Poundland is
• Weather Watch: It has turned wet and autumnal recently, but memories about “the weather” are always notoriously short-term and often too London-centric…so we turned to the Retail weather consultants Planalytics for their regular monthly overview of how last month’s weather “should” have affected trading on the High Street across Great Britain…And their overview for the calendar month of September was headlined “Seasonable but Warmer Than Last Year”, flagging that although autumn arrived with blustery winds and rain in many parts of the country, for the month as a whole the average temperature of 14.6° C was 1.2° C above last year and 0.8° C above “normal”. Overall, across the country, in terms of sales of key seasonal products, Planalytics did not detect any significant impact on “weather driven demand” last month, but it did highlight that sales were -4% for Frozen Burgers (perhaps as
• News Flow This Week: The latest monthly Kantar/Nielsen grocery market share figures (for the 4/12 weeks to Oct 5th/6th) come out at c8am this morning. Tomorrow brings the ASOS finals. The WH Smith finals are on Thursday, along with the ONS Retail Sales figures for September and the Watches of Switzerland AGM.