Langton Capital – 2019-11-13 – PREMIUM – JDW Q1, Just Eat, Coca Cola HBC & other:
JDW Q1, Just Eat, Coca Cola HBC & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Pottering around the garden, I’ve decided that I dislike ivy.
Not some unfortunate person called ivy but rather the plant, this largely on the grounds that it pays no rent, acts like a squatter and climbs up all of your trees.
And it’s not just that I resent it having a free ride. It also makes trees top-heavy and, as it’s an evergreen, it can catch the wind in the winter and bring down any trees that suddenly lack the will to live.
Indeed, our previous car very nearly got wiped out by a tree that scraped its bumper on its way down. Thankfully, it was in the middle of the night but the thought of waking up to a flattened car has stayed with us and, though cutting through ivy’s trunks does mean you’ll be littered with dead leaves for a month, it seems a price worth paying.
Anyway, how’s that for a thought for the day? On to the news:
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JD WETHERSPOON Q1 TRADING UPDATE: JDW has updated on trading. LfL sales growth is slightly slower but the company still expects a ‘reasonable’ outcome for the year. 13 Nov 2019:
JD Wetherspoon has this morning updated on trading for the three months to 27 October and our comments thereon are set out below:
• JDW reports that, for the 13wks to 27 October, LfL sales rose by 5.3% and total sales by 5.6%.
• The company reported in September that LfL sales in the first 6wks of the current financial year were up by 5.9%
• At the time of the group’s full year numbers (13 September), Chairman Tim Martin said: ‘we currently anticipate a reasonable outcome (pre IFRS16) for the current financial year, subject to our future sales performance.’
Corporate governance & the upcoming AGM:
• JD Wetherspoon’s AGM will be held on 21 November.
• Investors have been urged by PIRC to reject the firm’s annual report over its failure to clear pro-Brexit spending. The BBC reported that: ‘the move would be largely symbolic but would put pressure on the company’s board’.
• Mr Martin owns some 32% of JDW but, as a number of observers have pointed out, he does not own 68%.
• In response to PIRC’s suggestion, Wetherspoon boss Tim Martin told the Guardian by text message ‘PIRC rhymes with berk.” He then said he would not comment further on the matter until after the AGM.
• The chairman reported at the time of the company’s preliminary full year numbers ‘my shareholding over the last 15 years has increased, as a result of the company’s share buybacks, to 31.8% of the issued share capital.’
• The group is to seek further approval for a rule 9 ‘whitewash’, which will allow more buybacks without triggering a bid from Mr Martin (as a >30% shareholder).
• In today’s report, Tim Martin writes that the code regarding corporate governance needs revising
• He says ‘there can be little doubt that the current system has directly led to the failure or chronic underperformance of many businesses, including banks, supermarkets, and pubs.’
• Mr Martin says that reports are too long and are often unreadable
• He says non-executive directors are too powerful and ‘the system is also disenfranchising executives and the workforce.’
Balance sheet, debt etc.:
• JDW says that ‘the Company has opened one new pub since the start of the financial year and has disposed of four’.
• it says ‘we intend to open between 10 and 15 pubs in the current financial year.’
• JDW adds ‘in the current financial year to date, the Company has spent £43.3m on buying the freeholds of pubs of which it was previously the tenant and has bought back £6.4m of the Company’s shares.’
Conclusion, current trading etc.:
• JDW chairman Tim Martin says ‘I strongly believe that the UK economy will be better off on the basis of ‘no-deal’ rather than the deal proposed by the government.’
• He says re the company ‘we continue to anticipate a trading outcome for this financial year in line with our previous expectations.’
• JD Wetherspoon has reported that, though sales have slowed slightly, they remain strong and the outlook for the full year is unchanged. As LfL sales were up by 5.9% at week six, they must have slipped to a still very good +4.8% in the last 7wks of Q1.
• As expected, there is no mention of margins in today’s Q1 update. This is a brief trading update and debt and dividend are not covered.
• Today’s report is short (c130 words on trading) but there are c3,500 words on Brexit, corporate governance and the role of non-executive directors. Tax and the Euro are not mentioned.
• JDW is a great company that knows its market. Shareholders, however, may be a little concerned that it is spending their money and time (that they pay for) on issues unrelated to the company’s day job.
• On the trading front, JDW is selling some beer at £1.39 per pint. It has a loyal customer base, and this may secure its market position over time. In the short term, however, though sales may be strong, earnings may be somewhat held back.
• JDW does what it does extremely well.
• But it is not currently cheap, and its low margins could prove to be a point of weakness if sales growth stalls against the background of what the company has called ‘continuing political problems’.
PUBS & RESTAURANTS:
• Takeaway.com has updated on its recommended approach to Just Eat saying that ‘Takeaway.com continues to believe that the Combination has compelling strategic rationale and represents an attractive opportunity for both Just Eat and Takeaway.com to build on their strong existing platforms with the potential to deliver substantial benefits to respective shareholders, consumers, employees and other stakeholders.’
• It says that it is producing ‘a presentation setting out the strategic rationale of the Combination, including an overview of strategic initiatives expected to be implemented by Just Eat Takeaway.com.’ This is available on its website.
• Takeaway.com says it ‘expects to expand Just Eat’s position as market leader in the UK with initiatives expected to include the introduction of Scoober to the UK, leveraging Scoober’s existing European technology and knowledge.’ It says ‘significant benefits are also expected from the rationalisation of Just Eat’s current five IT platforms. While the timeline for a full integration has yet to be assessed, management expects the rationalisation of the majority of the platforms to be executable in a timely manner.’
• Coca Cola HBC has updated on Q3 trading saying that it turned in a ‘solid performance in a quarter where poor weather impacted industry volumes in our geographies.’
• CCHBC says FX-neutral revenue growth was 3.4%, or 2.3% excluding the impact of the Bambi acquisition. CEO Zoran Bogdanovic says ‘in a quarter in which unseasonably cold and wet weather significantly depressed industry volume growth in a number of our countries, we are pleased to have gained or maintained share in the majority of our markets and to have made progress with our commercial strategy.’
• Mr Bogdanovic adds ‘as we look to the full year, we are pleased to have seen an acceleration in Q4, giving us confidence that 2019 will be a year of solid top-line growth and good margin expansion.’
• Thwaites has seen revenue increase 7% to £53.4m with operating profit rising 9% to £8.7m H1 2019. Executive Chairman, Rick Bailey, said: ‘We are pleased to have seen like for like growth in all areas and a strengthened financial position – with net debt now at about £62m, down by £9m on the position a year ago. Obviously, the current political situation has created headwinds, but our business is in great shape to push on once the current impasse is resolved’.
• The North-east based brewer and pub operator, Camerons Brewery has acquired the five strong bar group, Bar Soba. Cameron’s reported a £500k drop in operating profit to £1.6m for the 12 months ending 5 May 2019.
• Chief Executive of UKHospitality, Kate Nicholls has commented that the UK hospitality sector can provide the country with the jobs it needs over the next decade: ‘Despite some difficult trading conditions, rising costs and struggles on high streets, hospitality has still added half a million jobs in the past decade. Whoever wins the General Election must acknowledge the importance of our sector and the challenges and opportunities these businesses face daily. Support for hospitality must be a priority, whoever forms the next Government’.
• Founder of Camden Town Brewery, Jasper Cuppaidge has told the Morning Advertiser that he is optimistic about the future of the brewing business. He said: ‘We are 10 years old next year, it sounds very old but we still feel very young. Next year we will have a full season of innovation in Hells, so Blooming Hells, which we have never released before, will come out in the spring’.
• A new London craft beer festival, Love Beer London, has been announced. Festival organiser Jaega Wise commented: ‘Over the last ten years the brewing scene in London has gone from strength to strength and in my opinion is now one of the most exciting beer cities in Europe, with more breweries springing up in communities across the Capital every few months’.
• McDonald’s workers in the UK are striking as part of a global day of protests over pay.
• McDonald’s is facing a further round of lawsuits in the US, these claiming that the company does not do enough to prevent sexual harassment in the workplace. The suits allege a ‘toxic work culture from the very top’. Former boss Steve Easterbrook was recently forced out of the company for having a consensual relationship with a colleague.
• Puttshack has appointed Paul Hunter as its Operations Director and Chris Lincoln as Head of Learning and Development.
• Big Hospitality has reported that, in the UK, ‘Californian-inspired brand Tortilla has come out on top in the burrito wars.’ The group broadly breaks even in a market where other operators persist in either dropping millions or in going bust. See Langton’s Premium Email piece Mexican Food: Too Hot for Some…from 16 and 17 October.
• Big Hospitality says that Tortilla ‘looks to be eyeing a sale.’
• Weird Fish is to introduce grass paper bags across its retail network. Premier Foods yesterday reported that it intends for all of its packaging to be recyclable by 2025. Grass bags (hay, actually) require less water to produce them than do paper bags of the same size.
• Star Pub & Bars and Gamechanger Pub Company have completed a £750k refurbishment of their second site, transforming from a wet only, under-used pub into a family-friendly, premium local.
• AB InBev acquires Craft Brew Alliance for an estimated $321m, despite turning down a deal to make the same acquisition in August. AB InBev currently owns a 31.2% stake in CBA, which it acquired in January 2013.
• Punch completes a £250,000 refurbishment of The Duke of Rothesay in Heysham.
• 2019’s Lancashire Tourism Awards names the Golden Ball pub in Longton as the ‘Dog Friendly Business of the Year’.
• Wine merchant Berry Bros & Rudd has reported sales up by 31.4% to £223m in the year to end-March, the highest level of turnover since 2010. Online sales helped sales growth. Berry Bros was founded in 1698 at no.3 St James’s Street in London’s West End.
HOLIDAYS & LEISURE TRAVEL:
• Wowcher acquires the Super Break brand from Malvern Group, which has appointed KPMG as administrators, for an undisclosed sum.
• Virgin Trains reports the number of people opting to travel between London and Glasgow by train instead of flying has reached ‘record levels’. The number of passengers travelling between England and Scotland’s major cities grew by 6%in the same period to a record of 717,592.
• Boodle Hatfield claims a development pipeline of 210 luxury hotels in London is being driven by affluent overseas tourists. It added the UK’s hotel market is one of the few sectors of the UK economy to have benefited from the ‘Brexit-related slump’ in Sterling.
• Consumer group Which? has warned travellers looking to take advantage of Black Friday holiday deals, that they may not be the bargains they first appear. EasyJet’s offering on 23 November 2018 said travellers could save £50 on 60,000 city breaks, but nearly eight of 21 trips cost less a fortnight later, Which said.
• The CEO of Dublin’s principal tourism-marketing organisation Failte Ireland, Paul Kelly has stated that the city is in need of more hotels.
• Disney’s new online streaming service, Disney+, has suffered technical issues on its first day.
• Tesla is to build its first European car plant in Berlin.
FINANCE & ECONOMICS:
• Both unemployment and employment dropped in the 3mth period to last month. Unemployment fell by 23k but employment fell by 58k as people presumably left the workforce (or the country). The number of job vacancies available fell by the largest number in nearly 10yrs.
• Average earnings rose by 3.6% in the year to last month compared with 3.8% in the year to a month earlier. Wage rates are still increasing at double the rate of CPI. The NIESR’s Wage Tracker suggests that regular earnings growth will remain just above 3½ per cent in the fourth quarter of 2019.
• The NIESR says ‘as the country approaches the general election, hiring activity is continuing to soften and the pace of earnings growth is slowing, suggesting that elevated uncertainty and a lack of growth momentum are increasingly taking a toll on the labour market.’
• Sterling down vs dollar at $1.2847 but up vs Euro at €1.1664. Oil down at $61.71. UK 10yr gilt yield unchanged at 0.81%. World markets higher yesterday but Far East lower in Wednesday trade/
• Brexit & politics:
o Reuters reports that Brexit donor Aaron Banks is telling Nigel Farage that he must stand his candidates down in marginal Labour seats.
o PM Boris Johnson has said he will not extend the transition period beyond the end of next year.
o The FT quotes a number of Conservative MPs as alleging that Boris Johnson is prepared to sacrifice seats in the South of England in order to appeal more in the North.
START THE DAY WITH A SONG:
Yesterday’s song was Bang a Gong (get it on) by T. Rex, today who sang:
Red hair with a curl,
Mellow roll for the flavor and the eyes for peeping
Can’t keep away from the girl
These two sides of my brain need to have a meeting
RETAIL WITH NICK BUBB:
• Mulberry: This time last year the British luxury group Mulberry was struggling with the impact of the House of Fraser administration, but it is still struggling, with today’s interims (for the 26 weeks to Sept 28th) revealing increased losses, notwithstanding increased investment costs in Asia. Mulberry say that the “UK business was impacted by an increasingly promotion led environment and lower traffic to stores” and UK market conditions remain challenging, but it is able to say that “the Board expects the group to trade profitably and to generate cash during the second half of the financial year”.
• Waitrose Watch: Yesterday morning’s JLP weekly overview, for w/e Nov 9th, revealed that Waitrose saw a fall of 0.5% in gross ex-petrol sales (despite a big Wine promotion). That left the last 41 weeks down by 0.8% gross cumulatively, but although Waitrose do not give a weekly LFL sales figure, unaccountably, we think that store space is at least 1% down (after the sale of five Waitrose stores in June and more disposals last month), so that the LFL sales picture won’t look as bad (the LFL sales dip was only 0.4% in H1, with gross sales down by 0.8%).
• John Lewis Trading Watch: The cool and autumnal weather should again have helped John Lewis last week, but, as the recent discounting frenzy in Home and Fashion continued to unwind, overall gross sales in w/e Nov 9th fell back again, by 2.3%, despite a lot of price-matching of competitor Sale promotions. In terms of sales mix, Fashion/Beauty sales were up by 2.4% gross last week, but Home sales were down by 3.1% gross and Electricals were down by 7.0% gross. The new Cheltenham store opened in October 2018 is now LFL, so there is no new space in the current figures, but we think that John Lewis LFL sales are down by between 1.5% and 2.0% over the last 41 weeks, despite the Sale-driven jump in the first three weeks in October: overall gross sales are running down by 1.2% cumulatively (the H1 LFL sales fall was 2.3%, with gross sales 1.8% down).
• Grocery Market Share Watch: The latest monthly Kantar/Nielsen grocery market share figures (for the 4/12 weeks to Nov 2nd/3rd) came out at c8am yesterday morning and the Kantar survey was headlined “Christmas can’t come too early for supermarkets as growth slows”, flagging, inter alia, that Aldi and Lidl are still taking share and that the food price inflation rate has stayed at 0.8%. And the rival Nielsen survey was headlined “Slow start to festive period as UK consumers continue holding back grocery spend at top four supermarkets”, highlighting that Grocery sales have slowed for the second consecutive month, rising by just +1.1% in the last four weeks (after +1.7% in the previous 4 weeks and 2.2% growth in the 4 weeks before that). The published Kantar survey focuses on the last 12 weeks and we hope to bring you the privately disclosed 4 week figures (which is what the City focuses
• News Flow This Week: Tomorrow brings the Burberry interims, the Card Factory trading update, the ONS Retail Sales figures for October, the DFS AGM and the Walmart/Asda Q3 results.