Interesting info from Langton Capital, worth reading.
I don’t know why but Langton got an email yesterday inviting it to join the ‘expert panel’ at a Business Crime conference.
Not sure if the conference’s title should have been prefaced by the words ‘how to enact…’ and nor, for that matter, sure why Langton was singled out as an expert on crime.
It became clearer which way the crime was flowing, however, when the email went on to say that, as Langton was a ‘preferred partner’ of this bunch of crime experts, it could contribute to the conference by paying only £375 plus VAT. What do they think this is, boom time?
Anyway, with regard to legislation etc., we seem to be feeling the impact of MIFID II a bit these days. Various contacts have needed to unsubscribe from the email whilst others have been only too happy to join us, ask questions and generally pick our brains, for all that’s worth.
However, and here’s a thought, if MIFID II stops professional investors from receiving not-specifically-solicited information, how will they ever know what they don’t know? On to the news:
PUB & RESTAURANT TRACKER – CHRISTMAS 2017:
• The Coffer Peach Tracker for the 6wks to 7 Jan shows pub & restaurant LfL sales down 0.1% over the period. Inflation is 3.0%
• Tracker shows drink led venues outperformed food-led over Xmas period.
• Poor Xmas trading. Peach comments ‘the public still went out to eat and drink, but essentially it was a repeat of last Christmas.’ Only it wasn’t really, was it? With inflation at 3.0%, trading was worse than 2016.
• Tracker says Xmas saw ‘better trading in the second half of the festive season, when people were mainly off work.’ But this ‘failed to provide enough of a boost to beat 2016’s overall numbers.’
• Xmas. Managed pubs (up 0.6% LfL) outperformed restaurants at down 1.0%. Down 1.0%, with wages, rates, food costs etc. doing what they are doing, is not very good at all. Level of current discounting underlines this.
• Pub drink sales performed more strongly than food. Peach comments ‘across the managed pub market, drink sales were up 1.8%, while food was down 1.4%. Food-led operations, both pubs and restaurants, generally had a worse Christmas than 2016.’
• Xmas performance in London and provinces broadly the same.
• London saw a ‘bigger contrast in fortunes between restaurants and pubs, with casual dining down 2.6% inside the M25 and pubs up 1.5%.’ Peach’s Peter Martin comments ‘looking across the six week period, the run-up to the holidays saw generally poor trading, with the snow in particular hitting sales. Trading picked up in the last three weeks either side of the core holidays. Every year the Christmas period seems to be coming more concentrated.’
• Total Xmas sales +3.4% suggesting that capacity has been increased by around 3.5%.
• Coffer Corporate Leisure says it does not think the F&B market is in free-fall. It says the trading environment is competitive but ‘these numbers are not the car crash that has been widely portrayed.’ Tell that to the creditors of Byron etc.
• Coffer says ‘2018 will be a challenging year and we expect to see bars and pubs trading more robustly than restaurants.’
• RSM comments ‘since the New Year a number of high profile brands have already announced site closure plans and with consumer confidence waning and uncertainty ahead of Brexit, we expect our restructuring teams to be kept busy in the months ahead.’
• Langton. The level of discounting in Jan (see many Langton stories) suggests the trade realises it needs to generate cash to pay its bills.
• Langton. The down 2.6% LfL recorded by London restaurants goes a long way to explaining the behaviour of Byron, Jamie’s & others when it comes to closures. Other operators have commented on tough trading.
• Langton. The above doesn’t comment on discounts. These were more apparent this Xmas than last suggesting that, even though sales were under pressure, margins are more likely to have fallen than to have risen.
• Langton. Next rent bills are payable in about 9wks. If any companies are contemplating pre-packs, these could be enactioned sooner rather than later. RSM says that restructuring teams are likely to remain busy.
WHITBREAD Q3 CONFERENCE CALL:
Following its Q3 update this morning, Whitbread hosted a conference call for analysts and our comments are set out below:
• Activist shareholder. Sachem Head Capital. Group intends to work for all its shareholders. It has a plan. Not being deflected etc. Whitbread ‘will not deviate from delivering great value…’
• Outlook? Group guides its growth tracking GDP (presumably plus inflation).
Premier Inn & Restaurants: :
• Whitbread has opened 2,500 rooms in London over the last 2yrs. Performance in Q4 so far ‘has been positive’
• Cannibalisation? Last year new openings hit LfL sales by around 1.5ppts. This may be similar this year. A ‘tough market’ may mean this takes longer to settle down.
• Premier sees a lot of growth past 85k rooms. Around 100k has been mentioned. There isn’t a milestone as such.
• Supply? London up 4.5% or so last year. Provinces 1% to 2%. London should be 3% to 3.5% next year. There might be 1% coming out p.a. as private operators sell up. Current trading is a bit better but early-Jan is not necessarily a reliable indicator.
• Margin? Guidance flat to minus 20bps.
• Restaurants have performed well. Concepts have been tested. Brand numbers may be reduced. Offer is current & relevant. Prices haven’t really risen. This is still seen as ancillary to the hotel business.
• Costa taking share but declines on the High Street. Group says it has a ‘flexible lease structure’.
• How many stores could you churn? There are virtually no unprofitable stores. Tail very small. Could be 20-30 per annum.
• High Street. Whitbread ‘has no feeling that life on the High Street will be any better in 2018 than it was in 2017’. Strong hint that group will exit some short leases. Costa is aiming for higher footfall areas & is pushing Costa Express.
• Poor High Street may allow the group to churn its estate & acquire ‘better’ sites.
• Very good returns – but not as good as they were? Mid-30s to 40% on a leasehold business remains very good. Perhaps returns had spiked up. They are now more normal.
• Some capital may be redirected into Costa Express & China. There will be c£5m to £6m invested in each of those areas.
• Price increases historically Jan 16 & Feb 17. WTB says this ‘isn’t the first lever they want to pull’. Says they have ‘optionality’. Happy to be cheaper than Nero & Starbucks. They will be lapping last year’s increases next month. No decision on what to do yet.
• Fresco store? This was a method by which to test a food offer.
Debt, balance sheet & cash-flow:
• No further guidance. Re IFRS16, group says decisions are still being made. The group does have a large freehold portfolio.
• Capex £600m to £700m this year FY18 and next.
Margin, costs etc.:
• Whitbread expects around £80m of cost headwinds this year. It says cost savings are on track. This continues into FY18/19. Group will, however, ‘keep on investing’
• Given sales are weaker but profits still in line, presumably margin is better? Yes. Group isn’t giving margin guidance for next year. Says efficiency programme ‘has got good momentum’
• Whitbread has said that growth has ‘moderated’. It’s actually negative (at least on a LfL basis) at Costa, but the group says that January is better.
• WTB’s shares fell by 2.5% yesterday ahead of this statement and they have bounced this morning. Nonetheless, WTB has conceded that, in the short term, there’s a bit of a supply problem in London hotels (partly caused by Whitbread itself) and, for the foreseeable future, the UK High Street is likely to remain difficult.
• A multiple of 15-16x this year’s earnings is perhaps a little on the high side and FY19 numbers will be subject to ongoing review over the next few months.
• Whitbread has international potential, of course, and it has, in its own words, ‘optionality’ when deciding where to invest capital.
• The group will be lapping price increases at Costa next month and LfLs may remain under pressure. News-flow over the coming months will require some managing. Having said that, WTB is a strong, (relatively) stable and well-financed company with good brands and largely freehold assets. In the medium term, adverse news-flow, whilst its impact could be temporary, could win the day.
PUB, RESTAURANT & DRINK PRODUCERS:
• Nando’s has begun trialling a new smaller format that will be more focused towards delivery and on the go food, the MCA has reported. The new concept will be known as Nando’s nino with its first site having opened this week in Twickenham.
• EI Group yesterday bought back 153k of its own shares for cancellation at 140.95p per share.
• The ALMR is pleased by the creation of the All Party Parliamentary Group for New Towns, with Chief Executive Kate Nicholls stating: ‘Pubs, bars and other hospitality venues are valuable social spaces and focal points for communities. The creation of a new town is a fantastic opportunity to produce a new community with its own identity. Hospitality businesses will be vital to a new town’s success’.
• The craft brewery and taproom, Brew York has told the MCA that it is planning to extend its brewery and add a new street food kitchen. Co-founder of Brew York, Wayne Smith said: ‘Lots of our customers have told us they love our brews and really enjoy visiting our tap room to see where our beer is made. With our expansion plans we want to create more jobs to grow our Brew York family so that we can increase brewing capacity and spread the love a little further’.
• Guinness is the latest brand to pay increasing attention to tee-totalers by introducing a new non-alcoholic beer. The rate of alcohol consumption globally has been decreasing at an increasing rate with volumes down 1.3% in 2016 compared to an average rate of 0.3% in the previous five years.
• The PMA writes that it’s not just restaurants tapping into the delivery craze. PubLove has partnered with Deliveroo after upgrading its food offer and says that the move has increased marketing while driving incremental sales. Head of operations, Chris Clawson, commented: ‘It provide income during kitchen downtime, when you would normally be paying your chef to do a bit of prep or cleaning. Finally, it costs nothing if no one buys anything. So as long as you are careful with your GP then you have nothing to lose.’
• Japan’s beer shipments have hit a record low for the 13th year in a row, according to data released from five major Japanese breweries. The country’s total export shipments numbered 407 million cases. Beer shipments fell 2.9% to 204.59 million cases, while shipments of ‘happoshu’, the low malt, quasi-beer beverage, dropped 4% to 54.99 million cases. In addition, exports of the country’s third-segment beer-like beverage called ‘hodgepodge’ dropped 1.5% to 144.49 million cases, according to the report.
• NRN in the US says ‘delivery remains the Rubik’s Cube of service for most big restaurant brands outside of the pizza segment.’ Although delivery can increase sales, operators ‘were struggling to make the economics work.’
• Nestle is to shake up its board in the face of activist pressure per reports.
• Toronto-based Freshii Inc. has hit out at US rival Subway for allowing its franchisees to switch to the Canadian sandwich brand. Toronto-based Freshii, with 300 locations in 15 countries, published a full-page open letter to Subway in the Chicago Tribune urging the company to consider allowing franchisees to move to its brand. Milford, Conn.-based Subway, owned by Doctor’s Associates Inc., has 44,000 restaurants in 113 countries, but it has closed some stores over the past three years.
• Pernod Ricard has acquired the remaining shares in Avión Tequila from its founder Ken Austin and rapper Jeezy. In July 2011, Pernod Ricard took a minority interest in the brand, in addition to receiving worldwide distribution rights. In 2014 the producer reportedly upped its involvement buying a majority stake in the brand for around US$100m. This week the French drinks giant confirmed it had purchased the remaining shares in the company for an undisclosed sum, taking 100% ownership as part of its growth and innovation strategy in the United States.
• Burger King in the US has introduced a half-pound burger. This will compete with McDonald’s Double Quarter Pounder with Cheese. BK says ‘we’d like to offer our deepest condolences to all the flat-top fried double quarter pound burgers out there. We’re flame grilling the competition.’
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