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Wed 3rd Sep 2014 - Spirit reports 2.1% rise in summer like-for-likes
Spirit reports 2.1% rise in summer like-for-likes: Spirit Pub Company has reported a 2.1% rise in like-for-like sales in the 12 weeks to 16 August, down from the 4.4% achieved in the 52 weeks to the same date because of strong comparatives from 2013, when there was a heat wave. The most recent 12-week period saw like-for-like food sales up 2% and like-for-like drink sales rise by 2.3%. The company said: “The robust performance of our managed pubs has continued in the quarter, with like-for-like performance remaining ahead of the market. These results are encouraging, as they come on top of strong comparatives from last year. During the quarter to 16 August 2014, we acquired 11 pubs into our managed division and will convert these into our Spirit brands over the coming weeks. We expect these pubs to generate returns materially ahead of our cost of capital.” The leased division saw like-for-like net turnover rise 1.1% in the 12 weeks to 16 August, compared to 2.8% for the 52 weeks to the same date. Like-for-like net income was up 4.8% in the 16 weeks, and 4.2% for the longer period. Spirit said: “The market-leading performance of our leased estate, as a result of the continued execution of our strategy, has now delivered four consecutive quarters of like-for-like net income growth.” Spirit's chief executive, Mike Tye, said: "We are pleased with our strong performance in the quarter, particularly when compared to the good summer weather last year. Both the managed estate and the leased estate have outperformed their respective markets. While the market still remains challenging, the strategy we have put in place continues to deliver consistently solid results through investment in our brands, estate, infrastructure and people. We remain confident in the long-term outlook for the business and expect full year results to be ahead of market expectations.” Numis Securities' leisure analyst, Douglas Jack, said that Spirit’s full year trading update was ahead “such that we are upgrading our forecasts by 3%, with 2014E PBT increasing to £59.0m from £57.4m (consensus: £57.3m).” Jack added: “Due to this and an acceleration in expansion, which is expected to generate returns materially ahead of the cost of capital, we are also upgrading future years’ PBT by an average of 3%. The last 12 weeks represents a market outperformance: the CGA Peach Tracker rose an average of 1.3% in June-July; after which, year-on-year rainfall was up 93% in August. Two-year LFL sales are up 6% in both Q4 and over 2014E, driven by brand evolution (now involving sparkle programmes for Taylor Walker and Fayre & Square), rising service standards as well as digital marketing (now more bespoke and loyalty-orientated). With price and volumes both in growth, we forecast FY managed ebitda margins being up 40 bps versus 31 bps in H1. Leased LFL net income rose 4.2% during the 52 weeks to 16 August, including a 4.8% increase during the last 12 weeks. This sector-leading result was driven by rising estate and licensee quality as well as increased central purchasing (aligning contracts with the managed estate). Whole estate (not just core) LFL net income has averaged 5.4% over the last three quarters. Spirit acquired 11 managed pubs during the 12 weeks to 16 August, of which 10 are former Orchid pubs. We believe a further 12 ex-Orchid pubs should be acquired by the end of Q1 2015E. We estimate Spirit could achieve a 50%-plus cash return on the ex-Orchid pubs and a 20% cash return on single-site acquisitions (five to ten per annum), aided by rebranding, largely into Flaming Grill, which we believe increased to 115 units from 87 over the last year. We are upgrading our 2015E PBT forecast to £63.0m from £61.3m (consensus: £60.1m), despite having cautious assumptions of 2% LFL sales and no margin growth in managed as well as flat profit in leased. We believe increasing visibility on LFL profit growth, high cash returns, faster expansion and net debt reduction (growing cash reserves) should bring the re-rating the company deserves. Our 110p target equates to 8.5x EV/ebitda, still at a discount to the sector.”


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