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Thu 29th Jan 2015 - Mitchells & Butlers reports like-for-likes up 1.7%
Mitchells & Butlers reports like-for-likes up 1.7%: Mitchells & Butlers has reported like-for-like sales up 1.7% in the 17 weeks ending 24 January. Year to date sales have increased by 9.1%. The company stated: “The festive period saw a good trading performance, with like-for-like sales growth of 4.8% in the two weeks of Christmas and New Year. Trading was especially strong on key dates, and in particular Christmas Day, which saw like-for-like sales growth of 7.1% and more than 200,000 meals sold. The higher level of sales is supported by growth in food volumes. Margins continue to be weaker than last year due to a number of factors including the planned integration of the Orchid business and the careful approach which we have adopted to pricing in a demanding consumer environment. We have acquired 4 sites and converted 15 in the financial year to date, including the first 6 conversions of Orchid sites to our existing brands and formats. We remain on track with the integration of the Orchid business. The investment into our EPOS system is progressing on schedule, with more than 1,400 pubs now live and the project due to complete this financial year.” Chief executive Alistair Darby said: “We are pleased to have delivered a good trading performance over the important festive season. As we now move into the more difficult winter trading period we continue our focus on growing our business through increased volumes, upgrading infrastructure and further improving staff turnover and net promoter scores. The Orchid integration plan is on track and we are encouraged by the early trading performance of the converted sites.”
EasyHotel reports trading in line with expectations in first four months: EasyHotel, the owner, developer, operator and franchisor of “super budget” branded hotels, has reported trading for the four months of its financial year ending 30 September 2015 is in line with management’s expectations in both its owned and franchised hotels notwithstanding that December and January are traditionally quieter trading months for most of its hotels. It stated: “The group’s 103-bedroom owned hotel in Croydon which opened in November 2014 was profitable in its first full month of trading, demonstrating the robustness of the business model. The group’s 132-bedroom franchised hotel located in the centre of Frankfurt opened in January 2015 and is seeing healthy demand in its first month. The group continues actively to pursue potential UK sites for future hotel opportunities.”
Diageo – first six months were flat: Diageo has reported net sales were broadly flat (down 0.1%) with volume down 1.9% in the six months ended 31 December 2014. Chief executive Ivan Menzies said: “We have improved our performance during the half and we have again shown: the strength of our brands, which is driving our share gains; our strong innovation capability, which has enabled us to access new growth opportunities; and our focus on cost. We delivered the planned savings from our global efficiency programme together with procurement benefits in marketing spend which we have reinvested in our brands and we increased our investment in our routes to consumer while again expanding our margins. We have already taken action to improve the performance of those brands and markets that have not performed as well as we would expect. This contributed to our stronger second quarter performance and I expect to maintain this momentum through the year. The half saw Diageo acquire control of USL, putting us in the position to create an iconic leader in spirits in an attractive market. We have also reached agreement to acquire all of Don Julio, which will significantly strengthen our position in one of our fastest growing categories. The quality of these results in a tough environment, with depletions ahead of shipments and improving cash flow, reinforce my confidence that Diageo can realise its full potential and deliver our performance ambition.”

Douglas Jack – we expect positive LfL net income at Enterprise: Numis Securities leisure analyst Douglas Jack has issued an ‘Add’ note on Enterprise Inns shares, with a Target Price of 125p, ahead of its AGM statement is due on Thursday 5 February. He said: “We expect like-for-like net income to be positive due to a combination of easier comps, improving trends for wet-led pubs and self-help, including a rising ratio of growth capex. Last year, the shares priced in the Market Rent Option, which the House of Lords is now proposing to water down. We expect like-for-like net income to have been positive in Q1 2015, constituting the sixth consecutive quarter of positive like-for-like net income. In part, this is due soft comps: although like-for-like net income rose 1.4% in 2014, it rose by just 0.5% in both Q1 and Q4. Trading trends are improving in the wet-led pubs sector (58% of Enterprise’s estate is residential wet-led): there are increasing signs that consumers are trading up, a trend which helped wet-led pub beer and cider sales to rise by 1.2% (in value terms) in the year to December 2014, outpacing a 0.5% increase in the food-led pub segment. Enterprise has improved the quality of its estate, aided by increased growth capex, which the Market Rent Only option (MRO) has put at risk. The purchasing power of the beer tie pays for this capex, so if the MRO removes the tie, the affected pubs are likely to lose their capex and business support. Thus, the House of Lords have added a new clause: “The Pubs Code shall offer an exemption from the Market Rent Only Option for a mutually agreed period in return for a significant investment by a large pub-owning business in that tenant’s pub”. It is possible that franchise pubs will also become exempt. Obviously, the risk of closure will increase in pubs where the MRO is applied. Given this, it is fortunate that The House of Commons has voted down clause 16 of the Infrastructure Bill, which would have required planning consent before a pub could be changed to retail or housing use or knocked down. The c.600 pubs classified as Assets of Community Value will require planning permission for this purpose. We expect to hold our full year 2015E forecasts, which are in line with consensus and assume like-for-like net income rises 0.5% and net debt falls 4%, versus a 2% decline in Ebitda (due to 200 pub disposals), enabling net debt/Ebitda to fall to 7.8x from 8.0x. We prefer Punch Taverns based on valuation (8.6x vs 9.7x EV/Ebitda) and gearing (7.4x vs 7.8x net debt/Ebitda).”

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