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Morning Briefing for pub, restaurant and food wervice operators

Tue 13th Dec 2016 - Update: Whitbread, Luke Johnson, Marston's and Hollywood Bowl
Analyst – Whitbread site visit is a reminder of long-term Costa potential: Numis leisure analyst Tim Barrett has argued that a Whitbread site visit in Lambeth is a reminder of the company’s long-tem potential. He said: “Our site visit with Costa management was a reminder of the long-term structural growth within this market-leading brand. Profits have disappointed as Costa has invested for growth but this does not detract from the longer term potential, we believe. Whitbread is still planning for 2-3% like-for-like sales growth, driven by premiumisation, food capture and innovation to attract new customers. The next event will be Q3 trading on 26th January, where we expect little change from the lacklustre RevPAR trend in 1H. Impressive rollout potential: to meet its 2020 target of 2,500 sites Costa must add around 100 stores per annum. Compared to a pipeline of 280 stores and historic run rate 50% higher, we see scope to exceed this target and reach its 3,000 aspiration within five to six years. The market will worry about saturation but Costa is innovating – it expects to add 56 drive-through stores and 20-30 per annum with Moto, reducing its reliance on high street locations. The 2017 financial year is an atypical year as Costa will open a new Roastery to replace its historic hub in Lambeth (a 4x capacity increase to 45kT). The new chief executive is upgrading infrastructure across the business adding new tills and a labour scheduling tool which will improve efficiency but add a material cost headwind. Costa has not been immune from headwinds that have impacted across the sector – such as wages (£18m), coffee prices (£10m). However, cost savings such as recently agreed deals on disposable cups and milk will help from the 2018 financial year. Guidance of 100bp margin attrition suggests net cost growth of £12m. Disappointingly this will offset one year’s Ebit growth but after a step-change in the cost base, we expect a return to growth. Even the additional capex (£38m or 12% growth in IC) could be recycled if the Lambeth site is redeveloped or sold. In the first half of the 2017 financial year, Premier Inn’s RevPAR was flat as weakness in London (-6.8%) was offset by more robust regional trading – falls in September and October reflected a tough comparator with the Rugby World Cup in 2015. The recovery in Nov (c.4%) may reflect sterling weakness stimulating inbound travel. Nonetheless with market RevPAR broadly unchanged QTD, we remain comfortable with our FY17 assumption of 0.1%. Whitbread has underperformed the FT Allshare by 31% YTD; this leaves it on a CY17 P/E of 13.9x, FCF yield of 5.2% and dividend yield of 2.8%. The adjusted net asset value of 2600p implies a £2bn valuation for Costa (10x Ebitda) which may provide a share price floor, even if we see few positive catalysts ahead.” 

Johnson increases stake in Elegant Hotels: Sector investor Luke Johnson has increased his stake in Elegant Hotels to 12.5% – he now owns 9,450,000 shares. Johnson and his partners at private equity firm Risk Capital first took a significant stake in Elegant Hotels Group in late October – the company is the owner and operator of six upscale freehold hotels and a beachfront restaurant on the island of Barbados. Johnson appeared on the share register on Friday, 28 October with a stake of 10.64% in the company after buying 9,450,000 of the company’s shares. Fellow principals at Risk Capital are understood to have bought a further 550,000 shares in the company for a total stake of ten million shares at the time. The original total investment was worth about £7.6m. A Risk Capital source told Propel in October: “We are value investors and have followed Elegant Hotels since its flotation (in May 2015).”

Marston’s hires Matthew Roberts as non-executive director: Marston’s has hired Matthew Roberts as a non-executive director, with effect from 1 March 2017. He will also be a member of the Audit Committee. He brings with him significant experience of both the property and multi-site consumer retail and leisure sectors. He is currently chief financial officer of Intu Properties, a FTSE100 listed business. Prior to this, he was chief financial officer of Gala Coral Group from 2004 to 2008. Roberts held a number of senior roles with The Burton Group from 1989 to 1998, spanning group finance, corporate development and IT, during which time he lead the demerger of Debenhams in 1998. He was finance director of Debenhams from 1996 to 2003. He is a qualified chartered accountant, having trained with Coopers & Lybrand from 1985 to 1989, where he worked across corporate finance, audit and business service departments before moving into retail. Roger Devlin, chairman of Marston’s, said: “I am delighted to welcome Matthew to Marston’s and to the Board. His extensive property expertise and experience of a variety of high calibre, consumer-facing leisure and retail corporates will be highly relevant to Marston’s as we progress the continued development of our own business in pub-retailing and brewing.” 

Hollywood Bowl reports turnover and Ebitda boost: Hollywood Bowl Group, the UK’s largest ten-pin bowling operator, has reported sales rose 23.9% to £106.6m in the year to 30 September 2016. Group adjusted margin was up 42.6% to £29.4m. Total Average spend per game increased year-on-year by 6.3%. Total games volumes increased year-on-year by 16.3%. The total number of games played was 12.1m, up from 10.4m in 2015. Stephen Burns, chief executive of Hollywood Bowl Group, said: “We are really pleased to report our maiden results as a listed business. It has been a transformational year for Hollywood Bowl. Listing on the stock market is an important step in the development of the business but it reflects on the strength of the business and the whole Hollywood Bowl team that at the same time we have also delivered a strong business performance. We continued to invest in and enhance the customer proposition meaning we have given millions of customers a great experience. By making sure we continue to focus on what our customers want, we are confident that Hollywood Bowl has a promising future as a listed business. The new financial year has started well and in line with the Board’s expectations. From October through to the Easter holidays is a key trading period for any indoor leisure-based business and we have been pleased with the performance to date.” 

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