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Mon 5th Jun 2017 - Update: Deltic results, Domino’s Eurasia float and Whitbread
Deltic reports £8.1m investment as turnover hits £102m: The Deltic Group the UK’s largest operator of premium late night bars and clubs with 57 venues across the UK, has reported plans to invest £8.1 million in its estate this year. Turnover was up to £102m (2016 £101m) in the year ended 25 February 2017 whilst underlying Ebitda was £11.5m (2016 £13.4m). Admissions were up 1.7% on a like for like basis. The £8.1m will be invested in 15 sites, both existing and new, including PRYZM Portsmouth, PRYZM Bournemouth, ATIK Edinburgh and a continued rollout of Bar&Beyond. The business invests in its clubs every five years to ensure it continues to deliver exceptional nights out. Last year, the group spent £8.4m refurbishing 12 clubs, including Bar&Beyonds in Stevenage and Norwich and PRYZM Birmingham. In its first year of trading, PRYZM Birmingham will have welcomed over 350,000 clubbers and averaged over £100,000 in revenue each week. Peter Marks, chief executive of The Deltic Group said, “As our most recent Deltic Night Index report highlighted, young people still really enjoy going out to bars and clubs, and we want to make sure they’re having the best possible experiences when they choose our venues. We’re very proud that we understand what our guests want and invest in our estate to ensure that we’re delivering fantastic experiences each and every time. This latest round of investment is an example of that.” Marks added: “In the last financial year the late night sector faced a number of challenges from which we were not immune. In addition, we took the decision to implement a more aggressive depreciation policy in line with best practice. Nevertheless, as the market leader with a strong balance sheet we were able to continue to invest in a range of long term growth opportunities. The current year has started well and I am confident that the initiatives we have in place will enable us to respond even more effectively to customer trends.”

Domino’s Pizza Eurasia unveils plans for UK IPO: DP Eurasia, exclusive master franchisee of the Domino’s Pizza brand in Turkey, Russia, Azerbaijan and Georgia, has announced its intention to proceed with an initial public offering on the UK stock market to raise £20m to allow expansion in Russia. Led by its chief executive Aslan Saranga since its founding in 1996, DP Eurasia is now the largest pizza delivery company in Turkey and third largest in Russia, in terms of number of stores. The group is the fifth largest master franchisee within the globally successful Domino’s Pizza system with 571 system stores (corporate and franchised) as of 31 March 2017 – 488 in Turkey, 76 in Russia, four in Azerbaijan and three in Georgia. In preparation for the IPO, DP Eurasia has appointed Peter Williams as chairman of the group and Frederieke Slot as company secretary and executive director, in addition to Thomas Singer as senior independent non-executive director and head of the Audit Committee, with effect from Admission. All three will bring significant experience to the board of the company. The company stated: “Domino’s Pizza is one of the most successful fast food brands worldwide and a global leader of home delivery with nearly USD 10.9 billion sales in 2016 and 13,811 stores in 85 countries, with 92 consecutive quarterly positive like-for-like system sales internationally. Of the five largest master franchisees of the Domino’s Pizza brand, owned by Domino’s Pizza Inc., four are listed. DP Eurasia is the fifth largest master franchisee of the Domino’s Pizza brand owned by Domino’s Pizza Inc. The group offers pizza delivery and takeaway/eat-in facilities at its 571 stores (as of 31 March 2017) across four countries (Turkey, Russia, Azerbaijan and Georgia) with the highest concentration in Turkey. The group intends to continue to rapidly expand its store network in the future. The group’s Turkish Operations (which also comprise its operations in Azerbaijan and Georgia) have been awarded the “Domino’s Pizza Gold Franny Award” (the annual award that Domino’s Pizza Inc. presents to its master franchisees for operational excellence, growth rate and increase in revenue) for nine consecutive years from 2008 to 2016. The Russian Operations also received the “Gold Franny Award” in 2016. The group operates through its owned stores (“corporate stores”) and through franchised stores (together, the “system stores”). As of 31 March 2017, 37% of the group’s system stores were corporate stores, principally located in densely populated cities, and 63% were franchised stores. The corporate stores serve as a platform to develop best practices that the group subsequently deploys in its franchised stores and have been instrumental in adding and developing new countries to the platform. Since the group’s acquisition by Turkish Private Equity Fund II L.P (“TPEF II”) and Aslan Saranga in 2010, the group has rapidly expanded, opening (on a net basis) an average of 68 system stores per year (from 2011 to 2016). The group’s system sales increased by 38% from TRY 470.3 million in FY 2014 to TRY 647.4 million in FY 2016 (17% CAGR), and Adjusted Ebitda[1] increased by 73% CAGR to TRY 75 million in FY 2016 (FY 2014: TRY 25 million) with Adjusted Ebitda margin as a percentage of system sales improving from 5% to 12% over the same period. The group intends to open approximately 70 new system stores in 2017 (approximately 40 in Russia and approximately 30 across Turkey, Azerbaijan and Georgia), and approximately 70 to 90 new system stores annually over the medium term. The group currently targets high single digit percentage like-for-like growth in Turkey and low to mid-teens percentage like-for-like growth in Russia. The group has a centralised supply and procurement function. DP Eurasia owns and operates five commissaries which manufacture pizza dough and supply system stores. Senior management, supported by an experienced broader management team, have an established track record of delivering growth, and will be supported by strong non-executive directors on the board.”

Simon French downgrades Whitbread: Cenkos leisure analyst Simon French has downgraded Whitbread shares. He said: “We downgrade Whitbread from ‘Buy’ to ‘Hold’ following a period of share price outperformance (c+25% in last six months) and ahead of its trading update on 21 June (last three updates have seen negative share price reaction of an average of 4.9%). We expect Premier Inn (PI) to continue to lag the competition on RevPar growth this year having reached ‘maximum’ occupancy in London but with progress limited by its cautious approach to rate. Travelodge’s newly launched premium economy product, ‘SuperRooms’ may also steal share. We have concerns Costa is placing too much emphasis on food to reinvigorate like-for-like sales which may have the unintended consequence of reducing coffee volumes. The stock trades on a CY2017E P/E of 16.5x and an adj EV/Ebitdar of 9.9x which appears high enough for now. Our SOTP based valuation suggests fair value of 4585p so we downgrade to ‘Hold’.”

Premier Inn continues to lag market: “PI’s pricing remains cautious (eg apparent ceiling of £200 per night in London) and is being squeezed at the bottom end of the market from new entrants (eg Point A) and also by a revamped Travelodge estate, including the selective introduction of its ‘SuperRooms’ premium economy product which we think is well positioned to take share. As more new PI rooms come from extensions and hub format we think there will be a natural drag on RevPar growth. Furthermore we remain unconvinced by expansion into Germany given Whitbread’s (and others) poor trading history there.”

Costa saturation a concern: Costa’s like-for-like sales slowed to 0.6% in Q4 and we don’t expect much improvement In FY18 despite the introduction of various promotions. Indeed we think this is part of the problem with attention slipping from its core coffee product. This is compounded by the threat of cannibalisation from Costa Express machines which now number >6,000 in the UK. Furthermore we think the pace of expansion in China remains too slow (30 stores pa v Starbucks 500).”

Forecasts and valuation: “We have left our consensus in-line forecasts unchanged at this stage and ahead of its 21 June trading update where we expect 3%/2%/1% like-for-like sales growth at PI, Restaurants and Costa respectively. Reaction to the last three updates has been poor with the share price falling by an average of 4.9%. The stock trades on a CY 2017E P/E of 16.5x and an adj EV/Ebitdar of 9.9x which appears high enough for now. Our SOTP based valuation suggests fair value of 4585p; downgrade to ‘Hold’.”

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