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Thu 1st Mar 2018 - Update: Domino’s UK, Merlin Entertainment, Deliveroo, AB InBev
Analyst Douglas Jack issues ‘Buy’ note on Domino’s shares: Peel Hunt leisure analyst Douglas Jack has issued a ‘Buy’ note on Domino’s UK shares, with a price target of 425p per share (shares close on 327p at the end of Tuesday). He said: “We believe the 8 March results should highlight the efficiency upside from territory splits. For example, in more collection-orientated stores, we believe proportional labour costs are 400- 500bps below average, indicating substantial, overlooked, margin upside for franchisees, who are expanding at record levels. There are many factors that should boost like-for-like sales in H1 2018E: a compelling value proposition with an average spend per person of £7; a multitude of other factors enticing consumers to trade down from restaurants; soft weather-related comps; the FIFA World Cup; and innovations, including improving product range, app enhancements, voice ordering, and rolling out a GPS tracker. Domino’s now generates 5-6x the total sales of its closest traditional pizza delivery competitors. Its webhits lead over its rivals, including Deliveroo, is growing, not narrowing. 2017E was a record year for UK store openings both in terms of total number opened and the number of franchisees opening stores. This reflects franchisees earning: c50% cash returns at store maturity, store sale multiples at 4-5x cost, and an understanding of the efficiency benefits from digital, labour scheduling, GPS tracker, collection order growth, as well as territory splits. Despite increasing bundle deal activity, franchisee gross margins increased from 70.6% in 2013 to 73.8% in 2016; outside this, each 1% of incremental sales/store generated 1% of incremental profit/store for the franchisees, helping mature store Ebitda to rise by 44% to £249k (a c100% cash ROI), of which franchisees’ share rose from 59% to 63%. Territory splits bring significant, overlooked, benefits. These include: driving up collection orders and reducing delivery costs, times and distances, as well as improving marketing, labour and distribution efficiency. Domino’s aspires to increasing collection from 32% of all orders, to 50% of new store orders. This should increase collection to 40% of all orders, a scenario we estimate would increase franchisee Ebitda/store to £205k in 2024E, and our 2024E PBT from £181m to £192m on cautious assumptions. We believe the 2018E P/E rating should grow towards the 24x historical average, reflecting stronger like-for-like sales, record expansion, material efficiency benefits, and overseas operations now becoming profitable for the first time.”

Merlin Entertainments reports turnover and profit up in 2017: Merlin Entertainments has reported sales rose 11.6% to £1.594bn in the year to 30 December 2017. Pre-tax profit was up 4.8% to £271m. A record 66 million visitors were welcomed in 2017, up 3.5% on 2016. It reported 18.2% organic revenue growth (constant currency) in Legoland Parks revenue due to the opening of Legoland Japan and continued strong like for like performance. Legoland New York announced during the year and targeted to open in 2020 as previously stated. Nick Varney, Merlin Entertainments chief executive, said: “A year that started well with positive momentum in almost every part of the group was ultimately defined by the unprecedented spate of terror attacks in the UK and poor to extreme weather throughout the summer season in Europe. Despite this, thanks to the efforts of our extraordinary team, we have reported overall growth in revenue, profit and cash flow, welcoming 66 million visitors – our highest on record. Against a difficult trading backdrop, we continued to make good strategic progress. We opened 383 new accommodation rooms, six new Midway attractions, including the launch of a new brand – ‘Little BIG City’ – in Berlin, as well as a new Legoland park in Japan. We also announced in October plans to open a Legoland park in New York State in 2020, and the launch of two new IP based attraction formats – ‘The Bear Grylls Adventure’ and ‘Peppa Pig’. Furthermore, we were motivated throughout 2017 to review our approach to capital allocation and reflect upon recent performance which has fallen short of our expectations in some areas. This has resulted in a number of medium term adjustments – most notably the reduction in Midway and Resort Theme Parks existing estate capex which will be reallocated towards our highly successful accommodation roll out and increased focus on the Productivity Agenda. Merlin continues to evolve and, with attractive market fundamentals and the right strategy in place, we remain highly confident in the long term prospects for the business.”

Deliveroo to cut down on plastic packaging: Deliveroo is to dramatically reduce the amount of plastic packaging. The food delivery firm said it intended to lead by example, persuading manufacturers to start producing more alternatives to polluting plastics and using its purchasing power to buy up a wider range of sustainable packaging, making it more affordable for its restaurants to use. Emma Cox, the company’s product marketing manager, said convenience culture must not come at an environmental cost. “It’s going to involve everyone in the food industry coming together to do this and also customers playing their part,” she said. “We’ve been sitting down with our restaurant partners and manufacturers to identify where there are gaps and where we need to find better plastic alternatives.” From next week, users will also find an extra button on its app where they will have to opt-in if they want disposable cutlery. Cox added: “We’ve had a wave of customers asking us to do more and that’s why we’re so committed to delivering on this. We want to deliver food in the best way possible whilst also reducing our impact on the environment.”

AB InBev reports strong Fourth Quarter in the UK: AB InBev has reported a strong Fourth Quarter in the UK. Jason Warner, president, AB InBev North Europe, said: “2017 was a strong year for our UK business, as we finished the final quarter delivering double-digit top-line growth and increasing our market share across total trade. This has been driven by a great performance by our global brands, with Stella Artois, Budweiser, Corona and Bud Light now making up the top four contributors to beer category growth in the off-trade. Stella Artois has kept its place as the UK’s number one beer brand and over the Christmas period was the UK’s biggest-selling alcohol brand in the off-trade. Meanwhile, Budweiser is the top driver of category growth and was named as one of the country’s fastest-growing grocery products in 2017. Corona is also accelerating, and is now the UK’s biggest world lager brand. Despite Bud Light only arriving to UK shores in March last year, it is already the top growth driver for standard lager, refreshing the core beer category for the millennial generation. To top it off, we launched Budweiser Prohibition at the end of last year, bringing the alcohol-free version of the ‘King of Beers’ to lead the way in giving consumers more choice in the emerging no-alcohol and low-alcohol beer segment. Looking forward, we are set to continue this momentum, leading category growth in a long-term, sustainable way and sharing this success with our on-trade and off-trade customers. We aim to expand our on-trade footprint and invest in our speciality brands within our premium portfolio, like Camden Hells. Sustainability will also continue to be a focus for our UK operations, as our breweries become even more efficient in water conservation and energy use and we look to increase the amount of British barley we use in our beers from 50% to 100%. 2018 is going to be a huge year for the beer and pub industry, as national celebrations like the World Cup bring people together, and we are looking forward to showing up at these cultural moments in a big way.”

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