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Fri 20th Jul 2018 - Update: Easyhotel, Fuller's, Marston's
Easyhotel secures Dublin freehold: Easyhotel, the owner, developer and operator of “super budget” branded hotels, has acquired a freehold site in central Dublin, Ireland, to develop a purpose-built, freehold Easyhotel. The company stated: “Located on the corner of Benburb Street and Wood Lane, Dublin, the site already has planning permission in place for a 96-bedroom hotel. However, the group believes there is potential to extend the development further to a 130-bedroom hotel and will apply to vary the existing planning permission accordingly. This freehold site has been acquired for €9.0m. The 130-bedroom hotel is expected to have a total investment cost of €18m and will be funded using cash from the group’s balance sheet, together with local debt financing. The investment in Dublin is the group’s third new site since its successful fund-raising in March. It also marks Easyhotel’s second owned hotel investment in Europe with the group’s first owned European hotel, Easyhotel Barcelona (204 rooms), due to open this summer. In support of its ambitious growth plans, Easyhotel continues to expand its development pipeline of owned hotels in key tourist and city centre destinations across both the UK and Europe. As previously highlighted at the time of its interim results, the group intends to balance the number of owned hotel openings between the UK and continental Europe, where recently the group’s franchised hotels have delivered a particularly strong performance.With a strong UK development pipeline already confirmed, the group is pleased to announce that it will be appointing a group development director to lead the development in Europe, together with a dedicated team focused initially on Spain, France and Germany. It is expected this additional resource will be in place before the end of the current financial year. The costs associated with these appointments will have a small impact on earnings for the current financial year and are expected to reduce Ebitda by circa £750,000 in the 2019 and 2020 financial years. However, the group believes the additional continental European hotels this team is targeted to deliver will be significantly earnings enhancing from 2021. As previously announced, four new owned hotels (517 rooms) are expected to open by the end of the current calendar year. Easyhotel Maastricht opened at the beginning of July taking the total number of hotels in the group to 28. There are a further four new franchised hotels (336 rooms) nearing completion, and although the official openings have been delayed, they are still expected to open by the end of the current calendar year.” Chief executive Guy Parsons said: “We are delighted to have secured this excellent site in the vibrant city of Dublin, our third investment since our successful fund-raising in March and our second owned hotel site in Europe. The Dublin site takes our pipeline of owned/leased projects to 1,280 rooms in addition to the 1,782 franchise rooms currently under development. Europe holds a number of attractive opportunities for the Easyhotel brand and we are keen to achieve a balance in our development pipeline between the UK and continental Europe, as we look to accelerate our presence in these markets. The group has a strong owned hotel development pipeline already established in the UK and this additional operational resource announced will ensure we are well positioned to take advantage of more opportunities in continental Europe, creating value for our shareholders and underpinning the long-term growth of the Easyhotel brand.”

Douglas Jack – Fuller’s fiscal second quarter prospects should be even better than quarter one: Peel Hunt leisure analyst Douglas Jack has forecast Fuller’s annual general meeting update (covering the first 16 weeks), due on Tuesday (24 July), should be positive, with managed like-for-like sales ahead of its 2.0% full-year forecast, having been up 2.5% after nine weeks. He said: “We would use current ongoing weakness as a buying opportunity. Managed (63% of group Ebit) like-for-like sales should have benefited from the hot weather and the World Cup, given 82% of the estate is not food-led (source CGA) and 90% of the managed estate offers outside drinking. The estate had to trade against very tough comparables of 6.6% over both the first nine weeks and over the first 16 weeks that are being reported on. The scope for like-for-like sales to accelerate should be greater in the second quarter (weeks 17 to 26) due to a continuation in the favourable weather into July. Last year, the weather was not great during July to September, when like-for-like sales fell into slight negative territory for both Fuller’s and the managed pub/pub restaurant sector. Cost inflation has slowed slightly. Thus, the company needs 3% like-for-like sales growth to hold like-for-like profits in 2019E (pre-mitigation, if needed 4% in 2018). Food prices eased in the second half of 2018. Business rates increases are £1m in 2019E versus £2m in 2018. Utilities costs are now flat. Labour costs are heavily influenced by the National Living Wage (+4.2%; ripples up through differentials). Tenanted (23% of group Ebit) like-for-like profits should be positive, although the estate is trading up against a tough comparable of 5%. The estate, which achieved like-for-like profit of 2% (versus a 5% comparable) during the first nine weeks, is well placed with 70% of outlets being wet-led pubs. The process of investing and converting pubs to turnover-based franchise agreements (13 in 2018; 15 in 2019E) should support like-for-like profitability. Brewing (14% of Ebit) volumes were down 3% after nine weeks. We believe the brewery is a valuable asset that is not reflected in the share price, but it needs to generate volume growth if its margins are to recover. At least 12 managed outlets should open in 2019E. These sites have been acquired/in development. Our forecasts cautiously assume no other sites are added in weeks ten to 52. We expect to hold our 2019E forecasts, which assume 2% like-for-like sales in managed and 2% like-for-like profits in tenanted/leased. We believe the company’s large valuation discount to Young’s (10.5 times versus 12.5 times EV/Ebitda) is unwarranted.”

Douglas Jack – Marston’s dividend yield approaches 8%: Peel Hunt leisure analyst Douglas Jack has issued a ‘‘Buy’ note on Marston’s shares as its dividend yield approaches 8%. He said: “We expect the third-quarter trading update, due on Wednesday (25 July), to show total managed and franchised like-for-like sales being in growth, supported by half the group’s profits deriving from wet-led businesses. We expect to hold our forecasts of 7% profit before tax growth in 2018E, a year in which we forecast the dividend to be maintained and net debt/Ebitda to fall from 6.2 times to 5.9 times. The share price is now at a 32% discount to book value. Destination & Premium’s (D&P) like-for-like sales should be down, having been down 1.8% in the first half (flat without the impact of snow). Subsequently, pub restaurant sector like-for-like sales have been flat (source: Coffer Peach Business Tracker), not benefiting from the World Cup, and the hot weather having a mixed impact. Our full-year assumption requires no like-for-like sales growth in D&P, reflecting comparables of +1.6% in the third quarter and -1.0% in the fourth quarter (versus +1.1% in the first half). Taverns should be continuing to trade ahead. Like-for-like sales grew by 2.9%, ahead of our full-year assumption of 2%, and the estate is ideally positioned to have benefited from the World Cup and hot weather. Pub sector like-for-like sales (excluding pub restaurants) rose by more than 3.1% in the third quarter, but with May to June up 5%. We expect Like-for-like sales in D&P/Taverns combined to be positive. Leased should also be continuing to trade well. Like-for-like profits rose by 1.4% in the first half, in line with our full-year assumption. Like Taverns, these pubs are ideally suited to have benefited from recent trading conditions. Brewing underlying like-for-like volumes were positive in the first half. Brewing cash flow and profits were positive, but its margins fell by three percentage points due to mix (Charles Wells has more orientation to national on customers and licensed brands; and new distribution contracts); management expects less margin dilution in the second half. Marston’s should continue to expect to open 15 pub/bars and six new lodges over the full year. Expansion from 2019E is being reduced to ten pub/bars and five lodges per annum, resulting in a £25m annual capex reduction, prior to a £5m annual increase in organic investment, appropriately repositioning value destination pubs into more premium formats. We believe the dividend is sustainable, albeit with net debt/Ebitda forecast to be stable in 2018-20E, with circa £30m per annum of securitised debt converting into bank debt. Under this lower capex scenario, we forecast circa 4% earnings growth per annum from 2019E; below the 6.5% that consensus is assuming.”

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