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Fri 3rd May 2019 - Update: Marston’s, Shake Shack, Signature Living, Merlin
Douglas Jack – expect steady growth for Marston’s: Peel Hunt leisure analyst Douglas Jack has said he expects Marston’s to have shown steady growth in its first half of the financial year. Issuing an ‘Add’ note on the shares with a target price of 115p ahead of its half-year results on Wednesday, 15 May, Jack said: “Like-for-like sales rose 1.5% across the combined managed pub estates over the first 16 weeks, with the wet-led Taverns estate (up 3.2%) outperforming the food-led Destination & Premium (D&P) estate (+0.5%). Reflecting the like-for-like sales, margins were down slightly in D&P and up slightly in Taverns in the first quarter, and flat overall across the combined managed estate. We expect these like-for-like trends to have improved in the second quarter, due partly to the second quarter of 2018’s colder weather conditions, with the wet-led Taverns estate maintaining its level of outperformance. In our view, there should have been a slight improvement on first-quarter trends in the second quarter in leased (like-for-like net income was up 1% in the first quarter) and own-brewed volumes (up 2.3% in the first quarter). We do not expect to change forecasts after these results. Weather-related comparables in the second half (April to September) are more difficult for the pub sector, but Marston’s is less exposed given its equally balanced food-led and wet-led pub portfolio. Our 2019E forecasts assume that combined managed like-for-like sales grow by circa 1%, with flat margins. The company continues to avoid discounting as much as possible and management expects to mitigate most cost increases. The two greatest areas of investor interest are likely to be ongoing like-for-like trading and progress with the strategy to reduce net debt from £1.4bn to £1.2bn in 2023E, while holding the dividend constant. As is usual for Marston’s, net debt is likely to be up in the first half, but with the company making progress towards reducing net debt over the full year. We expect the dividend, yielding 7.5%, to be maintained. With the onset of IFRS 16, we expect equity free cash flow yield (pre-expansionary capex) to grow in prominence as a valuation metric and, on this basis, we view Marston’s 12% to 13% equity free cash flow yield as attractive, particularly if it can enable net debt to fall.”

Shake Shack reports like-for-likes up 3.6% in first quarter, raises expectations: Shake Shack has reported like-for-like sales increased 3.6% in its first quarter to 29 March 2019 and had raised its like-for-likes and total revenue expectations for the financial year. Total sales increased 33.8% to $132.6m, while adjusted Ebitda grew 10.4% to $17.8m. Chief executive Randy Garutti, said: “We are pleased with the strong momentum from 2018 carried forward into the first quarter of this year. We grew total revenue by almost 34%, adjusted Ebitda by more than 10% and delivered positive like-for-like-shack sales of 3.6%, including a return to positive traffic growth of 1.6%. Our performance was supported by the strength from new openings, the holiday shift and warm weather conditions across a number of key markets early in the quarter and the continued growth of our digital channels, where we see significant ongoing opportunities. Based on our first quarter results, we are raising both our overall revenue and like-for-like expectations for the year. We are on track to open 36 to 40 new company-operated Shacks, marking our largest class yet. We also plan to open 16 to 18 net new licensed Shacks with our international growth focused on Asia and our new markets of mainland China, Singapore, the Philippines and Mexico. 2019 is off to a solid start as we remain focused on the execution of our key strategic commitments that will continue to drive growth.” Average weekly sales for domestic company-operated Shacks decreased to $79,000 for the first quarter of 2019, compared with $81,000 the previous year, primarily due to the addition of newer Shacks at a broader range of average unit volumes.
 
Signature Living to sell two Liverpool hotels for £57m: Aparthotels developer and operator Signature Living is to sell its 30 James Street and The Shankly hotels in Liverpool. The sale of the two properties – 30 James Street valued at £17m and The Shankly valued at £40m respectively – will allow Signature Living to invest further into its £150m hotel expansion plans, which will also see the company’s 1,400-strong workforce increase to 3,000 over the next 18 months. The expansion plan for a further ten hotels includes six openings across the UK by the end of this year – Loyolla Hall (St Helens), The Dixie Dean Hotel (Liverpool), The Shankly Hotel (Preston), Cavern Walks Hotel (Liverpool) The George Best (Belfast) and The Wareing Hotel (Belfast). The company has also previously announced plans to convert a former presidential yacht into a £5M, 632-berth, floating beach club cruise ship to be moored in Ibiza. Last week, Signature Living confirmed it had bought out all of its overseas investors in 30 James Street from an initial five-year investment plan for £7.9m. The return on investment of 8% plus a 3% uplift yielded returns of 11% per annum on their original investment. The 125-bedroom Shankly features the Bastion restaurant and two indoor conference spaces, including an open-air rooftop event space. It has a 98% occupancy rate. The 63-bedroom 30 James Street hotel was originally built in 1898 as the former headquarters to the White Star Line shipping company, which built and owned the Titanic. It regularly achieves 99.4% occupancy. Signature Living also recently acquired the 80,000 square foot Cavern Walks shopping complex, which houses the world famous Cavern Club, in a deal worth £8m It will be transformed and developed around a theme of Liverpool’s music and cultural heritage and includes plans to relocate the group’s head office as well as new designer shops, artisan restaurants and bars. Currently, Signature Living operates a hotel and apartment portfolio valued at more than £350m.
 
Merlin – trading consistent with guidance: Merlin Entertainments has reported current trading is in line with expectations. Ahead of its annual general meeting today (Friday, 3 May), the company stated: “Trading during this seasonally quiet period of the year has been in line with expectations and consistent with the guidance provided on 28 February. Merlin has made good strategic progress to date, opening seven new Midway attractions, including two new Peppa Pig World of Play sites in Dallas and Michigan. We have also opened an additional 244 accommodation rooms, comprising the 142-bedroom Castle Hotel at Legoland Billund Resort and 102 “stargazing pods” at Alton Towers Resort. The 128-bedroom Magic Hotel at Gardaland Resort is scheduled to open later this month. In April, we completed the disposal of our two Australian ski resorts, for a total consideration of A$174m. Merlin will report 2019 interim results on Thursday, 1 August and will host a webinar for investors and analysts focusing upon our ‘digital guest journey’ strategy on Friday, 17 May.”
 
Domino’s Pizza Poland reports trading in line with expectations: Domino’s Pizza Poland has reported current trading is in line with management’s expectations. Providing an update for its first quarter to 31 March 2019 ahead of its annual general meeting today (Friday, 3 May), the company said it had opened three stores in the period, bringing the total number to 66 across 30 towns and cities. A further four leases have been signed for new sites. Chief executive Peter Shaw said: “Our marketing campaign featuring Damian Kordas launched in the second half of January and has been effective at driving sales, as has our trial partnership with food delivery aggregator Pyszne. All 66 of our stores are now on the Pyszne system.”

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