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Mon 9th Sep 2019 - Update: M&B, Whitbread and Roadchef
Jamie Rollo – M&B like-for-like sales to continue outperforming a gently improving UK pub market: Morgan Stanley leisure analyst Jamie Rollo has said he believes Mitchells & Butlers (M&B) like-for-like sales will continue to outperform a gently improving UK pub market. Issuing an ‘Overweight‘ rating on the shares with a target price of 430p, Rollo said: “The UK pub industry is mature, but demand has proved resilient, and capacity is exiting the market at an accelerating rate. Hence, industry like-for-like sales have been on a slowly improving trend, running up 1.2% on the trailing 12 months as of August – the strongest growth rate in three years. M&B has been outperforming for three years now, with FY19 like-for-like sales up 3.6% to the end of July, reflecting an invigorated management team, a multitude of internal levers, and a sustained period of weakness prior to this period suggesting ongoing catch-up potential. We see its outperformance remaining, though shrinking, and model 2% like-for-likes from FY20 onwards. Its ‘Ignite’ programme is also coping well with the market’s significant cost pressures, with its Ebit margins actually up 25bps in the first half of 2019. We model a reversal of this in the second half and flat margins in FY20. Overall we think the company can deliver about 3% Ebitda growth, which drives about 9% earnings per share growth given its rapid deleverage. We are 5% above consensus profit before tax for FY20e. Since M&B’s dividend suspension two years ago its Ebitda trajectory has been better than expected, its original £450m pension deficit should have nearly halved by now post cash contributions, and there is the potential for another £150m pension deficit reduction contingent on a court case involving the appropriate inflation rate. There is also a possibility the company reprofiles its bonds to extend maturities, assuming bondholders consent, which could materially reduce its annual repayment schedule. Both of these could fund a dividend equating to a 5% yield, we estimate, though there are too many unknowns to give us confidence this is likely, and our base case is no dividend resumption given management commentary suggests the priority is to continue the deleveraging programme. However, our analysis does show the strong underlying free cash flow of the business, as on the current debt and pension repayment schedules, and assuming no Ebitda growth, M&B’s equity value should double in the next decade (+150% with 3% annual Ebitda growth). We are increasing our price target from 280p to 430p, with around one quarter coming from our forecast upgrade, one quarter from our free cash flow analysis, and half from higher comparables-based valuation. The whole pub sector has rerated since Greene King’s agreed acquisition for a 51% premium to the share price. M&B’s shares have rerated following the mergers and acquisitions surge but still look attractive on nine times price-to-earnings ratio, seven times Ebitda, and 0.7 times net asset value.”
 
Whitbread trials premium rooms at Premier Inn: Whitbread has started trialling premium rooms aimed at the corporate market at Premier Inn. The company has given over an entire floor in two of its London hotels, in Islington and Holborn, to a new class of bedroom carrying the working title Premier Plus and costing an extra £15 to £20 a night on top of the price of a standard room, reports The Times. The move follows the launch a year ago by rival Travelodge of SuperRooms with “additional creature comforts”. By the end of this year, it will have 1,800 SuperRooms across its 584 hotels. The launch of the trial is part of a wider move by Premier Inn to tap into a broader clientele and improve returns by introducing greater segmentation. Six years ago it launched hub by Premier Inn, a more compact and contemporary sub-brand with a focus on technology, then in March this year it opened its first Zip by Premier Inn selling rooms from £19 a night. Whitbread chief executive Alison Brittain said the premium rooms had been introduced with the corporate market in mind, although since the launch in early summer they had proved popular with both corporate and leisure guests. She said by giving over a whole floor to the concept, the rooms were much quieter than those on other floors. “There are definitely no stag parties or hen do’s,” she said, adding the idea of trialling an entire hotel comprising Premier Plus rooms had not been ruled out. Premier Inn is planning to extend the trial to another five or six hotels before Christmas and it is understood to have earmarked up to 25 properties as part of the next phase. The price premium of £15 to £20 equates to an increase of about 10% on normal room price, which in the first two locations can range from £100 to £150 a night, depending on demand. Travelodge applies a premium of £10 to £20 a night on its SuperRooms. Brittain declined to reveal the cost of upgrading the rooms, claiming it was “commercially sensitive”, but said they had been more or less sold out since the launch and were yielding good returns.
 
Roadchef boosts turnover and narrows losses as it lines up £20m revamp of Britain’s first motorway services site: Motorway services operator Roadchef has increased turnover and narrowed losses as it lines up a £20m makeover of Britain’s first motorway service station. Watford Gap, which is on the M1 in Northamptonshire and was opened in 1959, is set for the revamp, but only if ministers give owner Roadchef an extension to a 50-year lease, reports The Daily Telegraph. A legacy of state ownership, the Department for Transport retains ownership of the freehold for dozens of Britain’s services. Roadchef boss Mark Fox said he was in negotiations with Whitehall officials to extend the site’s lease. Roadchef, the smallest of Britain’s three main motorway service operators, has owned the site since 1995. It comes as accounts soon to be published at Companies House reveal sales across Roadchef’s 30 sites rose 1.6% to £192m in the year to December 2018. Pre-tax profit was wiped out by a hefty financing bill but losses narrowed from £6.5m to £4.3m. Roadchef is owned by private equity firm Antin Infrastructure Partners, which paid more than £150m to buy the motorway services operator from Israeli peer Delek in 2014. Fox played down reports from last year Antin were looking to exit its investment, suggesting it was only halfway through its ownership period. Fox added: “Motorists have rated us the highest of the big three motorway service area operators, both in terms of customer satisfaction and the impression they have when entering a service area. Our long-term plans to introduce healthier, more convenient, value-led options at our services will only help improve customer experience and is driven by our ambition to de-stress and delight our 50 million-plus annual visitors.”
 
Restaurants encouraged to cut portion sizes and offer doggy bags in new food waste campaign: Restaurants, pubs and hotels are being encouraged to cut portion sizes, use smaller plates and offer American-style doggy bags for leftovers in a new campaign. The move is part of a government-backed crusade to cut the one million tons of food waste – worth £3bn – coming out of commercial kitchens every year, reports the Daily Mail. The Stand Up for Food campaign, supported by the government’s waste champion Ben Elliot, has recruited celebrity chefs to help reduce the dumping of perfectly good food. And during September, the UK’s pubs, restaurants, hotels and catering companies are being challenged to cut waste. Trials have identified how simple steps, such as smaller plates for buffets and not automatically serving coleslaw and sauces with meals, can reduce waste and deliver enormous cash savings. The campaign, co-ordinated by waste charity Wrap, also urges customers to play their part. People who never eat certain parts of a meal, such as a side salad, vegetables or garnishes, should ask for them to be left off the plate. It also suggests a more American approach to dealing with leftovers with diners encouraged to ask for a doggy bag to take home. The campaign against food waste is supported by Wrap’s so-called “Guardians of Grub”, including chefs Hugh Fearnley-Whittingstall, Ken Hom, Skye Gyngell, Melissa Hemsley and Anna Jones. Hom said: “We can all help save the planet and our future. We who prepare and serve food should do everything possible to adjust our wasteful habit of discarding perfectly good food.”
 
Domino’s Pizza appoints new senior independent director: Domino’s Pizza Group has announced Ian Bull has succeeded Helen Keays as senior independent director with immediate effect. Keays remains an independent non-executive director on the board, having served on it since September 2011 and as senior independent director from April 2016. Bull has held senior finance roles within the BT Group and has previously been group finance director of Greene King, chief financial officer of Ladbrokes and most recently was chief financial officer of Parkdean Resorts until 2018. Domino’s Pizza Group stated: “This forms part of the succession planning process outlined in the annual report, which will also include the appointment of a new chief executive and chairman in due course. As announced at our interim results, the chief executive search is progressing. As senior independent director, Ian will play a key role in these changes and work with the nomination committee as part of the process of refreshing the board more generally. The board will keep the market updated on progress with these appointments.”

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