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Morning Briefing for pub, restaurant and food wervice operators

Thu 24th Apr 2014 - Breaking News - Spirit Pub Company reports 4.8% LfLs lift
Spirit Pub Company reports 4.8% LfLs lift: Spirit Pub Company had reported EBITDA of £60m (2013: £67m) in the 28 weeks to 1 March. Profit before tax was £1m (2013: £12m) and there were net exceptional pre-tax costs of £21m (2013: £8m). The managed division ‘performing strongly’ with like-for-like sales up 4.8%, ‘continuing to out-perform’ the market. Like-for-like sales are up 8.3% in the four weeks to 29 March. EBITDAR margin was up 30 basis points. The leased division has ‘stabilised and is now in growth’ with like- for-like net income up 2.6%. The interim dividend has increased by 6%. Chief executive Mike Tye said: “We are pleased with our performance in the first half of the year and the continuing momentum across the business, which reflects the benefits of investment in our estate, infrastructure and people. In our managed division, we believe that our brands and high quality estate provide the basis for sustainable growth in earnings and size of the branded estate. The Leased division is now stable and in growth, and we continue to invest and innovate to improve the quality of the business going forward. We remain cautious, but are starting to see tentative signs of recovery in consumer spending, from which we should be well placed to benefit. We are confident that our customer proposition and sustained focus on delivering hospitality excellence to our guests mean that we can continue to deliver value for all our stakeholders.” The company added: “During the first half of the year we completed 19 investments, which included the conversion of three leased pubs to managed. Eleven of those investments were in the Taylor Walker brand, a combination of exploiting under-utilised space in our central London pubs and also expanding the brand to other cities with investments in Norwich and Chester. We also expanded the trial of our smaller template Flaming Grill, with results remaining very encouraging, and opened a further trial site for our new Chef & Brewer offer. Average investment spend was £140,000, reflecting the continued focus on disciplined capital spend to drive returns. The proportion of our estate invested and branded is now 87% and we continue to achieve an average return on investment in excess of 25%. We face ongoing cost challenges driven by the increasing national minimum wage, rising raw material costs and particularly energy costs, which continue to increase significantly. We continue mitigating the impact of these margin pressures and we welcome the reduction in beer duty announced in the 2014 Budget.” Of its leased division, the company stated: “Our focus remains on improving the quality of the estate through investment, innovation and selective disposals. We invested £1m in seven pubs during the period, with returns in excess of our 25% hurdle. We sold a further five pubs, raising proceeds of £2m and achieving a sale multiple of c. 25 times historic EBITDA. The positive impact of these measures manifested itself in the continued improvement in our average annual net income per pub to £101,000 from £96,000 at August 2013. The number of pubs on substantive agreements has increased to 90% from 89% a year ago. Our innovation trials are now well underway with 13 pubs in the trial, 11 of which are on our franchise model and two on turnover based rent agreements where we have co-invested with high quality experienced operators. Further roll out will be predicated on a detailed assessment of returns, although the ability to obtain vacant possession is likely to constrain the pace of expansion for these new agreements.” The company has paid back £20.2m to HMRC in respect of gaming machines and default interest in the wake of the Rank Group decision, which is being appealed to the High Court. Analyst Douglas Jack, of Numis Securities, issued a ‘Buy’ note with a target price of 110p. He said: “H1 PBT rose 11% to £22.1m (we forecast £21.9m) and was up 16% before reductions in the onerous lease provision. Growth was driven by 8% growth in average managed pub profitability (almost all LFL), by our estimates, and 5% growth in average tenanted pub profitability (2.6% LFL). Trading has moved further ahead in early H2, with managed LFL sales having risen 8.3%. We are holding our full year forecasts (£57.9m PBT; consensus £56.2m) which assume 2.5% managed LFL sales (vs. 5.2% after 32 weeks), the acquisition of five freehold pubs in H2 (vs. two completed) and 0.4% leased LFL net income. Although this allows for tough comps in Q4, we believe forecast risk is on the upside and that the 7.8.x EV/EBITDA rating does not properly reflect Spirit’s management and brand quality, earnings growth, progressive dividend (up 6%) and de-gearing.”
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