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Morning Briefing for pub, restaurant and food wervice operators

Tue 6th Oct 2015 - Update: Greggs LfLs up 4.9%, Domino’s, Marston’s
Greggs reports 4.9% like-for-likes, extends franchise deal with Euro Garages: Bakery chain Greggs has reported 4.9% like-for-like growth in its Third Quarter to 3 October, with total sales growth of 5%. It has opened 65 new shops in the year to date and closed 47. The company has also signed a deal to add a further 27 bakery sites to the existing 30 at Euro Garages. The company stated: “In the year to date, we have completed 158 shop refurbishments and are on track to complete around 200 shops this year. In addition we have now converted 20 of our larger bakery cafés to the “bakery food-on-the-go” format. This investment in refurbishing our estate continues to provide a good capital return and is transforming the quality of the shopping environment for our customers. We have now opened 65 new shops in 2015, including 35 franchised units predominantly in transport locations. We have closed 47 shops, giving a total of 1,668 shops trading at 6 October (comprising 1,588 of our own shops and 80 franchised units). Our work with franchise partners is extending the Greggs offer to previously inaccessible locations, particularly transport sites. Our relationship with Euro Garages Limited has so far led to the development of Greggs outlets in 30 of their forecourt sites. We have now agreed to extend this to a further 27 sites that are undergoing refurbishment in the fourth quarter. As a result we now expect our shop numbers for the full year to increase by a net 50-60 overall. To support the growth potential of the business we have been examining ways of extending our distribution network, particularly in the south east of England where our existing capacity is most constrained. As a result we have recently acquired a freehold distribution depot adjacent to our existing bakery in Enfield. The total investment, including conversion works, is likely to be around £13m and we expect that the facility will be brought into use in the second half of 2016.Market conditions remain favourable with low cost pressures and a stronger consumer environment. We expect this to continue through to the end of the year after which increases to wage rates will drive greater inflationary pressure. Our standard rate for hourly-paid shop staff is already above the National Minimum Wage and we will maintain a competitive position in the market going forward. Our sales performance is slightly ahead of our previous plan and, whilst comparatives will stiffen further in the fourth quarter, sales will benefit from additional shop openings. As a result we expect to deliver good growth for the year, slightly ahead of our previous expectations, and further progress against our strategic plan.”

Douglas Jack issues ‘Buy’ note on Domino’s ahead of Q3 trading statement: Numis Securities leisure analyst Douglas Jack has issued a ‘Buy’ note on Domino’s, with a 1000p price target, ahead of Q3 results on Wednesday 14 October. He said: “We believe the risk to our forecasts remains on the upside, given that PBT rose by 30.4% in H1, with UK like-for-like sales up 10.3%, versus our full year forecast of PBT growing by 16.8%, with UK like-for-like sales rising 6%. Given ongoing initiatives, we believe there is no reason to expect a slowdown in trading in Q3. UK like-for-like sales rose 10.3% in H1 (Q1 10.2%; Q2 10.4%), all of which was like-for-like volume growth (7.4% orders; 2.9% items per order). Like-for-like sales were driven by a 24.4% increase in digital sales (accounting for 77% of delivered sales in H1). With over 10m app downloads (up from 8.2m over the last six months), sales via mobile apps rose by 67.3%, to account for 51.6% of online sales, in H1.We estimate UK franchisees’ Ebitda/store rose by 29% to £149,000 pa, driven by 10.3% like-for-like sales growth and a 220bps improvement in franchisee Ebitda margins (to 15.1%). This included the benefit of a £6m reduction in food costs, which we expect to be £8m over the full year. 24 stores opened in H1 (UK 21; Switzerland three). We forecast 55 openings (UK 50; Switzerland five) over the full year. Given the strong like-for-like sales and a 13.8% increase in average sales from new stores in H1, we believe it is inevitable that the 1,200 UK stores target will eventually be increased. In H1, like-for-like sales rose 6.5% in the Republic of Ireland, 3.0% in Germany and 2.8% in Switzerland, all in local currency. Due to pre-opening costs, Swiss losses increased to £0.7m from £0.4m, but losses in Germany fell to £1.8m from £4.7m due like-for-like sales growth and better operational efficiency. We forecast a similar result in H2. We upgraded our 2015E PBT forecasts by 3% at the time of the interim results and believe the risk to forecast remains on the upside, with every extra 1% of like-for-like sales adding slightly over 1% to full year underlying earnings. Given this and the pace/quality of earnings, we would buy the shares.”

Douglas Jack issues ‘Add’ recommendation on Marston’s shares: Numis Securities leisure analyst Douglas Jack has issued an ‘Add’ recommendation on Marston’s shares, with a 180p price target, ahead of a full year trading statement is due on Wednesday 14 October. He said: “In H1, underlying PBT, excluding disposals and changes in pension costs, rose by 15%. We forecast a similar (14%) pace of growth in H2, supported by easier comps in Q4. In the three years to 2017E, we forecast 30% growth in earnings growth, with net debt/Ebitda falling by 0.4x over this period despite strong expansion and a progressive dividend, yielding c.4.5%. Destination & Premium like-for-like sales grew 1.7% (vs a 4.1% comp) over the first 41 weeks, with margins up slightly. Due to an improving like-for-like trend (to 2.0% in Q3) and easy Q4 comps, our full year forecast anticipates like-for-like sales being up almost 2%, ahead of the pubs constituents of the Coffer Peach Tracker growing 0.8% over the 11 months to August 2015. Circa .25 new builds should have opened in 2015E (eight H1; c.17 H2). Recently-added new builds have been re-valued up by 40% relative to their build cost. From H2 2015E, new builds should start to include some leasehold sites (possibly for Revere and Pitcher & Piano), and five new accommodation lodges pa should open from 2016E (up from three pa). In Taverns, managed and franchised pubs grew like-for-like sales by 1.7% during the first 41 weeks, driven by strong trading in franchise pubs, which accounted for c.550 out of c.900 pubs. We forecast c.2% like-for-like sales over the full year, aided by an improving trend and softer comps in Q4. We forecast leased estate average profits to be up 4% and brewing like-for-like own brewed ale volumes to be up 4% over the full year, continuing the Q1-3 trend. Total brewing volumes should be up even more due to the Thwaites’ acquisition. We expect to hold our 2015E forecasts (PBT £90.9m; consensus £91.8m). We estimate that Ebitda growth/dividends should drive a 26% equity return over the next two years if the EV/Ebitda rating holds.”

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