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Morning Briefing for pub, restaurant and food wervice operators

Tue 5th Jan 2016 - Jamie Rollo – Whitbread is one our top three share picks
Jamie Rollo – Whitbread is one our top three share picks: Morgan Stanley leisure analyst Jamie Rollo has named Whitbread as one of his top three share choices for 2016, but warns against Wetherspoon and SSP shares. He stated: “Top three picks (are): Whitbread (OW, £56 PT): (it has) leading positions in structural growth markets, expansion-led growth, conservative like-for-like expectations, Costa digital/food boost, International a free option, SOTP discount; TUI (OW, £14.20 PT): 10%+ Ebita target conservative given FY15 one-off costs, strong expansion in cruise/hotels, and merger synergies, plus potential exit from Hotelbeds / Specialist / HLAG could exceed €1bn, attractive 14.5x FY16e P/E and 3.7% dividend yield; Playtech (OW, £10 PT): unique route to gain exposure to structural growth in online gambling, expansion of customer base as more countries regulate, growing share of the value chain, upside from CFD business and deployment of cash balance, significant discount to peers. We also rate as Overweight IHG (PT £32.00 to £30.50), Merlin (PT 460p to 500p), 888, Mitchells & Butlers. Bottom three picks are: Edenred (UW, PT €14 to €15.5): stretched balance sheet (adj debt / Ebitda 5.8x), high exposure to Brazil (50% of net income), fee pressure, risk of regulatory or technological disruption; JD Wetherspoon (UW, PT 640p): competitive pressures impacting like-for-likes, operating margins in structural decline, pub numbers declining for first time, leverage rising, valuation premium to peers; SSP (EW to UW, PT 280p to 300p): turnaround story and margin expansion well understood and in forecasts, new contract wins initially margin dilutive, rising capex and JV/associate mix impacting FCF, valuation premium to peers, 16x 2018e P/E on bull case prior peak margins. We also rate as Underweight OPAP (EW to UW), Europcar (EW to UW), Enterprise Inns, Unibet. Five possible surprises are: hotel stocks halve as GDP slows, geopolitical shocks rise, new supply accelerates, Airbnb impacts, and multiples de-rate to prior trough 8x Ebitda; betting operators suffer as FOBT (B2) machine maximum stakes are cut to £10; pub companies have a good year as the NLW boosts consumer spending, the UK enjoys a staycation boost, and England wins the UEFA Euro 2016 football; cruise operators have a poor year as China suffers from overcapacity, Europe from weak US demand, and the oil prices rises; William Hill merges its online business with a global leader driving a re-rerating on valuation and operational benefits.”

Eagle Eye hires new chairman: Eagle Eye, the technology company that validates and redeems digital promotions in real-time for the grocery, retail and hospitality industries, has appointed Tim Mason as chairman with immediate effect. Bob Willett will step down as chairman to concentrate on his other investments but will remain on the board until 31 March 2016 to provide a smooth handover to Tim. Eagle Eye chief executive Phill Blundell, said: “Since 2013, Bob Willett’s Chairmanship of Eagle Eye has seen a successful IPO and acquisition in April 2014, the signing of major contracts with two tier 1 grocers, the substantial development of the Eagle Eye AIR platform and significant growth in revenues. He leaves us with a very strong momentum and platform for further growth as we seek to become the global leader in digital marketing. The board and I would like to thank him for his service and wish him the very best in the future, particularly his involvement with other early stage companies.” Bob Willett said: “I am proud of the work that the team has done in building the platform and the achievements to date. I look forward to following Eagle Eye’s continued success in the future as a supportive shareholder.” Tim Mason has over 30 years’ experience within the grocery and retail industries, with a strong background in strategic marketing and customer loyalty. His last role was as Chairman of Bonmarché Holdings from 2013 to 2015. Prior to that he was deputy chief executive at Tesco from January 2010 to December 2012. He held a number of other roles within the Tesco Group between 1982 and 2012 including CMO for Tesco and CEO of Fresh & Easy. He is currently chairman of Digital Natives Content Limited. Phill Blundell added: “I am delighted that Tim has accepted the role of Chairman, he has a wealth of experience and an extensive network of UK and international contacts that will be invaluable as Eagle Eye builds on its foundations to influence the UK market and expand internationally. The board and I look forward to working with him during the next stage of the company’s growth.” Tim Mason commented: “I have watched the development of Eagle Eye over several years. I am delighted to be joining Phill and the team as we push on to the next phase of growth in the business.”

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