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Mon 19th Sep 2016 - Update: Krispy Kreme, Oakman Inns, Whitbread, Domino's Pizza Poland
Krispy Kreme set to float this week: Krispy Kreme is set to float activity this week, The Sunday Telegraph has reported. Alcuin Capital, the private equity firm that controls Krispy Kreme’s UK arm, is gearing up for an initial public offering of the business, which will value the chain at around £200m. Investec, the bank handling the float will send marketing materials to City fund managers in the coming days. Ten-pin operator Hollywood Bowl completed a £240m float on Friday, which had been postponed earlier in the year because of the EU referendum. Krispy Kreme traces its routes back to 1937, when Vernon Rudolph started selling doughnuts in Winston-Salem in North Carolina. The business expanded into Britain 13 years ago, when it opened its first store in Harrods in London. The UK arm now sells more than 50m doughnuts each year from its own shops as well as from self-service cabinets in about 500 Tesco supermarkets and motorway service stations. It also sells coffees and milkshakes. The British company is owned separately from the US business, which was bought by Germany’s billionaire Reimann family for $1.35bn earlier this year. Alcuin, the owner of Caffe Nero, took control of the UK company in 2011, an investment that valued the business at £25m. Indigo Capital and Krispy Kreme’s management also hold small stakes, meaning a share sale could result in a windfall for bosses at the doughnut maker. Krispy Kreme reported that pre-tax profit surged to £7,274,000 in the UK in the year to 1 February 2015, up from £3,166,000 the year before. Turnover was stable at £52,192,000, compared with £52,393,000 the year before – store numbers were static at 50. Adjusted Ebitda before exceptional costs was £10,281,000 (19.7% of sales), compared with £9,419,000 (18% of sales) in the previous year.

Beechdale Home and Oakman partner for Royston opening: Beechdale Homes has agreed terms with Oakman Inns & Restaurants to acquire Banyers Hotel in Royston for an undisclosed sum. The hotel will be renamed Banyers House and will be open before Christmas this year, following the completion of a £1.5 million joint investment to refurbish the property. Banyers House will become the seventeenth operation in Oakman’s portfolio of pubs and restaurants. The deal was brokered by Paul Barrasford of Colliers International, acting on behalf of Beechdale Homes. Peter Borg-Neal, Oakman Inns chief executive, said: “We are delighted to have acquired this stunning building. Royston is a really great town and we are looking forward to becoming a part of and contributing to the town’s community. It has been a pleasure to do business with Martin Jackson and I am sure he will be delighted with what we achieve with Banyers House.” Martin Jackson, managing director of Beechdale Homes, said: “I am delighted for the new owners with whom I am hoping to work in the future on other projects. Having met the team from Oakman Inns at a recent site visit and seen the success of their management style, I think the people of Royston will be pleased with the outcome. I have always believed that Royston deserved a great venue and Oakman have the knowledge and style to deliver what I had always hoped Banyers might become.” Paul Barrasford, director of Hotels Agency for Colliers International, added: “Beechdale Homes has beautifully refurbished the property and we’re all delighted to have secured such an experienced operator for the Banyers Hotel. Oakman Inns has a marvellous track record in the sector and we’re sure the business will quickly flourish under their stewardship. We’ve sold a number of hotels in and around the surrounding area in recent months; these being in addition to the multiple sales across the UK we’ve successfully completed since the EU Referendum result. These deals support our view that demand for hotel facilities will always be there regardless of the political backdrop. Whilst some macroeconomic reporting has been pessimistic, the micro position is often very positive as hotels and their surrounding businesses and regions continue as normal. From a regional hotels transactional perspective there has been no market shock.”

Domino’s Pizza Poland reports further progress: Domino’s Pizza Poland has reported store opening momentum continues to build. Two new sub-franchisees open stores in two new cities. Corporate store performance and commissary performance continue to improve. There are currently 29 Domino’s Pizza stores in 7 Polish cities, 16 corporately managed and 13 sub-franchised. The company now has four sub-franchise partners with 13 stores between them. One new store is ready to open and three are under construction for the second half of 20216. There have been 15 consecutive quarters of double digit like-for-like system sales growth between Q4 2012 and Q2 2016. Like-for-like system sales are up 28% in Half One 2016 on Half One 2015. Total system sales are up 57% H1 2016 on H1 2015. The group Ebitda loss reduced +6% H1 2016 on H1 2015 at actual exchange rates. Peter Shaw, chief executive of DP Poland said: “Out of our six store openings so far this year I am delighted that three stores have been opened by two new sub-franchisees, in two new cities, taking the number of our sub-franchise partners to four. Domino’s Pizza is now available in seven Polish cities, with 29 stores to date, 16 corporately managed and 13 sub-franchised. We saw more than a doubling of both corporate store Ebitda and commissary gross profit in the first half of the year driven by rapid sales growth and improvements in food costs. The continuing improvement in group Ebitda losses will accelerate as the growth in overheads necessary for rapid expansion become proportionately less significant to accelerating sales.”

Numis – expect solid Quarter Two revenue per available room (RevPAR): Numis leisure analyst Tim Barratt has forecast solid Quarter Two revenue per available room at Whitbread. He said: “Whitbread has an impressive track record of EPS growth (3y CAGR 16%) which we expect to continue in the medium term, underpinned by its 2020 targets for 7% annual room expansion and 12% pa Costa system sales. Nonetheless in FY17 we expect growth to be sub-trend at 4%, reflecting the cost of systems investment and the NLW. In this note we set out our H1 forecasts: we expect flat RevPAR and Costa like-for-like sales growth of 2% giving EPS growth of 3%.The stock trades on a CY17 P/E of 15.4x, FCF yield of 5% and 10% discount to adjusted NAV. We remain supportive of the investment case but look for a buying opportunity at a lower level. Monthly volatility is high but on average in WTB’s Q2, RevPAR has been stronger than Q1 by c.100bp. The UK cycle is now seven years old and new supply means London is set to remain weak. However, regional RevPAR is 10% below its previous peak in real terms, suggesting further upside. We expect hotel supply to grow by 2-3% in 2017 and while domestic demand growth may slow in line with the UK macro environment, the tailwind from recent GBP weakness will help offset this. Costa’s growth is broadly based, evident in like-for-like sales growing by 2.6% in Q1. We expect this to continue in Q2. The diversification is important as close to 50% (and rising) of the estate is in non-high street locations, including travel hubs/drive-through where convenience is driving strong structural growth. In H1 we forecast relatively muted EPS growth of 3%, derived from 7% total sales growth and margins slipping by 50bp (the combination of opex investment and NLW partially offset by WTB’s efficiency programme). In the medium term, however, we expect the group to meet its 2020 targets which imply 7% pa rollout of new Premier Inn rooms and 11% system sales growth for Costa and therefore represent attractive structural growth. Whitbread trades on a CY17 P/E of 15.4x, EV/Ebitda of 9.3x and stable FCF yield of 5%. That looks full compared to forecast EPS growth of 4% in FY17 but not vs. the 3y historic CAGR of 16% and 3y forecast of 7%. The stock has performed strongly in the post-Brexit recovery (+26% in last two months), but sentiment remains vulnerable to that for the wider UK macroeconomy. We remain supportive of the strategy, see exciting structural growth potential in both brands, and view an ultimate demerger of Costa as a way of unlocking value in due course.”

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