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Thu 24th Nov 2016 - Marston’s reports turnover and profit boost, Domino’s increases estate targets
Marston’s reports turnover and profit boost: Marston’s has reported sales up 7% to £905.8m in the 52 weeks to 1 October 2016. Profit before tax rose 7% to £98m. Average profit per pub was up 8% in 2016, and up around 50% since 2012. A total of 22 new pubs and bars were completed in the year, creating around 1,000 jobs. Six lodges were opened, taking its estate to over 950 rooms. Like-for-like sales were up 2.3% in its Destination and Premium division, and up 2.7% in Taverns. Leased average profit per pub was up 3%. Volumes were up 13% in its brewing division. It plans to open 20 new-build sites in the current year, include three Revere premium sites. It has also targeted the opening of five to ten new lodges, weighted towards the second half. Chief executive Ralph Findlay said: “We have delivered another year of good growth across the business, with the outstanding performance of our beer company particularly encouraging. Trading has been solid in the first few weeks of the new financial year and we have seen no discernible change to the trends experienced in 2016. The majority of our major product cost lines are contracted for 2017 and well into 2018. We have a high quality pub and beer business which is displaying positive momentum and is consistently outperforming the market. We believe that, despite some continuing market headwinds, our expansion plans for new pub-restaurants, lodges and Revere bars will further enhance our ability to deliver attractive returns.” In its company overview it stated: “We are pleased to report that we have again achieved profit growth across all of our trading segments, with solid underlying earnings growth, demonstrating further good progress in implementing our strategy. Our strategy remains consistent, focusing on operating and expanding a high quality pub estate through investment in new pubs and bars as well as increasing our investment in accommodation. In addition, our beer business focuses on increasing market share in the growth areas of premium beers and bottled ale where we are the market leader. The new-build programme remains our key growth driver. Since 2009, when the current investment plan started, we have opened over 150 new pub-restaurants generating consistently high levels of profitability and strong returns, thereby creating significant shareholder value. Where possible, accommodation is added alongside a new pub-restaurant to generate additional income and enhance returns. We opened six new lodges under the Marston’s Inns brand in 2016. We also see expansion opportunities in premium bars, having opened three new bars in 2016 on a leasehold basis. We identified several years ago, that in locations where Marston’s has direct control over the retail offer we are better able to deliver a stronger consumer proposition with more consistent standards across the estate. We therefore pioneered an innovative franchise-style agreement in 2009, and as at the end of 2016, approximately 80% of profits from our pubs are generated by managed or franchise-style pubs. In Brewing, our focus remains on the growth market of premium beers underpinned by local provenance, our strong brewing heritage and state-of-the-art logistics capability. Our core brewing business grew strongly, in terms of revenue and earnings in the year, supplemented by the successful integration of the Thwaites’ beer business acquired in April 2015. Total underlying revenue increased by 7.1% from 2015 reflecting like-for-like growth in our pubs, the positive impact of new openings, growth in our beer brands and the acquisition of Thwaites’ beer business. As previously highlighted, our operating margin was 0.5% below last year reflecting lower margins in Brewing as a result of the contract to supply Thwaites’ pubs and the continued impact of franchise conversion within Taverns. In Destination and Premium operating margins were in line with last year, despite the introduction of the National Living Wage in April 2016. Underlying operating profit of £172.7 million (2015: £165.4 million) was up 4.4% with profit growth in each of our trading segments. Trading in the current financial year is in line with our plans, our new site development is on track, and there have been no material changes to market conditions that would impact upon our expectations for the full year. Accepting there are wider concerns regarding the possible impact of Brexit on consumer sentiment and input costs as a consequence of sterling weakness since the vote; to date there has been no discernible change in the spending habits of our customers, and we have forward contracts in place for 2017 and much of 2018 which will mitigate the risk of higher input costs due to exchange rate fluctuation. We have planned for modest increases in business rates in 2017, but are protected from more significant increases by our low exposure on the high street and in city centres. Non-cash pension interest costs will increase by £1.4 million this year as a consequence of the impact of falling gilt yields on pension deficits. In summary, we are well placed to continue our track record of growth and to make further progress against our key financial objectives.”

Domino’s increases UK estate target to 1600 sites: Domino’s Pizza has increased its UK estate target to 1600 sites. Analyst Richard Stuber, of Numis, said: “Ahead of today’s capital markets day, Domino’s UK has announced that it is increasing its long term target for the UK to 1,600 stores from 1,200 previously. At the current run rate, this equates to more than eight years of estate growth at 6% CAGR. The group continues to trade well and management is reiterating FY guidance. Increasing UK store count opportunity by 33%. With the continued strong store performance and successful strategy of splitting territories, management is increasing its long term target for the UK to reach 1,600 stores (timing undefined) from its previous target of 1,200. With 80 store openings planned this year, taking its store count to c.950, this run rate suggests more than 8 years of estate rollout at a CAGR of more than 6%. At this point, there would be one store for every 33k people, which compares to DPE which is targeting one store for every 21k people in Australia by 2025. We currently assume 6% pa revenue growth in the medium term in our DCF, comprised of 3% like-for-like growth and 3% estate growth. Each 1ppt increase in our revenue growth assumption adds 18p to our DCF valuation. With c.100 stores across Ireland, Switzerland and the Nordics by the end of 2016, management has identified opportunities to reach 400 stores. We currently forecast minimal store growth in Ireland or Switzerland by 2020 (+14 and +19 stores resp.) suggesting material upside to our store targets, in particular from the Nordics where there are fewer than 35 stores. The group is trading well and PBT guidance remains unchanged (NSe £83.3m). A rephasing of supply chain centre projects means capex in FY16 will be c.£13m lower than previously forecast. Demonstrating capital discipline, surplus cash will be returned to shareholders through buybacks albeit the current programme has been paused as it resolves an issue. Since its trading update in September, DOM has underperformed the FTSE by 8% and peers DPZ (22%) and DPE (14%), both whom have reported strong trading with optimistic outlook statements. With renewed confidence in the rollout opportunity coupled with best practice from other Domino’s franchisors we believe the discount to peers is overdone. DOM is trading on 22.0x 2017E PER vs. DPZ on 32.8x and DPE on 38.x. We remain positive on the excellent prospect for system sales and are attracted to its high ROIC (>50%) and prolific cash generation (FCF post maintenance capex/Ebitda >70%).” 

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