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Morning Briefing for pub, restaurant and food wervice operators

Tue 7th Mar 2017 - Update: Just Eat, Marston’s, Pidgin and McMullen’s
Just Eat reports sales up 52% in 2016, adds 7,000 restaurants to network: Just Eat, the global marketplace for online food delivery, has reported revenues up 52% to £375.7 million and underlying Ebitda up 93% to £115.3 million in the year to 31 December 2016. Orders rose 42% to 136.4 million (2015: 96.2 million), up 36% on a like-for like basis. Revenues were up 46% on a like-for-like basis. Underlying Ebitda margin was up 700 basis points to 31% (2015: 24%). Profit before tax rose 164% to £91.3 million (2015: £34.6 million). Just Eat processed orders worth over £2.5 billion for its restaurant partners (2015: £1.7 billion). Active users increased 31% to 17.6 million (2015: 13.4 million). Orders placed via mobile devices continued to grow, rising to 73% of group orders (2015: 66%). More than 50% of UK orders were processed through an Orderpad, its tablet-based order management platform, well ahead of its target to have one-third of UK orders processed through this technology by March 2017. Just Eat reported the UK marketplace expanded to £6.1 billion, a four year CAGR of 8%. In line with the group’s strategy to be market leader, Just Eat acquired and integrated businesses in Italy, Spain and Mexico during the year and in December, it announced the acquisition of SkipTheDishes in Canada. The proposed acquisition of hungryhouse in the UK was also announced in December, and remains subject to approval by the Competition and Markets Authority. Chief executive David Buttress said: “Just Eat posted another strong financial performance in 2016, with revenues up 52% and Underlying Ebitda rising by 93%. This reflects robust order growth across the business, strong cash generation and further underlying Ebitda margin expansion as we consolidated our market leadership in every geography where we operate. We continue to see strong growth in the UK, adding materially more revenues in absolute terms than the year before. Our international businesses also go from strength to strength; having become profitable in aggregate during the year, they continue to grow rapidly and now represent over one-third of group revenues. The acquisitions we made in Italy, Spain and Mexico have significantly enhanced our operations in those countries, and we are excited by the addition of SkipTheDishes to our Canadian business towards the end of the year. 2016 was an important year operationally, positioning the business very positively for the future. We continued to invest in our technology, brand and people to expand the choice we offer consumers and the benefits we deliver to our restaurant partners. Our markets remain relatively under-penetrated, meaning there is considerable runway to generate sustainably profitable growth across the business. In 2016, we increased the number of restaurants on our network by a net 7,000 to 68,500 (31 December 2015: 61,500) and gained 4.2 million new active users, highlighting the positive network effects of market leadership. The average number of orders we processed per restaurant increased by 19%.” The company added: “Just Eat is in a very strong position, operationally and financially. We have the right business model to continue capturing further share of the £23.1 billion of delivered food ordered in our markets. In 2017, despite another year of planned investment, we expect material growth in both revenues and Underlying Ebitda of between £480.0 – 495.0 million and £157.0 – 163.0 million respectively.”

Douglas Jack begins Marston’s coverage with ‘Buy’ recommendation: Peel Hunt leisure analyst Douglas Jack has begun Marston’s coverage with a ‘Buy’ recommendation and a 150p share price target. He stated: “We are initiating coverage with a ‘Buy’ recommendation and 150p target price, estimating that dividend payments, Ebitda growth and debt reduction should generate 41% of equity value over the next three years if the EV/Ebitda rating holds. We believe forecasts, particularly consensus, underestimate the financial benefit of capex gravitating to new accommodation. In each of the last three years, both the food-led (Destination and Premium – D&P) and wet-led (Taverns) managed and franchised estates have generated similar like-for-like sales growth, in both cases averaging c150bps above the managed sector (per the Coffer Peach Business Tracker). Over the same period, Leased like-for-like net income growth averaged 3% pa. Accommodation should increase from 10% to 30% of D&P’s expansionary capex this year. We expect the company to quadruple its number of rooms to 4,000 over the next six-seven years, with pub restaurant expansion slowing to 16-17 new units pa (vs 26 in 2014), thereby providing a material boost to pub average sales and margins. New accommodation should materially boost D&P’s performance, adding 1.7% to average sales and 150bps to Ebitda margins in 2019E, by our estimates. On this basis, our forecasts for pubs (excluding accommodation) assume minimal like-for-like sales growth and over 100bps margin reduction in both 2018E and 2019E, implying attractive upgrade risk. Our PBT forecast is 1% below consensus for 2017E, but 2% ahead of consensus in 2019E, with the latter reflecting the upward bias that new accommodation should bring to P&D’s average sales and margins. They also cautiously assume that the return on expansion falls from 13% to 11.4% during 2017-2019E. We forecast net debt/Ebitda to fall to 5.4x from 6.0x over the next three years. We view the balance sheet as being robust, with 96% of pubs being freehold and 45% of Ebitda being generated outside the bond. We estimate that without expansion, debt would fall by 22% over the next three years. Although forecast growth is low, we believe Marston’s offers a relatively low risk model with medium-term upside to forecasts. A secure dividend with a c6% yield should act as a support for the share price.”

Michelin-starred Pidgin moves to five-day service: The Michelin starred Pidgin on Wilton Way in Hackney is to move to a five-day service from April. The 28-cover restaurant will be open for lunch on Friday and closed Monday and Tuesday. It is also extending Sunday opening hours. Co-founder James Ramsden said: “’The team does an amazing job in tirelessly changing the entire menu every single week. We haven’t repeated a single dish since opening in July 2015, and we are immensely proud of the creativity and rigour with which they approach this demanding process. Everyone knows working in a kitchen is both gruelling and rewarding, and we want our team to spend more time outside of the kitchen to travel, meet suppliers, collaborate with other chefs in the industry, and, frankly , get more time to think about something other than work! We hope giving everyone more time away from the pass will help us to continue to innovate and improve.” 

Secretary of State visits Plough pub, Cuffley to hear about impact of business rates: At the invitation of Charles Walker, the MP for Broxbourne, the Secretary of State for Communities and Local Government, Sajid Javid MP, has visited the Plough pub in Cuffley. The Secretary of State was given a brief presentation on the impact of business rate rises on the pub and met staff. The pub was subject to a £750,000 investment by McMullen & Sons, the local Hertfordshire Brewer, in 2011. As a consequence the number of jobs has nearly doubled, the pub’s economic viability has improved, and the overall tax generated by the business has more than doubled before this further increase. The pub is currently facing a business rate increase rising to 155%, which was discussed in light of the current economic environment and the need to encourage further investment in business generally. Tom McMullen, joint managing director of McMullens, said: “It was hugely appreciated by the staff of the Plough that the Secretary of State and their local MP took the time to understand their business, its challenges and its contribution to society.”

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