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Fri 22nd Jun 2018 - Update: Greene King, Starbucks first UK franchise opens 50th site
Douglas Jack – growth could soon return at Greene King: Peel Hunt leisure analyst Douglas Jack has forecast that growth could soon return at Greene King. He said: “For Thursday’s prelims, we forecast profit before tax falling by 11% to £244.2m (consensus: £243.4m). We expect managed pub trading to be positive in early 2019E, resulting in 2019E forecasts being maintained. The shares have bounced almost 40% from hugely oversold levels, in our view, yet the EV/Ebitda, at 8x, is not onerous. We believe the attraction of the shares is the secure dividend, net debt reduction and expectations of growth returning in 2019E, and are increasing our target price to 700p from 600p. Managed like-for-like sales fell by 1.8% after 49 weeks. Other than snow/cold winter weather, we believe like-for-like sales were undermined by increased exposure to destination food and more capital than was originally expected diverting into back-of-house infrastructure (rather than customer-facing projects) in the Spirit estate. Early 2019E trading should have benefited from 2018E’s repositioning work in the Spirit estate, including the completed exit from Fayre and Square, and good weather in May/June. For GNK, Easter weekend like-for-like sales were up 2.8%; for the pubs constituent of the Coffer Peach Business Tracker, like-for-like sales bounced up to +3.5% in May vs +0.2% in the year to April 2018. The World Cup should also help early 2019E, however, we expect this to be more beneficial in the tenanted estate (in which only 23% of outlets are food-led, according to CGA) than the managed estate (57% food-led). Wet- led pubs should also be the greatest beneficiary if this favourable summer weather continues (as the Met Office forecasts). There is a good chance of tenanted pubs bettering 2018E’s -0.3% like-for-like profit and brewing own-brewed returning to growth. We expect to hold our 2019E PBT forecast, which, at £251m, is ahead of consensus (£241m). This assumes stable profitability in the managed estate based on 1.4% like-for-like sales being just sufficient to offset cost inflation, post mitigation. Managed like-for-like sales are critical to forecasts: we estimate that each 1% change alters PBT by £10m or 4%. Thus, investors should respond positively if underlying like-for-like sales trends are improving. The EV/Ebitda valuation is 1.0 turn lower, at 8.2x, than a ten-year historical average that includes a financial crisis and recession. In comparison, if managed like-for-like sales can exceed 1% in 2019E, the combination of profit growth, dividend and net debt reduction should return.”

Starbucks first UK franchisee opens 50th site: Starbucks first UK franchised business partner, 23.5 Degrees, has opened its 50th store on 20 June in Hull. The business opened its first Starbucks store in Liphook, Hampshire just five years ago in February 2013. The 50th opening is part of an ambitious expansion programme for 23.5 Degrees, with firm plans to expand further over the coming years. 23.5 Degrees managing director Mark Hepburn said: “Reaching our 50th Starbucks store in just five years is a great achievement but we’re not stopping there. The UK coffee market is continuing to grow and with our local expertise, we hope to extend our store count considerably in the coming years.”The business has a strong pipeline, with seven further new Starbucks stores planned to open by August 2018, and a further 20 new stores planned to open in the next 12 months. It is actively seeking both freehold and leasehold drive thru opportunities sitting on main arterial routes, close to major retail destinations or on large industrial estates that can be designed into three standard sized units: 1,500, 1,800 and 2,200 sq ft. These can either be modular or traditionally built. 23.5 Degrees will also consider retail park and ‘drive to’ destinations, as well as high street units in prominent high footfall locations with a minimum size of 1500 sq ft. Hepburn added: “We’re able to move fast on great new sites. Our use of modular design and build enables our landlords to have our stores trading faster.” 23.5 Degrees are supported by a new funding package and further equity investment from private equity investors. 23.5 Degrees has opened 11 drive thru stores in under two years, with stores stretching from Bournemouth on the south coast to Norwich in the east and Hartlepool in the north east of England. While the new Hull Starbucks store is the first 23.5 Degrees store in Yorkshire, a considerable number of new stores are planned for the area across the next 18 months. Helen Doran, director licensed operations, Starbucks UK, said: “Over the past five years we have seen 23.5 Degrees open 50 Starbucks stores that we can all be proud of. We are committed to growing our partnership together by opening stores with close links to the local community and creating spaces that are warm and welcoming for all to enjoy.” Mark Hepburn, has a track record of success in food service franchise businesses, including Burger King and KFC, specialising in rapidly growing businesses. He is also supported by an experienced board who also have experience in franchising and working in accelerated growth businesses.

GMB calls on government to intervene in CO2 supply crisis: GMB, the energy union, is calling on the Government to intervene in the CO2 supply chain crisis to protect UK interests. A shortage in food-grade carbon dioxide is currently causing havoc for the UK food and drink industry. The CO2 supply crisis is the latest example of why the UK needs an industrial strategy to protect the UK’s national interest. CO2 gases are an essential part of organ transplant procedures in our NHS, as well as being a major component for the drinks industry in supplying soft and alcoholics beverages to our pubs, restaurants, and cinemas. CO2 gas imports getting dangerously low to the UK due to supply outages in Europe is not a situation the UK government should allow to continue in post Brexit Britain. Stuart Fegan, GMB national officer, said: “We have the skills and the infrastructure in the UK to supply our own gases. It’s an industry that employs thousands of people in the UK, but it needs government help to support the infrastructure required. Time and again Britain relies on market forces to supply essential products to the UK economy – it is just not working. The UK needs a proper industrial strategy for the post-Brexit world, or we will be continue to be at the mercy of supply chain shortages coming from the continent in future.”

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