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Fri 7th Sep 2018 - Update: Greene King Q1, The Lakes Distillery IPO, Whitbread
Greene King reports LfLs up 3.2% in most recent ten weeks: Greene King has reported like-for-like sales growth up 3.2% in the ten weeks to 2 September. The company stated: “The positive momentum in (managed) Pub Company continued through the summer with like-for-like sales up 2.8% for the first 18 weeks of the year, ahead of the market which was up 1.2%. Growth over the last ten weeks was 3.2%. This strong performance was underpinned by the ongoing benefits from our sales driving investment to further improve our Value, Service and Quality, and boosted by the weather and a successful World Cup. Our Greene King branded local pubs traded particularly well with like-for-like sales of +5.5%, driven by very strong like-for-like drink growth. 3.7m pints of beer were sold in total during England’s seven World Cup matches and like-for-like sales on the day of the semi-final were up 61%. Like-for-like net profit in Pub Partners was -0.4% after 16 weeks, impacted by the timing of higher overhead costs which we expect to balance out over the year. Total beer volumes in Brewing & Brands were up 4.0% and own-brewed volumes were up 0.3%.Our cost mitigation programme to help offset gross cost inflation of c.£45-50m is on track and we are making good progress with our refinancing programme, which will reduce the cost of debt and increase flexibility. We remain on course to dispose of 100-110 pubs this year and expect to open around nine new pubs. We continue to focus on profitably driving top line growth, developing a more streamlined and efficient organisation and further strengthening our capital structure to deliver long-term value creation for our shareholders.” The update on Quarter One trading comes ahead of the company’s AGM today. 

The Lakes Distillery hired advisers ahead of IPO: The Lakes Distillery, a leading English single malt whisky distillery, is exploring the possibility of seeking admission of its shares to trading on AIM, the London Stock Exchange’s market for smaller growing companies. The company has appointed N+1 Singer as its Nominated Adviser and Broker in relation to a possible admission and a potential fundraising by way of a placing with institutional shareholders to raise up to £15 million of growth capital in the latter part of 2018. A meeting has been convened for later this month at which various resolutions needed to enable the IPO to take place are to be put to the company’s shareholders for approval. The Lakes Distillery was formed in 2011 and commenced operations in December 2014 with the aspiration to create a global luxury whisky brand. As well as distilling and maturing initial stocks of premium single malt whisky the company has built a portfolio of award-winning premium spirits brands including: a world’s first blend of British Isles whiskies, The ONE; Steel Bonnets, a world’s first of English and Scottish blended malt whiskies; The Lakes Gin; The Lakes Vodka; and a range of flavoured liqueurs. As an English single malt whisky distiller, The Lakes Distillery is classified as a World Whisky, the high growth segment of the global whisky market. The company was founded in September 2011 by Paul Currie, chief operating officer, when he acquired the distillery site located in the Lake District National Park, and was later joined by Nigel Mills, chief executive and co-founder in April 2012. As it positions itself for the next stage of growth, the company has assembled a strong board and senior executive management team, including considerable and relevant expertise in producing high quality whisky, building a global luxury brand and growing a business to generate shareholder returns. In addition to Nigel and Paul, the executive team includes Deloitte-trained David Robinson as chief financial officer; and Dhavall Gandhi, who joined the company from The Macallan Distillers, as chief whiskymaker. The non-executive directors comprise Dr Alan Rutherford, chairman, who held the role of production director at Diageo from 1989 until his retirement in 2000 and was awarded an OBE for services to the Scotch Whisky Industry in 1996; Tim Farazmand, formerly a managing director of Lloyds Development Capital, where he backed high-growth opportunities in the consumer sector, including Fever-Tree Drinks; Paul Neep, formerly chief executive, and latterly chairman of the whisky distiller Glenmorangie, where he was instrumental in building the premium global luxury whisky brand Ardbeg and in the latter years worked closely with Louis Vuitton Moet Hennessy following the sale of Glenmorangie to LVMH in 2005; and Richard Hutton the finance director of Greggs. Nigel Mills, chief executive of The Lakes Distillery, said: “The Lakes Distillery has strong brand credentials, is located in an area of outstanding natural beauty, the Lake District National Park, a UNESCO World Heritage site, and has a successful track record of innovation and brand development. We believe we are well positioned for growth, with multiple revenue streams, and an appreciating asset in the form of our whisky stock, developed using our multi-oak, multi-sherry led production process. We are exploring an IPO as a flexible source of capital to allow us to increase our production significantly, whilst remaining independent and focused on quality, as well as investing in our whisky stock, our sales and marketing capabilities and our distribution channels. Ultimately this will help us to achieve our ambition to build a global luxury whisky brand.”

Tim Barrett – Whitbread is still attractive after the Costa windfall is banked: Numis leisure analyst Tim Barrett has argued that selling Costa reduces downgrade risk at Whitbread. He said: “Selling Costa for 25x Ebit crystalises value, but also simplifies WTB’s investment case and removes the greatest source of earnings uncertainty. The market had found Costa the hardest business in the portfolio to value, with its impressive track record contrasting with -2.9% like-for-like in Q1 and declining high street footfall representing a genuine risk (60% of stores). From a momentum perspective, Premier Inn is much better positioned we believe. RevPAR in London is recovering following the anniversary of terrorist attacks (+5.1% in July) and trading in the regions has shown solid improvement (+1.9%). We see scope for 200bp improvement in WTB’s Q2 (vs -1.6% in Q1), underpinning current forecasts for FY19. Premier Inn has reached UK market leadership through steady rollout, scaling its high ROCE model. Efficient distribution (97% direct) and a strong focus on cost efficiency give a 13% ROCE (pre tax) in this business, justifying further roll out. The business is relatively defensive with a 10y annual RevPAR growth of 3% and lower peak-trough range than peers. It is also distinguished by its freehold backing: c.60% of the portfolio is freehold, which we estimate would have a value of £4.5-6.0bn if rents are set at 2.25x cover and valued at a yield of 4.5% to 6%. EPS pro forma suggests EPS of 323p and P/E of 14.6x. Adjusting for the Costa proceeds leaves a pro forma EV of £5.8bn and EV/Ebitda of 8.9x, which is attractive compared to fellow asset-heavy hoteliers (average 11.5x, table 2). Whitbread expects to return a “significant majority” of the cash from Costa, but the quantum is not clear, making pro forma EPS analysis difficult. In this note we assume a £2.5-3.0bn range (65% to 79% of net proceeds), estimate EPS of 301p to 329p, implying a P/E range of 14.3x to 15.7x. Again, relatively undemanding for a business of this quality. Even following the Costa disposal, WTB will continue to own 407 pub restaurants on joint sites (estimated revenue £583m, Ebit £41m). These are lower returning businesses, exposed to cost pressures from the NLW and therefore merit a lower multiple in our sum-of-parts valuation. Nonetheless, we expect the potential for further corporate activity to underpin a premium valuation for the hotel business, which within a sum-of-parts supports our target price of 5,400p. With the distractions of Costa soon to be gone and Premier Inn offering an asset-backed, defensive growth business, we resume coverage with an ‘Add’ recommendation.”

Taiwanese restaurant brand to make London debut: Taiwanese dim sum restaurant chain Din Tai Fung will make its UK debut in London’s Covent Garden later this year, with a 200-cover restaurant. The Taipei-based chain has signed a 25-year lease with Aberdeen Standard Investments to occupy 5-6 Henrietta Street in the heart of Covent Garden. The restaurant chain has agreed a rent of £1.2m a year for the 9,000 sq ft unit, which is arranged over the ground floor and basement.

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