Morgan Stanley – election result will have ‘mixed impact’ on pubs and is ‘good news’ for Whitbread: Analysts at Morgan Stanley have said the general election result will have a “mixed impact” for pubs and is “good news” for Whitbread. The Conservatives won a majority, which means Britain will leave the European Union at the end of next month. Reflecting on the outcome, analysts at Morgan Stanley said: “UK pubs have been relatively resilient over the past few years, with industry like-for-like sales running up around 1%. The Conservative majority and UK economic boost our economists expect should therefore be positive for pub demand. However, we would have expected more of a boost had Labour won, given the significant increase in public spending. In addition, there is perhaps greater wage cost risk given the faster Brexit timetable might bring a tighter labour market, particularly in the relatively unskilled area of hospitality under the Conservative proposals for the UK’s future immigration system (the plan is to grant short-term visas in sectors suffering a staff shortage, but it is unclear when this will start and how a shortage will be measured). In addition, another increase in the pound arguably makes overseas acquirers of cheap UK pub assets less likely, and we note pub share prices have enjoyed a strong rally since the CK Asset Holdings takeover of Greene King and TDR Capital’s acquisition of EI Group over the summer. We recently downgraded Mitchells & Butlers from ‘Overweight’ to ‘Equal-weight’. Whitbread is the most obvious single travel and leisure sector beneficiary in our coverage from the election result. Its business has suffered the most from weak corporate confidence, with Premier Inn revpar down 5.3% in the first half to end of August. While some of this was underperformance versus the market, the midscale and economy segment fell 2.4% for the same period, with the regional market particularly weak at minus 4.2%. Since then the data have remained weak, with London deteriorating. There is a good correlation between UK hotel demand and business investment, given corporate revenue exceeds leisure revenue in hotels. Business investment has been flat for the past two years, and our economists expect it to pick up to about 2% in 2020. This is positive, but would be well below previous recoveries (roughly 10%) due to uncertainty over the trade talks in the run-up to the 1 January 2021 scheduled end of the transition period. We currently model Premier Inn’s revpar improving from minus 4.6% in FY February 2020 to 1.0% in FY February 2021, which implies both a strong market recovery and some closing of its underperformance gap. Whitbread shares trade on a 21.7 times price-to-earnings ratio and 11.4x EV/Ebitda. This is not particularly cheap and we continue to rate the shares ‘Equal-weight’, given they trade close to our £45 price target.”

 

Hollywood Bowl reports sales and Ebitda boost, set for mini-golf centre trial: Hollywood Bowl Group, the UK’s largest ten-pin bowling operator, has reported sales were up 7.8% to £129.9m for the year ended 30 September 2019, compared with £120.5m the previous year. Group adjusted Ebitda increased 5.7% to £38.2m, compared with £36.2m the year before. Profit before tax rose 15.3% to £27.6m, compared with £23.9m the previous year. As previously reported, like-for-like sales were up 5.5% during the period. The company opened two sites during the year, at Intu Watford and Intu Lakeside, the largest bowling centre to open in the UK in the past ten years. A Hollywood Bowl is set to open in York in the current financial year along with three trial “Puttstars” mini-golf trial centres, in Leeds, York and Rochdale. Six further bowling centres are in the development pipeline. Six centre refurbishments and a further two AMF rebrands were completed in the financial year. Average spend per game increased 4.5% to £9.64, compared with £9.22 the previous year after investments in dynamic pricing, bar and diner layouts and further roll-out of its enhanced amusements offering. Bar and food spend was up 3.1%. Chief executive Stephen Burns said: “I am delighted to report another year of strong profitable and cash generative growth, demonstrating the consistent delivery of our proven, customer-led strategy. In addition to driving these further strong returns, we also achieved excellent customer feedback following the ongoing investment in our centres, further innovation of our industry-leading customer proposition and the continued development of our team members. We also increased the size of our portfolio to 60 high-quality, all profitable centres. As a result of this strong financial and operational performance, we are delighted to announce a special dividend for the third consecutive year, which will result in a total of £47.7m being returned to shareholders since the initial public offering. In addition to our new bowling centre pipeline, we look forward to the launch of three trial Puttstars mini-golf centres, as we look to leverage our operational expertise to offer another family focused, value for money, leisure experience. We have made a solid start to the new financial year and we expect to make further progress in our ongoing refurbishment programme, investment in technology and continued roll out of customer innovations. I am confident we will continue to deliver value for all of our stakeholders.”