Northland Capital Partners Morning Report
11 Apr 16
Business doubled in size in FY15, though did not see the benefits of a full year of trading from Holland Park and Edinburgh which will be the case in FY16. Management seeks to double the size of the business again in FY16 and has appointed Philip Houghton as CEO and Mark Beveridge (former InterContinental Hotels Group) as FD to help support the senior management team in its preparation to accelerate growth into key European cities.
Outlook for 2016 – fundamentals remain good
26 Feb 16
UK consumers have not had it so good for at least 10 years with key macro data points favourable, expectation of a rate rise pushed back and deflation an ongoing stimulus to disposable income. Market nerves are high but we see current uncertainty as a growth scare and show which consumer / leisure stocks are looking relatively attractive. Our top 6 picks are Cineworld, Conviviality (initiation), CVS, Devro, Marston’s and Safestay. We make various forecast and recommendation changes in this note and address key sector themes, including turning the NLW debate on its head and focusing on the sales growth upside.
Living wage bolsters retail/leisure outlook
26 Feb 16
Recent market turmoil offers selective buying opportunities in the General Retail and Leisure sectors. Key UK macro data-points all continue to look supportive of consumer spending, now with added stimulus from the Living Wage (LW). This backdrop can drive outperformance with reasonable upside risk to earnings and valuations on a 1-2 year view, especially stocks biased to low-to-mid income groups and/or exposed to online and retail parks, with limited LW costs. We advocate a positive stance on 12 stocks based on fundamentals, improving spend dynamics stemming from the LW, and oversold positions or rating differentials: BCA Marketplace, Cineworld, Conviviality, CVS (Corp), Dunelm (NR), Greggs (Corp), Halfords, Marston’s, N Brown, Safestyle UK, Safestay (NR) and ScS (NR). Ret ail & Leisure Sect or
Jury is out on ongoing space race threat
26 Feb 16
We have low conviction of LFL’s outperforming expectations in 2016 and see scope for new unit growth trending lower over FY17-18. We expect competition in the casual dining market to remain intense in 2016 and no let up in supply growth. With the shares now trading close to our 12m TP, we upgrade from Sell to Hold.
Premium late bar operator with ambitious roll-out
26 Feb 16
Revolution Bars share price is c.20% below its March-15 IPO price. We struggle to identify a compelling reason for the weakness. Driven by a clearly defined expansion trategy of a high ROCE premium bar concept with limited direct competition, we see he company delivering above average growth over the next 3 years (14% CAGR). The shares offer compelling value on a cal’16 P/E of 11x, 5x EV/EBITDA and a FCF yield of 10%. We estimate fair value on a 12m view at 245p, based on 7x FY17 EV/EBITDA (implied P/E 14.5x).
Poised for more profitable growth and cash returns
26 Feb 16
Safestyle saw trading performance accelerate in H2 and the dilutive effects of credit in the mix were much less significant than anticipated. Whilst the gross profit beat was mostly reinvested in marketing and brand repositioning in FY’15, this is unlikely to be ongoing in the new financial year. With strong momentum so far in Q1, the prospect of markets returning to growth helped by the Living Wage, and national competition struggling to make the credit transition, we see risk to the upside. Details of this and the magnitude of the capital return will be clarified at the March prelims which ought to be a positive catalyst for the shares. We reiterate a BUY stance with a 280p target.
Time to check-in
26 Feb 16
Safestay has transitioned from owning 1 hostel at the beginning of 2015 to a group with 4 UK operations and a great platform from which to expand and create shareholder value. The recent YE trading update was positive and momentum going into FY16 is strong. Notably, historical experience shows the hostel segment to be relatively resilient to macro weakness. Whilst patience is required for growth to come through the shares trading at effectively NAV offer compelling value.
Positive trading + operational gearing = upside risk
26 Feb 16
Sentiment was heavily impacted by a warning shortly after IPO, partly due to general election jitters which clearly carried risk. It was the warm conditions at Easter/ May bank holiday that magnified the impact though. Whilst ScS’s dependency on these annual events may never go away, our analysis indicates IPO forecasts in outer years could yet be delivered. Indeed, despite a big upgrade in Jan, consensus forecasts still look unrealistically cautious. The 3-year EPS CAGR could potentially be 25% (vs 12% forecast) in which case it would trade on 2.5x cal’17 EV/EBITDA vs DFS 6.5x (relatively mature). Specials could more than double the 8% dividend yield.
Have investors checked out too early?
26 Feb 16
While some of the share price decline from 8p in December can be attributed to dilution from the placing announced that month and general market risk aversion, the current market cap of c.£8m appears not to recognise the progress in establishing a global brand, a range of unique accommodation formats and an ever expanding event programme, moving towards profitability and with exciting prospects.
26 Feb 16
BARR(A.G.) (BAG LN) | BCA MARKETPLACE PLC (BCA LN) | BROWN(N.)GROUP (BWNG LN) | CHURCHILL CHINA (CHH LN) | CINEWORLD GROUP (CINE LN) | CONVIVIALITY PLC (CVR LN) | CRANSWICK (CWK LN) | CVS GROUP PLC (CVSG LN) | DEVRO (DVO LN) | DOMINO'S PIZZA GROUP PLC (DOM LN) | DUNELM GROUP PLC (DNLM LN) | EARTHPORT PLC (EPO LN) | EASYHOTEL PLC (EZH LN) | FULHAM SHORE PLC(THE) (FUL LN) | GOALS SOCCER CENTRES (GOAL LN) | GREENE KING (GNK LN) | GREGGS (GRG LN), HALFORDS GROUP (HFD LN) | M&C SAATCHI (SAA LN) | MARSTON'S PLC | NICHOLS (NICL LN) | RESTAURANT GROUP PLC (RTN LN) | REVOLUTION BARS GROUP PLC (RBG LN) | SAFESTAY PLC (SSTY LN) | SAFESTYLE UK PLC (SFE LN) | SCS GROUP PLC (SCS LN) | SKYEPHARMA PLC (SKP LN) | SNOOZEBOX HLDGS PLC (ZZZ LN)
Successful FY15e check-in and positive momentum going into FY16e
15 Feb 16
An inline YE trading update should come as relief to investors given the shares have been soft over recent months on fears of downgrades. Commentary around the portfolio is positive and there appears to be good momentum going into FY16. With the shares effectively trading at FY16e NAV of 57p, there is deep value at current levels. Overall, we see today’s update as a further step in validating the niche hostel model in a hugely fragmented sector. We stay positive and estimate fair value >100p on DCF analysis.
Further positive snippets on EZH/SSTY/ZZZ
10 Dec 15
Following up on our commentary in October and November on these three interesting niche plays, we update our thoughts for further recent news flow, including the prelims and strategic update from easyHotel yesterday. We continue to believe that investors should carefully investigate these companies. We note that favourable industry dynamics are coinciding with helpful factors like reinvigorated management teams and proactive business strategies to present compelling reasons to invest.
Update on our recent note on EZH/SSTY/ZZZ
12 Nov 15
In our Microcap niche hotels edition published on the 12th October, subtitled “three great places for you and your money to stay”, we highlighted easyHotel, Safestay and Snoozebox as interesting sub £50m investments. In this note we update our thoughts post recent meetings, site visits and other news flow for these three companies and the wider sector. Our view remains positive, both on the market backdrop and for the prospects for these innovative niche models and impressive management teams.
Microcap – Uncovered gems ‘Niche Hotels Edition’
12 Oct 15
In our second edition of “Microcap - Uncovered gems” we look at three contrasting and very interesting accommodation plays - easyHotel, Safestay and Snoozebox. We have recently met all three management teams. Not only is the macro-economic background in our view supportive for increased leisure spend and a strong travel/accommodation market, but all three propositions offer something unique and niche both for the consumer and for the investor. At the same time all three stocks are at very interesting stages of their development and the management teams are all very experienced and, in some cases, new appointments. We strongly recommend a look at all three companies. Inside this note we give brief descriptions of each company and its key investment criteria, followed by a look at the top down drivers and positive consumer backdrop.
Edinburgh continues growth strategy
09 Sep 15
With the completion of the Edinburgh hostel deal Safestay will have more than trebled the number of beds in the group since its IPO in May 2014. We have updated our forecasts for the impact of Edinburgh, the delay in the Holland Park opening and the investment in group infrastructure. The full benefits of both Edinburgh and Holland Park will start to come through in 2016. With more of the foundations of a successful rollout in place we maintain our DCF-derived 120p TP having tweaked our WACC and L-T growth assumptions. Buy.