Leading analyst Douglas Jack, of Peel Hunt, gives his view on trading updates for January, and identifies Revolution Bars as his top pick, with or without a deal.
He said: “The second half of January should bring a significant period of news flow. Among the licensed retailers, we expect success in these updates to be inversely correlated to supply growth and the provision of food, with nightclubs, bars and wet-led pubs winning, and restaurants losing. Our top pick in licensed retail is Revolution Bars Group (Buy, TP 240p), with or without a deal.
We expect the direction of LFL trading to be inversely related to supply growth. This would represent a continuation of 2017’s theme of Deltic’s nightclubs leading the sector, followed by the bar/wet-led pub operators. Stonegate has already announced 5.5% LFL sales for 4-31 Dec, with a clear positive read-through to JD Wetherspoon and Revolution Bars Group.
December trading is most important in town centre venues. Over recent years, the festive pick-up in trading has started later, but the tendency to pre-book online and go out during the second half of December has increased. We believe this trend continued in 2017: for many, H2 December was strong.
In the past, 25% of Revolution Bar Group’s EBITDA has been generated in December. We expect RBG, with no takeover distraction, to announce strong December LFL sales, materially better than Q1’s 0.3%.
For restaurants, December has historically been an opportunity to cease promotional activity and drive profits, but many brands (particularly Restaurant Group’s) appear to have missed this opportunity in 2017.
Some private operators, with a smaller number of well-targeted sites, have announced strong trading over December, but these offer limited read-through to larger companies: Yummy Pub Co 14.8%; Dirty Martini 10.8%; Remarkable Pubs 9.2%; Upham Group 6.5%; and Oakman Inns 5.9%.
We believe the timing of Christmas Day benefited bars and wet-led pubs more than food-led outlets. Nevertheless, New Year’s Eve has brought record sales for many wet-led companies, which should continue to outperform in 2018. In contrast, the restaurant sector is now awash with promotional deals.
