Redcape to meet earnings guidance despite weakening pub conditions
Redcape Hotel Group chief executive Dan Brady has played down potentially weaker operating conditions emerging in the pub sector, after the owner of $1.1 billion of NSW and Queensland venues said it would deliver full-year guidance in line with its IPO prospectus.
The six-month results to the end of December were the first Redcape has reported since Moelis Australia floated the 32-strong portfolio last November at $1.13 per security and a market cap of more than $600 million.
Driven by the acquisition of six venues over the reporting period, Redcape reported a 17.5 per cent rise in earnings to $142.6 million and operating earnings up 13.8 per cent to $32.4 million. Distributable income came in at $21.9 million, up from $19.4 million in the comparable period a year ago.
Redcape, which unlike other listed pub groups both owns and operates its pubs, confirmed it was on track to deliver a full-year distribution of 8.75¢ per security and full-year EBITDA of $68.8 million as per its prospectus.
But in an ominous sign for the sector, Redcape disclosed that venue performance was ”strong over the first quarter” but with “some variability in trade at individual venues late in the second quarter that has extended into the current period”.
Mr Brady put the changed conditions down to “general consumer sentiment” in other retail areas affecting on the pub sector.
But he said the group had a number of “levers” it could pull to deal with changing market conditions and noted it also benefited from owning its real estate, including a large Sydney land bank with alternative use development potential.
Research house IbisWorld has warned about falling revenue growth and greater regulation of pokies in the coming years as some of the headwinds facing the booming leisure sector.
But Mr Brady rejected these threats and highlighted instead the latest gaming revenue data provided by the NSW government which showed a healthy 4.5 per cent growth rate, though this was down on previous periods.
“This growth is well above inflation, so it’s very pleasing,” he said.
Redcape operates 27 out of 32 venues in NSW and almost two-thirds of its revenue and an even higher proportion of earnings came from gaming machines.
Over the six months, Redcape’s gaming revenue increased 18 per cent to $90.7 million. Included in its portfolio are some of the most profitable gaming venues in NSW (according to state government figures) such as the Crown Hotel in Revesby (ranked fifth most profitable) and the El Cortez Hotel (ranked ninth).
Mr Brady said he remained comfortable with the group’s exposure to pokies, but said their contribution to earnings was declining amid stronger growth from food and beverage sales.
