The Redcape Hotel Group Pty Ltd (ASX: RDC) share price is trading slightly higher this morning following the release of the pub and hotel operator's first-half results. At the time of writing, Redcape shares have risen 1.34% to be trading at $1.135.
Solid revenue growth driven by refurbishment program
Redcape's total revenue growth came in at 12.7% and was largely driven by the continued improvement in its gaming margin. On-premise revenue grew 24.8%, reflecting an ongoing shift in Redcape's revenue mix that's being driven by its refurbishment program and portfolio composition.
Like-for-like revenue growth was 6.2%, with increases recorded by the company across all channels of its business. This revenue growth comes on the back of Redcape's strategy of creating community-centric hubs while also improving customer experiences through the capabilities of its management platform.
Like-for-like cost growth was noted to be below the consumer price index (CPI) due to cost-out initiatives Redcape had implemented largely in the second half of FY19. These initiatives delivered positive operating leverage.
Operating earnings before interest, tax, depreciation and amortisation (EBITDA) grew impressively by 19.8% to $38.7 million, while margins increased to 24.1% from 22.7% in the prior corresponding period (pcp).
Underlying net profit after tax (NPAT) came in at $21.4 million, while statutory NPAT came in a $17.4 million.
Distributable earnings per security came in at 4.78 cents, which was an increase of 10.9% on the pcp. Meanwhile, Redcape declared a distribution of 4.41 cents per security (cps) which represents an annualised yield of 7.8%.
Gearing of 35.9% came in at the bottom end of 35% to 45% target range put in place by the company.
First half property portfolio update
Redcape commented that the acquisitions it had made in FY19 were now fully integrated and trading well.
The group has a strategy in place to now focus on completing the settlement of The Kings Head Tavern establishment in South Hurstville. This is a high-quality freehold going concern which management believes will benefit from significant capital investment and operational improvements.
As at 31 December 2019, Redcape's portfolio included 32 community venues. Of these, 30 are freehold going concerns and 2 are leasehold going concerns. Redcape believes this provides ongoing refurbishment and asset optimisation opportunities.
Redcape also noted it had made one acquisition and one divestment during the first half of FY20, with a further acquisition and divestment that is scheduled to settle in the second half.
The current value of Redcape's portfolio is valued at $1.06 billion.
Outlook and guidance
Redcape noted that its FY20 guidance provided back in August 2019 has been increased. This is despite a material reduction in gearing as a result of the portfolio changes completed and announced during the half-year.
The company said it expects to deliver distributable earnings of 9.2 cps or greater with distributions maintained at 8.75 cps and a payout ratio less than 100% of distributable earnings.
