Langton Capital – 2016-12-19 – Punch bid, delivery, overseas buyers, Brexit & other:
Punch bid, delivery, overseas buyers, Brexit & other:
A DAY IN THE LIFE:
Have you noticed that MS Word has gone on something of a brevity campaign? It wants its customers to use fewer words meaning that, whoever’s pulling the strings at Microsoft these days, they’ve got something of a downer on the printer ink manufacturers.
It doesn’t like you saying ‘in order to’, for example.
It prefers the simple word ‘to’ and nor does it like you to say ‘have to’ (use ‘must’) and it’s come up with some other suggestions that I’ve also taken under advisement and then ignored because I don’t either 1) want MS telling me how I should speak (or think) and 2) I don’t appreciate being called verbose (even when it’s true).
And it doesn’t like regional words such as owt, summat, bairns, nowt, siling, larking, nithered, mafting and brock either. Or skeg, cockle or twag.
Anyway, I’ll let them know my views and I’m sure they’ll be taken into consideration when the software behemoth sends its latest patch down the wires. On to the news:
PUNCH TAVERNS BID SITUATION:
• Where we are:
o Majority of PUB shareholders & directors have agreed to Heineken break up bid at 180p per share. But only in absence of bid >200p.
o Tangible assets at PUB reportedly 285p. Would take several decades to build that estate. Could be worth asset value plus a premium
o Alan McIntosh has indicated his Emerald partnership could/would pay more for Punch than Heineken.
o Punch bid is premium to recent price but material discount to the price at which loyal shareholders supported the company in 2014
• What this means:
o Putting easy ‘Punch up in the offing’ puns to one side, a punch up could be in the offing. Emerald has several weeks to decide on course of action
o Punch is back in growth; its debt is secure (and fixed) and the vertically integrated model makes perfect sense
o If Punch is worth 185p to Emerald, it is worth more to Heineken.
o Emerald needs to ante up to stay in the game and we’re all betting men, what are the odds?
o Punch is in play. Directors & (bond) shareholders know co inside out. Due diligence shouldn’t undermine bid, if so downside is to 180p.
• Where to from here?
o A 205p bid for Punch from Emerald (or from left field) followed by a 220p bid from Heineken is perfectly possible. Both numbers could (and arguably should) be 20p, 30p plus higher & rationale would still be intact.
o Our memory may be failing us but a parcel of pubs of this size/quality may never have changed hands before
o With that in mind, you either step up or get out. Machismo is rarely in short supply in some (arguably most) board rooms
o The read-across to Enterprise (and the unlisted Admiral) is obvious. Other brewers may wish to secure distribution
PUB, RESTAURANT & DRINKS PRODUCERS:
• Beam Suntory is to buy UK craft gin maker Sipsmith. Simpsmith was founded in a Hammersmith garage 7yrs ago. Premium gin sales rose by 15% in 2015.
• Drake & Morgan reports results for year to end-March, says revenues +17% at £28.8m with LfL sales +2.6%
• D&M FY numbers: EBITDA +12% at £3.6m with PBT up to £1.8m. Group opened King’s Cross unit during the year.
• D&M FY numbers: Group reports it has opened 3 sites in the year to date and has 3 further sites secured for the new calendar year. Drake & Morgan bought Corney & Barrow in July 2016. Two C&B bars have been refurbished & opened as D&M sites. FD James Sherrington reports ‘the group delivered a solid set of numbers in 2015/16, with turnover and EBITDA in strong growth. Like for like sales growth has accelerated in the current financial year and we have built a strong openings pipeline. In addition, the acquisition of the C&B Bars business has strengthened our presence in the City and gives us a platform for significant growth through 2017 and beyond’.
• The ALMR has welcomed the appointment of Philip Kolvin QC as the new Chair of the Night Time Commission.
• McDonald’s is partnering with UberEATS at nearly 200 restaurants in Florida from January.
• Deliveroo has made plans for 150 ‘dark kitchens’ aimed at dealing with soaring demand for takeaway orders from upmarket local restaurants. UK and Ireland managing director Dan Warne declined to comment on the plans but said that ‘bespoke delivery-only kitchens are the perfect example of innovation at Deliveroo – it lets our restaurant partners scale to new sites at low risk, while creating amazing new choices for customers’.
• Barburrito saw turnover exceed £10m in the year to the end of March 2016, up from £8.2m, driven by three new openings and the purchase of the five-strong Pinto chain.
• Christmas pullovers have been banned from some pubs on High Street, Hull
• More talk of 45%, 50% or more of staff in hospitality industry being foreign born. Concerns therefore genuine re source of labour
• Cerberus Capital Management is understood to be ready to sell c170 pubs currently let to Greene King, with Ontario-based media magnate Jimmy Lai thought to be the likely buyer. In January 2012, Cerberus entered the UK pub market with the acquisition of the c1,100-strong Admiral Taverns business from Lloyds Banking Group for c£200m. Admiral is not part of the deal.
• The UK branded coffee shop segment is set to reach 9,400 outlets and £6bn annual revenue by 2021, according to the Project Café 2017 UK Report from Allegra. The total UK coffee shop market could exceed 32,000 outlets, with a turnover of £16bn by 2025, and might even outnumber pubs in the UK by 2030. Much of the growth is expected to come from younger, independent chains such as Taylor St Baristas.
• Richoux has announced that it has raised c£1.69m by way of a of 6,771,972 new Ordinary Shares. it says ‘the proceeds of the Subscription will be used for general working capital purposes.’
• Cuba has floated the idea of paying off its $276m of debt to the Czech Republic with bottles of its famous rum or pharmaceutical drugs. Despite the fact that such a move would provide Czechs with enough Cuban rum for more than a century, Prague says it would rather have at least some of the money in cash.
• UK milk sales have dropped by some £240m over the past two years because of supermarket price wars and a slide in consumption. Total fresh milk sales fell by more than £180m last year, and by a further £54m this year, according to data by Nielsen for The Grocer’s Top Products survey (52 w/e 8 October 2016). Own-label milk bore the brunt of the losses, with value sales down £80.5m.
• Supermarket price wars have seen sales slashed by some £800m, with fresh meat showing the largest decline of £328m.
LEISURE TRAVEL & HOTELS:
• Parkdean owners Electra & Alchemy sell company to Onex of Canada for £1.4bn. Group has 73 holiday parks in UK. Asset-heavy group had revenues of only £401m last year and underlying profits of around £107m per Sunday Times.
• Trivago’s shares rose as much as 10.7% to a high of $12.18, valuing the Germany-based hotel booking website at about $2.89bn.
• Monarch has projected a £26m drop in EBITDA to £48m for the year to 31 October in what it has labelled a ‘particularly challenging year’. The figures come two months after Monarch secured a £165m investment from majority shareholder Greybull Capital to confirm its annual relicensing with the Civil Aviation Authority. The airline expects to take delivery of the first of 30 fuel efficient Boeing 737 MAX-8s in early 2018 with an option on a further 15, which will improve passengers’ in-flight experience and ‘transform’ the airline’s cost base by reducing its £130m annual fuel bill by around a quarter and maintenance costs by 80%.
• Retail tourism specialist Global Blue has reported a record increase in UK international tax free spend for November of 41%, year-on-year.
• Worldwide cruise passengers are on course to have grown by 10 million in a decade, per Clia’s 2017 ‘State of the Cruise Industry Outlook’. President and chief executive of Clia, Cindy D’Aoust said: ‘The cruise industry is responding to global demand and we are highly encouraged by both the short-term and long-term outlook.’
• STR’s November 2016 Pipeline Report shows 554,569 rooms in 4,570 projects under contract in the United States, up 21.2% year-on-year. ‘Occupancy declines have been more consistent among the larger markets, and that is largely due to new supply that has entered those markets,’ said Bobby Bowers, STR’s senior VP of operations. ‘Projects in the pipeline are likely to further affect occupancy levels and place more pressure on hoteliers’ pricing power.’
Meanwhile, 156,368 rooms in 1,017 projects were under contract in Europe last month, marking a 13.3% rise year-on-year.
• Calculus Capital has put £3m into trampoline park operator Jumptastic, which will be used to expand in the UK and Scandinavia.
• Vivendi has said that its purchase of a 20% stake in Italian broadcaster Mediaset is ‘not hostile’
FINANCE & MARKETS:
• Pages 1-4 in S Times Business Section. UK sells Parkdean to Canadians, Sky to the US, Punch to the Dutch. Santander still interested in Williams & Glyns, S Koreans in nuclear power stations. UK needs to shift £10bn per week in assets to foreigners to pay for trade deficit. If they won’t take gilts, they’ll have to have assets.
• Former Chancellor George Osborne has said that trade deals with the EU post Brexit will ‘come at a price’. On the Andrew Marr programme, Brexiter Liam Fox said that if the UK were to stay in the customs union, then it would not be able to negotiate trade deals with third countries independently
• Scotland is to this week publish proposals on how it could remain within the single market when the UK leaves
• The German government has reported borrowings at a 15yr low
• Eurozone CPI was 0.8% in November
• World markets: UK & Europe up on Friday. US down and Far East lower in Monday trade
• Brent up at $55.60 per barrel
• Sterling down at $1.2466. Sterling stable at 119c per Euro
• US long bond yields climb again with 30yr money now costing 3.19% (Friday 3.16%). UK 10yr gilt yielding 1.44%.
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Patron & Punch announce agree to ‘recommended final cash offer’ for company of 180p per share
• PUB bid has agreement of 52.3% of shareholders. It says this is irrevocable (but only in the absence of a bid >200p). Q important, that.
• Punch. Bid is not necessarily final and irrevocable agreements are not necessarily irrevocable. Over to you, Mr McIntosh
• Punch bid. Lots of surplus words. Including ‘irrevocable’, perhaps. Also, premia to recent equity share price levels arguably meaningless
• Punch offer c40% premium to 3dys ago but c20% discount to price at which refinancing backed by supportive shareholders in 2014
• Punch. Rival potential bidder Emerald was last seen willing to pay 185p. It would have to top 200p to stay in the game
• Punch is (arguably) extremely valuable in the eyes of a brewer such as Heineken. Punch’s NAV is 285p
• Punch has argued its NAV is fair at 285p. It would take a buyer c20yrs or more to construct such an estate. But bird in hand etc.
• Fulham Shore has reported H1 numbers (to 25 Sept) saying that ‘it has been a busy and successful 6mths for the group’.
• FUL H1: Stresses value for money is at the centre of the offer. Entry level pizza & glass of water for <£5. And this in central London. Costs twice that at some competitors.
• FUL H1: Says ‘we expect to end current financial year in March 2017 with around 43 restaurants, dependent on how quickly our builders work’
• FUL H1: Revenues of £19.9m vs £13.9m in H1 last year. Headline EBITDA £3.7m vs £2.6m last year. Operating profit £2.4m vs £1.7m.
• FUL H1: Group opened 7 Franco Manca pizzeria in London, Brighton & Guildford in the first 6mths of the year.
• FUL H1: Group generated £6.4m of net cash, spent £5.7m on capital projects. Net debt £3m vs £0.3m last year.
• FUL H1: No dividend but group reiterates they ‘will be paid to shareholders when the Directors believe it is appropriate and prudent to do so.’
• FUL: Innovation in site selection. Says ‘Franco Manca is now occupying some spare window space at Debenhams in Westfield London.’
• FUL: Says current positioning ‘puts us in a sound position for our future expansion of the Group’s excellent restaurant businesses.’
• FUL to accelerate openings. Says ‘we have slowly increased the number of openings per year we can manage.’
• FUL: Says ‘we…look forward with confidence to the further expansion of our Franco Manca and The Real Greek businesses.’
• B of England votes unanimously to hold interest rates at a record low 0.25% and is predicting that inflation will overshoot its 2%
• Bank suggests growth could falter in 2017. Says that inflation may set in but more slowly than some fear
• Later tweets: Gold price rubbish. Gold oil (the number of barrels needed to buy an ounce) down to 21. Was >34 in March. Risk on play.
• Marston’s slipping on sluggish consumer spending fears for 17. Understood but surely the wrong target there? PER 9.4x & yield 5.6%
• US$ at 14yr highs on trade-weighted basis. Sterling OK vs Euro. The latter getting closer to parity with $$.
• Fulham Shore to accelerate pace of openings. Says plenty of sites, plenty of demand. Extremely good VFM product
• Cuba tries to pay off $276m debt to Czech Rep. in Rum and/or (legal) drugs. Must try something similar with HMRC in UK.
RETAIL NEWS WITH NICK BUBB:
• Saturday Press: The big business story in the Saturday papers was that the embattled Philip Green has, belatedly, signed a deal to roll out Top Shop stores across mainland China, but the Times went big on the news that Philip Green will be under pressure to “sort out” the BHS pension deficit after the Pensions Regulator secured a £255m payment to save the benefits of 24,000 Coats Group pension scheme members. The Business editorial in the Times thundered that a settlement between Philip Green and the Pensions Regulator over BHS should break the record settlement secured with Coats. The veteran City Editor of the Daily Mail looked at the retirement of Robert Swannell as Chairman at M&S and opined that “shareholder short-termism” has encouraged too much chopping and changing on strategy at M&S and that CEO Steve Rowe is wrong to have cut back the Overseas M&S
• Sunday Press: There were plenty of Retail stories in the Sunday papers, with one of the most prominent the Mail on Sunday report that JD Sports is facing renewed pressure over the “prison-like” conditions at its Rochdale warehouse after claims that it was warned about harsh treatment of workers more than three years ago. And the Sunday Times report that Game Digital is coming under pressure to explain a near 40% rise in its share price also caught the eye. The Sunday Telegraph noted that Tesco is pushing ahead with plans that will see housing built on some of its largest supermarket sites and it also flagged that cutting the price of the humble Brussels sprout could help Asda to win back festive shoppers, although there was an odd News article in the Sunday Express arguing that the problems of Wal-Mart in the US and the brain drain of UK executives could be starting to hurt Asda. The
• Today’s Press and News: Thin pickings in the papers today, apart from the coverage of the Post Office strikes, although that hardy annual (accounts filed at Companies House for private businesses) provide a few snippets, with the Daily Mail picking up on the Russell & Bromley results and the Times noting the Edinburgh Woollen Mill dividend.
• News Flow This Week: This week is very quiet on the company news flow front, with every retailer busy with planning for the last-minute shopping rush on Christmas Eve (on Saturday) and then the Boxing Day Sales (next Monday), but with the end of the month (and the year!) approaching rapidly now, the CBI Distributive Trades survey for “December” is out tomorrow morning and the monthly GFK Consumer Confidence survey is out first thing on Friday.
• Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s Grocer magazine saw Asda win again, but its festive basket of £110.40 (4% cheaper than last year) was only 57p cheaper than Tesco, which meant that it had to dole out a massive £12.38 voucher because it wasn’t able to live up to its guarantee to be 10% cheaper…The Sainsbury basket cost £120.91 and the Morrisons basket was £118.21, whilst poor old Waitrose came bottom as usual, thanks to the very high price of its gammon joint and its turkey, with a basket costing as much as £154.30. The separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability saw Sainsbury top the rankings, with its 23.500 sq ft Redhill store, scoring a solid 81 out of 100, despite refurbishment work. The main feature in the Grocer was its Annual “Top Products” survey, produced in association with