Langton Capital – 2018-04-09 – Deltic, Pret a Manger, sugar tax, coffee, Conviviality & other:
Deltic, Pret a Manger, sugar tax, coffee, Conviviality & other:
A DAY IN THE LIFE:
We commented the other day on how every paint scrape in a carpark tells a story.
But we would suggest that the same goes for human collisions too, I mean consider all those smeary nose splodges and mascara spatters that you see from time on the glass of shop and office doors.
Every instance means that a doorway experience has not gone as planned with some sort of ‘cranium meets inert object’ outcome the result.
And, whilst the majority probably led to nothing more serious that momentary embarrassment and cover-up procedures (‘nothing habbened, nothing habbened’ etc.), the odd one will have been a day-ruiner of the first order.
So, with a warning that you should never rely on the rude swine in front of you to stop a swinging door from hitting you in the kisser, let’s move on to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• FT reports Bridgepoint is considering whether to sell Pret a Manger to the highest bidder or to float it on the NYSE.
• FT reports Bridgepoint expects to 7x its money on Pret, albeit after 10yrs of ownership. Bridgepoint has said ‘all options are open.’ Bridgepoint says Pret is a British institution and adds ‘were we not to remain a shareholder, we want to make sure that it went to the right home.’
• Deltic is considering an IPO following the failed merger attempt with Revolution Bars Group. CEO Peter Marks also indicated an interest in smaller acquisitions in the nightclub scene.
• Following the sugar tax implementation, Tam Fry, chairman of the National Obesity Forum, has fixed his sights on excess sugar in coffees, saying ‘Lacing coffee with so much sugar is ridiculous’ in regards to caramel lattes.
• With the government suggesting the sugar tax could be extended, coffee companies may be making moves to change their offer. The government tells the Evening Standard ‘manufacturers can significantly reduce their sugar content without ruining the taste and experience consumers enjoy.’
• Mothercare is reportedly considering a CVA, becoming the latest high street chain to do so. The CVA could see the company close a third of its 143 stores in the UK as well as the renegotiation of its rent payments.
• Adidas shifts its focus to online after its CEO said several physical sites might be closed down in the coming years.
• Technomic says that ‘globalisation marches on’ in the restaurant industry and that ‘clean’, unaltered food is an increasingly important attraction. According to Technomic’s polling, Latin Americans are most insistent on freshness, Asians on authenticity and Europeans have the strongest preference for locally sourced foods, with six in 10 saying restaurants should always purchase local ingredients.
• Diners want to know the ‘story’ behind their meal, and they want authentic presentations of traditional regional and ethnic foods. The rise of food markets shows that people want to connect with concepts more closely and have a better understanding of the sourcing and ingredients of its dishes.
• BrewDog has acquired craft cider company Hawkes and is rumoured to be considering other purchases, per MCA.
• Bestway is set to buy the retail divisions of Conviviality for £7m and ensure the safety of around 2,000 jobs.
• As part of an ambitious global strategy to cut greenhouse gas emissions by 2030, McDonald’s has pledged to use more energy efficient kitchen products. It will also look at LED lighting, sustainable packaging and restaurant recycling, and will support sustainable agriculture practices.
• Carluccio’s has secured a new site inside the London Marriott Hotel Maida Vale. CEO, Mark Jones, said ‘This is our third venture with Marriott and we have now proven that our all-day trading format is particularly suited to hotel operations’.
• Brewdog has launched a direct-to-customer beer club called Fanzine which will showcase three new beers every fortnight.
• HaiDaiLao, a Chinese hotpot chain, is considering a European debut in London, according to the MCA. The brand is reportedly in talks to acquire a site near Leicester Square in the Trocadero.
• Several private equity firms are considering acquiring Homebase after its Australian owner started approaching potential buyers last week. Wesfarmers acquired Homebase for £340m just two years ago. Bargain retailer B&M is also eyeing an approach.
HOLIDAYS & LEISURE TRAVEL:
• Minoan Group is set to sell its travel and leisure divisions as the group looks to pay down debt. Minoan chairman Christopher Egleton said: ‘The two main drivers of this decision have been the fact that we were unable to expand the business as fast as we had intended for fear of diluting the group’s capital unnecessarily and, with the advent of the grant of outline planning consent in Greece, the need to concentrate our efforts on creating value without a significant debt overhang with its concomitant costs’.
• Northern UK cities have led an increase of 9.5% in room nights booked last year. Blackpool saw growth in night bookings of 55%, with Preston up 35% and Sheffield rising 24%.
• Global airline passenger traffic has been shown to have increased 7.6% in February, according to data from Iata.
• US hotel March industry data from the STR has shown that the average daily rate increased 4% on last year. RevPAR climbed 5% while occupancy rose 2%.
• Netflix Inc is believed to have entered a bid of $300m for a company that owns billboards across Los Angeles, including on West Hollywood’s famed Sunset Strip.
• Canadian firm AggregateIQ has been banned from Facebook after being accused of improperly receiving user’s data. The company played a key role for the vote leave campaign in the EU referendum, alongside parent company Cambridge Analytica.
• Google UK workers were paid an average of £200,000 last year in salary, share-based bonuses and other perks. The company employed 3,280 people in Britain last year.
FINANCE & MARKETS:
• US jobs growth slowed sharply in March with employers adding only 103,000 new rolls over the month. This leaves the rate of unemployment unchanged at 4.1%.
• Chicago Fed boss Charles Evans has said that he believes inflation will reach the Fed’s 2% target. He has said that ‘fiscal policy has been much more supportive of further growth and so the need for accommodative monetary policy is less than it was before.’ Mr Evans is seen as relatively dovish when it comes to interest rates.
• President Trump has suggested that China will make concessions to the US.
• The American Soybean Association has said that China’s proposed 25% tariff on imported US soybeans could be devastating
• Sterling up at $1.4095 and €1.1483
• Oil down at $67.37
• UK 10yr gilt yield down 2bps at 1.40%
• World markets: UK down on Friday with Europe and US also lower. Far East up in Monday trade
PRIOR DAY LATER TWEETS:
• Later tweets: Sugar tax comes into effect today. Slated to raise less than planned but this could be pre-emptive production & behaviour changes
• Sugar tax pre-announced as failure re fund raising. But that’s not the point. Like medieval castles, it’s a deterrent & behaviour-changing mechanism
• Conviviality stumbling further into oblivion, minor contagion as Fever Tree director resigns as he was also chairman of Conviviality
• Kantar shows MRW & ASDA opening gap vs TSCO & particularly SBRY. Latter said to be interested in Mothercare. MKS looking sluggish
• Londonist mag finds beer on sale at £13.40 per pint. Half that would be too much. Or am I just being Northern? Or Generation X?
• Delivery margins. Conviviality hardly prospered. Space is crowded. Amazon, SBRY/Argos, TSCO/Booker etc. not to mention pure F&B cos.
• Evolution. Declining use of cash. Eye for Travel reports cash usage in travel declining. Developing country travellers behave differently
• Milk price now been sliding for 5mths or so. Milk is a major input, could dampen output prices. Price still way above 2016 lows.
START THE DAY WITH A SONG:
Friday’s song was The Bucket by Kings of Leon. Today, who sang:
I’ll take you down the only road I’ve ever been down
You know the one that takes you to the places where all the veins meet, yeah.
No change, I can’t change, I can’t change, I can’t change,
but I’m here in my mould, I am here in my mould.
RETAIL NEWS WITH NICK BUBB:
• AO.com: On Friday, the Online Electrical retailer AO.com (aka AO World) issued a trading update for y/e March, flagging that full year trading is expected to fall within the range of current market forecasts. Group revenue is expected to be c£796m, slightly above the mid-point of analysts’ expectations, and up c14% year on year. The Group adjusted EBITDA loss is expected to be around the middle of the range. Revenue growth in Q4 in the core UK business “was achieved in what remains a competitive market with limited advertising spend”. The City was reassured by the news and the shares rallied by 13% on Friday.
• David Adams Watch: Since leaving House of Fraser, where he was FD and Deputy CEO until 2006, David Adams has specialised in helping distressed retailers as a non-exec Director and in that line of work you are bound to take a few bullets, but being Chairman of the wretched Conviviality drinks group was a major blow to his credibility…even though he only took on an Executive role on March 19th, after the sudden exit of the disgraced CEO Diane Hunter. With the company falling into administration on April 5th, he had the decency to immediately resign his non-exec position at the fast-growing drinks company Fevertree, but he is still a senior non-exec at Debenhams and Halfords. He has been on the board of Halfords since 2011…and joined the Board of Debenhams in October 2017. At the time (when Debenhams was trading at around 47p), Ian Cheshire, the Chairman of Debenhams, said: “We are
• Saturday Press and News: The main stories in the Saturday papers were the news that Dixons Carphone has lost its well-regarded UK Retail CEO Katie Bickerstaffe to the new Retail energy offshoot of SSE, the improved results recorded by the Co-op on Friday and the news that the Retail arm of the bankrupt Conviviality has been bought by the wholesaler Bestway. In terms of the first story, the FT highlighted that Dixons Carphone has now lost most of its top management team, following the recent moves by CEO Seb James and CFO Humphrey Singer. The Times and Telegraph also both flagged that several private equity firms are thought to be circling the loss-making Homebase, following the news that its beleaguered Aussie owner wants out. The main focus in the stockmarket reports was on the bearish Citigroup report on the General Retail sector on Friday, eg “Retailers slip as analysts advise
• Sunday Press and News: Tesco was in focus in the Sunday papers, ahead of Wednesday’s results, with the Sunday Times flagging that “Tesco boss Dave Lewis pressed on merits of Booker tie-up”, although the Sunday Telegraph said that “Tesco set to defy retail gloom with surging profits”. The major new news was the Sunday Times scoop that Mothercare is looking at a CVA to dump its worst UK stores. The Mail on Sunday said that John Lewis has been bombarded by complaints from irate shoppers after a “customer service meltdown” at its Home Furnishings division and it also had a feature on the problems of House of Fraser: “Can House of Fraser survive struggling high streets, rising costs and mercurial Chinese owners?”
• Today’s Press and News: The Telegraph follows up the Sunday Times story that Mothercare is the latest struggling retailer to be looking at a CVA to dump its worst UK stores and Questor column in the Telegraph looks at Burberry, concluding “Avoid Burberry due to its chequered history”. The Times flags that “Short sellers prey on Debenhams, Marks & Spencer, Morrisons and Ocado” and also highlights that the disgraced former owner of BHS Dominic Chappell has had the nerve to sue Philip Green. The Times also has a feature on what went wrong with Conviviality: “Investors left stunned by the sudden collapse of Conviviality have been asking, what on earth went wrong?” , noting that “Spreadsheets plus human error can add up to disaster”. The Guardian flags that the Chairman of Wesfarmers, Michael Chaney, the Australian owners of Homebase, is flying to the UK for a whistle-stop tour of its
• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw a shock defeat for the usual winner Asda, as Tesco came out on top. The Asda basket of £62.66 was £2.43 more expensive than Tesco and Asda had to give out a huge £6.10 Price Guarantee voucher, for failing to be over 10% cheaper than its main supermarket rivals. Sainsbury’s was only 32p more expensive than Asda and Morrisons wasn’t far behind on £63.70. Waitrose came last, on £68.22. The separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability was also won by Tesco, as its superstore in Perth top-scored (the Waitrose in Torquay came bottom of the survey, because of poor stock availability).
• News Flow This Week: A busy week kicks off with the BRC-KPMG Retail Sales for March first thing tomorrow morning (with the impact of the snow disruption etc likely to have offset the benefit of the early Easter to leave overall LFL sales pretty flat), closely followed by the Card Factory finals. The big event this week is the Tesco finals on Wednesday, but the ASOS interims are also on Wednesday. Thursday brings the WH Smith interims, the Dunelm Q3 update and the QUIZ pre-close, whilst the Mothercare Q4 is also scheduled for Thursday. There could also be developments in the Hammerson bid situation this week, ahead of the so-called “PUSU” bid deadline on April 16th for the French shopping centre giant Klepierre.