Langton Capital – 2018-06-04 – Wagamama, input prices, Hotel Chocolat, Gregg’s etc.:
Wagamama, input prices, Hotel Chocolat, Gregg’s etc.:
A DAY IN THE LIFE:
I was always told you shouldn’t feed dry bread to ducks because it could swell up in their stomachs and they will explode.
And rice grains will have the same effect on pigeons, I was informed by the nuns at school and they may be right as the various patches of feathers on our grass might not be the work of the local foxes, kestrels, sparrow hawaks, the neighbourhood cats, our own dog etc. but rather by the accelerated internal explosive expansion so confidently peddled to me so many years ago.
Admittedly those slipper-happy Sisters did have some strange ideas about evolution, the flatness of the earth etc. but who’s to say that, just because with hindsight they were plainly bonkers, they were always wrong?
I try to take this approach with Messrs Gove, Rees Mogg, Fox etc. but, it has to be said, it’s something of a struggle. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• The Sunday Times reports that Wagamama has appointed advisors to ‘review its growth options’. This is often taken to mean that the group in question is for sale as refinancings etc. tend to be referred to in different terms. Goldman Sachs has apparently been given the task of finding a buyer across a range of trade or financial purchasers. Preferred bidders are thought likely to feature financial buyers, particularly American houses. Duke Street and Hutton Collins, the current owners, bought the group from Lion Capital for £215m in 2011.
• Hotel Chocolat has reported that it has repaid £6.4m of debt borrowed from its customers in the form of “Chocolate Bonds”. It says ‘the bond proceeds were invested in capital projects that supported the growth of the company and developed cocoa sustainability projects in St Lucia and Ghana. At inception, the net cash proceeds received for these bonds were recognised as a liability. Each year the cost value of the chocolates was recognised as an interest expense.’
• Hotel Chocolat says the bonds helped to create 600 jobs in the UK. CEO Angus Thirlwell reports ‘thanks to the support of our amazing Chocolate Bond-holders, we were able to invest in ethical cocoa, British manufacturing, create hundreds of jobs and then repay them in full, as planned.’
• Supply issues are driving up inflation in key foodservice items, with fish prices up 12.1% and oils and fats up 27.9% year-on-year in April, according to the latest CGA Prestige Foodservice Price Index. Shaun Allen, Chief Executive at Prestige Purchasing, said: ‘We are continuing to see headline grabbing numbers from Oils & Fats, and numerous other categories are showing definite upwards trends. Many crops are feeling the effects of the poor winter and higher oil prices are starting to hit farmers. Businesses would be well advised to secure pricing now before further increases are seen, especially in Dairy which looks likely to rise in the near future.’
• Fast service is seen as more important than food quality in terms of attracting consumers to food to go outlets in MCA’s Food To Go Tracker for the year to March 2018.
• Bakery chain Greggs went undercover as ‘Gregory & Gregory’ to a major UK food festival so that it could show its new healthier menu to unsuspecting foodies. The dishes drew compliments and praise from punters, before it was revealed to them that what they were eating was made by Greggs. Malcolm Copland, commercial director at Greggs, commented: ‘London is a global gourmet destination, from its street food scene to the incredible array of critically acclaimed restaurants – so where better to try out our new lunchtime range. The reaction to the new menu has been fantastic and we’re now rolling it out across the UK.’
• Mosaic Pub and Dining, run by joint CEOs Pete McDonald and James Watson, have completed on their 18th site, The Misty Moon, a leasehold site in Bethnal Green East London. Mosaic will fully refurbish the pub over the next five to six weeks. The group says that it plans to ‘retain the character of the building while updating the offer and making the large back garden, an increasing rarity in London, a major feature.’
• The average price of a pint of beer is 60p more than Brits think is reasonable, according to a study of 40,000 people by YouGov. The results show that the national average ‘reasonable’ price for a pint, as perceived by Britons, is £3 – 60p lower than the national average cost of an actual pint.
• Single-use coffee cup manufacturer Seda, based in Caerphilly, claims governments need to make it easier to recycle disposable coffee cups. Seda MD, Paul Synott, said bans were ‘unnecessary’ as ‘all paper cups in the UK can be recycled. The comments follow the Scottish government banning single-use cups in its main buildings.
• Per MCA, coffee shop chain Notes is considering franchising options with travel hub operators. The company has already overfunded its Crowdcube campaign, with current funds at £750,000 with 22 days remaining.
• BBPA CEO Brigid Simmonds responded to the Government’s Employment Status consultation by saying ‘As an industry that supports 900,000 jobs and a range of employment opportunities across the whole of the UK, brewers and pubs are key job creators for the nation. Although clarity is still needed from the Government on employment status, we prefer to build upon the strengths of the tribunal system. A ‘Fast Track’ scheme for ruling employment status would be best, meaning minimum disruption to the current structures in place to resolve disputes.’
• Rosa’s Thai Cafe is on the verge of selling a majority stake to US private equity firm TriSpan as it looks to fund expansion beyond London, writes Sunday Times. Last year the company, which has grown to 13 sites over 10 years, reported sales of £8.2m and core earnings of £1.4m.
• Mothercare will close 50 stores, putting 800 jobs at risk, after receiving the backing of creditors to go ahead with its CVA.
• The discount retailer Poundworld is expected to announce a rescue deal with Alteri Investors this week.
HOLIDAYS & LEISURE TRAVEL:
• Vitruvian Partners has backed Travel Counsellors in a secondary management buyout from Equistone Partners Europe.
• US hotel occupancy rose 0.3% to 70.6% during the week of 20-26 May, with ADR up 2.4% to $130.46 and RevPAR increasing 2.7% to $92.07.
• AccorHotels is considering buying a minority stake in Air France KLM.
• Moody’s reports that MGM Resorts’ acquisition of Empire City Casino is credit positive. It says ‘the deal is credit positive because we expect that MGM will gain revenue and expense synergies from the property as it is integrated into MGM’s existing portfolio of three Northeast market casinos (Borgata in New Jersey, National Harbor in Maryland and Springfield in Massachusetts) and benefits from MGM’s scale and loyalty program.’
• The US-listed casino operator, Macau, has seen its shares fall 2.42% following lower than expected revenues last month.
FINANCE & MARKETS:
• The May IHS Markit/CIPS UK Manufacturing PMI rose slightly to 54.4 in May from 53.9 in April. Markit says the upward trend masks “several areas of concern” saying ‘although growth of production accelerated to its best during the year so far, this was mainly achieved through the steepest build-up of finished goods inventories in the 26-year survey history and a sharp reduction in backlogs of work.’ The Construction PMI will be released today and the much larger Services PMI tomorrow.
• The US added 223k jobs in May to take unemployment down to 3.8% from 3.9% in April. Unemployment is at its lowest level in 18yrs. The strong numbers fuelled speculation that the Fed will raise interest rates later this month.
• Tariffs. US is playing a “dangerous game” per EU. Theresa May is ‘disappointed’. Canada, Mexico & the EU are planning retaliation. Liam Fox says the move is ‘illegal’. Canada’s President Trudeau has also questioned the tariff’s legality. China says it could negate other trade deals.
• Sterling stronger at $1.3366 and €1.1434
• Oil down a dollar at $76.46
• UK 10yr gilt yield up 5bps at 1.28%
• World markets: UK, Europe & US up on Friday. Asia higher in Monday trade.
• Brexit etc.:
o In bid to sweep up Remainers & secure power, Labour MPs call for their party to guarantee a second referendum. Letter says ‘Brexit is taking longer than we thought, and costing more than we thought, and it’s been changing our communities, our hospitals and our job prospects in ways that were not clearly set out during the 2016 vote.’
o Engineering body EEF & accountants BDO say political uncertainty over Brexit holding back investment, which is now at its lowest level for a year. EEF says upturn is ‘looking somewhat more fragile as many of the positive forces driving expansion last year, such as a resurgent eurozone, a surge in global manufacturing investment and competitive pound, are starting to fade.’
o PM says close relationship with Donald Trump will help to make Brexit a success. Recent actions suggest the latter is not so keen on free trade as he makes out.
o UK needs to submit written proposals on Irish border in next two weeks. UK says it will have proposals ready by then per Sajid Javid. He is ‘absolutely confident’ the Cabinet will agree a stance & thinks the EU response will be ‘positive’.
o Liam Fox has said the UK will not sign a trade deal with the US unless it is in the country’s interest to do so.
START THE DAY WITH A SONG:
Last Friday’s song was Ever Fallen In Love by Buzzcocks. Kicking off the new week, who sang:
Deep in the bosom of the gentle night,
Is when I search for the light
Pick up my pen and start to write
RETAIL NEWS WITH NICK BUBB:
• Saturday Press and News (1): The news that the wretched CMA has launched a review of the £2bn funerals market got plenty of coverage in the Saturday papers, although not, oddly enough, in the Times, which has been actively talking up the need for more price competition for the market leader Dignity. The Business editorial in the Times, however (headlined “Dead reckoning”) noted that the 14% slump in the Dignity share price on Friday had extended its 10 month fall to 60% (“that suggests that investors think they know what the CMA’s conclusion might be”) and the slump in Dignity was the lead story in the Daily Mail market report (“The bell tolls for Dignity”). The Business editorial in the Evening Standard on Friday thundered that the CMA investigation is overdue and that “Dying with dignity is not a licence to print money”, whilst the FT flagged that it was also announced on Friday that
• Saturday Press and News (2): Perhaps the most interesting story, however, was the FT scoop that one of the mobile phone networks is so frustrated with Carphone Warehouse (and its “bellicose” demands for better terms) that it is thinking of pulling its business out. The FT also excelled itself with 3 interesting Retail feature articles: one on the private company JAB that has been buying so many upscale consumer brands (like Pret A Manger last week), one on the struggles of the big Spanish department store chain El Corte Ingles and its family owners and one on the apparent slowdown of the store expansion of Aldi and Lidl in the UK (“March of Aldi and Lidl slowing, analysts say”). The veteran City commentator Neil Collins also continued his campaign, in his FT column, against the Sainsbury/Asda merger, thundering that the new CMA Chairman Andrew Tyrie “has the chance to strike a blow for
• Saturday Press and News (3): The Mothercare CVA approval news was picked up by the Guardian and the Telegraph, which highlighted that this will lead to the closure of 50 stores and the loss of 800 jobs. The Daily Mail wrapped the news up with the rumours that the embattled House of Fraser is having problems getting agreement on its own rescue plan, whilst the Times also flagged that House of Fraser has reached a crossroad. The Times also noted that Sports Direct is demanding Board changes at the US sports brand Iconix and also had a profile of the Head of Property and “Store Elevation” at Sports Direct, Michael Murray (Mike Ashley’s prospective son-in-law), whilst the Daily Mail had a profile of Johnnie Boden of the eponymous clothing brand Boden. The Telegraph market report highlighted that Boohoo was boosted on Friday by upbeat reviews of its Autumn/Winter range preview and the
• Saturday Press and News (4): Finally, there were three eye-catching front-page Retail stories: the Daily Mail wailed about “High Street chain’s vile slur on police” (a reference to Lush’s controversial shop window campaign protesting about undercover police operations), the Telegraph highlighted “Sweets ban at tills to tackle child obesity” and the Guardian flagged “Chaos as Visa card network crashes in UK and Europe”.
• Sunday Press and News (1): The Sunday Times followed up on the crisis talks at House of Fraser by flagging that it wants to close its Oxford Street store, inter alia. It also noted that the struggling Original Factory Shop chain is looking at a CVA store closure plan and that the struggling Poundworld chain is talking about a rescue deal/CVA plan with Alteri Investors (who were underbidders for Homebase), although the Sunday Telegraph said that the US private equity group Flacks is also interested. The Mail on Sunday noted that the Yorkshire retailer Buy-it-Direct wants to buy the website of the bankrupt Maplin chain and it also had a big splash on the news that the shareholder advisory group PIRC has said that investors should vote against the bumper pay package for Tesco CEO Dave Lewis at the upcoming Tesco AGM.
• Sunday Press and News (2): The Sunday Telegraph flagged that the privately-owned Monsoon Accessorise fashion chain has announced further losses and job cuts/store closures and it had a big feature on how High Street retailers in Swansea are adapting to the pressures of Online shopping, rising Business rates and changing consumer habits. The Sunday Times had a feature profile of the boss of the fast-growing carpet retailer Tapi, Martin Harris, and its efforts to pull the rug on the old family firm Carpetright (“Blood on the family carpet”). Finally, the well-respected Economics correspondent of the Sunday Times, David Smith, devoted to his column to the problems of the High Street (“A nation that no longer values its shopkeepers”), noting our view that a “perfect storm” of sales and margin pressure is forcing a shake-out and that, unless the Government devises some sort of Online sales
• News Flow This Week: As June gets under way, tomorrow brings the BRC-KPMG Retail Sales figures for May, as well as the AO World finals and the QUIZ Clothing finals (and a Games Workshop pre-close update). Wednesday brings an Inchcape Capital Markets Day and a WH Smith update. On Thursday the Wesfarmers Strategy Day down in Australia has been rather pre-empted by the recent news about the sale of Homebase/Bunnings UK, but there may be more detail. There is also a Joules pre-close update on Thursday.