Langton Capital – 2018-10-11 – More on Pat Val, Revolution Bars, WTB, High St, GDP etc.:
More on Pat Val, Revolution Bars, WTB, High St, GDP etc.:
A DAY IN THE LIFE:
A big chunk of Langton is in Eastern Europe today and tomorrow kicking the tyres in the pizza delivery space.
Bit rushed as a result so on to the news:
PATISSERIE HOLDINGS – MISSING CASH, WINDING UP PETITION ETC.
• To date.
o Tues evening, Sky breaks the black hole story.
o Weds AM, shares suspended. Investigation announced.
o Weds PM, winding up petition reported.
• Patisserie Holdings yesterday afternoon reported that Stonebeach Ltd, it’s ‘principal trading subsidiary, was in receipt of a winding up petition from the HMRC.
• CAKE says it ‘continues to engage with its professional advisers to understand better the financial position of the Group and will make further announcements in due course.’
• Stonebeach reported revenues of £101.8m and PBT of £18.5m in the year to Sept 2017. In that year, Patisserie Group Holdings reported revenues of £114.8m and PBT of £20.2m confirming that, as the co announced, this company represents the bulk of the group.
• The only two directors of Stonebeach are Chris Marsh (the now-suspended CFO of Patisserie Group) and Paul May (CAKE CEO).
• The HMRC petition for winding up (or presumably payment of the £1.14m mentioned) has not been reported to Companies House.
• As at the (admittedly historic) Sept 2017 year end, Stonebeach had a clean audit report (‘we have not identified material misstatements in the strategic report or the directors’ report’ said Grant Thornton (GT) on 24 Nov 2017) and the company had net cash of £17.0m.
• Grant Thornton said it believed the accounts ‘give a true and fair view of the state of the company’s affairs…and of its profit for the year.’
• We believe that topco cash was (in theory) up to around £28m as of now. This now appears to be untrue.
• It is possible that whatever has transpired, occurred in the period since GT opined favourably on Stonebeach.
• CAKE has moved quickly but it must pay its £1.14m tax bill or face the High Court on 31 October.
• It must, really must, retain the support of its suppliers, its staff and its customers.
• Suppliers may be reluctant to extend credit. Conviviality found that its working capital requirements changed markedly in the period between its share price suspension and its subsequent administration.
• Non-fatal damage needs to be very, very quickly topped out and dealt with if it is not to worsen and become a really major problem.
• The group needs to ensure that there aren’t futher unpaid bills lurking in locked drawers, in-trays or the like.
• It may need a substantial injection of capital in order to deal with its cash shortfall and with any adverse swings in working capital.
• Staff and customers are a longer-term concern. But CAKE needs to get through the short-term in order to earn the right to worry about any longer-term issues.
• There is no conclusion at this stage. The shares can be neither bought nor sold.
• We can picture how this sort of thing can happen. And it doesn’t always involve fraud.
• But this is most definitely not what the doctor ordered. There isn’t a good interpretation. It’s all shades of bad but best of luck to all concerned, say we.
PUBS & RESTAURANTS:
• Revolution Bars Group last night announced that merger talks with Deltic were off. It said ‘following a period of engagement and due diligence, the Board has concluded that a transaction with Deltic would not be in the best interests of the Company’s shareholders. The Company will continue to focus on delivering the positively received strategy outlined in its preliminary results announcement made on 2 October 2018.’ Deltic is reported to remain keen on the deal.
• BBPA CEO Brigid Simmonds has appeared before the House of Commons Housing, Communities and Local Government Select Committee session and spoke on the challenges the hospitality sector faces on the high street. Ms Simmonds comments ‘the high street is an important part of any town or city in the UK, but it is struggling. The answers are not only about tax, there are some great examples of best practice from the Great British High Street’s competition, which all point to local leadership, partnerships, understanding your local market and events. There is a pub on every high street, but as an industry they face considerable cost pressures from a range of sources; particularly high beer duty, unfair business rates and VAT.’
• UKHospitality has told the same Commons committee that hospitality remains at the hear of the High Street. CEO Kate Nicholls says ‘hospitality businesses are vibrant and resilient and have helped drive growth in every region of the UK, but there is more that they can provide if they are given the support they need in their communities. Lessening of financial burdens and easing of regulatory issues will help hospitality deliver even more jobs and investment in communities. Conversely, if businesses continue to be squeezed, much of the good work they have already done may be lost.’
• Whitbread shareholders yesterday voted to approve their company’s sale of its Costa subsidiary to Coca Cola.
• Oakman Inns has said that it has had ‘an excellent performance over the first half of the 2018/19 Financial Year, which has exceeded internal forecasts for the year-to-date.’
• Oakman has reported total sales for the 26wks to 30 Sept of £18.6m, up some 37.4% on last year. LfL growth in sales is 8.5%.
• Oakman CEO and founder Peter Borg-Neal comments ‘we have had an excellent first half to the year with significant progress on many fronts. We were delighted with our 8.5% LFL growth, but it is perhaps even more pleasing that it has been achieved without resorting to delivery or discounting – neither of which I am attracted to.’ Mr Borg Neal concludes ‘our LFL growth pattern has been nothing if not encouraging and we are delighted with our progress and forecast future.’
• Feed it Back has suggested that slow service and rude staff are the main drivers behind disgruntled customers leaving negative reviews when visiting pubs, bars, restaurants and casual dining restaurants.
• Shares in Fevertree fell by as much as 7% yesterday. The shares were under £28 yesterday, down from their high of £41 only last month. Other highly rated companies such as Games Workshop have also shown recent falls.
• Arc Inspirations is investing £1.5 million to open Banyan Bar & Kitchen in Newcastle, its first site in the North East. It is taking the former Jamie’s Italian site near Eldon Square.
• Barclaycard has reported that consumer spending increased 3.9% y-o-y in September, with petrol prices ensuring essential spending remained robust at 4.6% growth. Esme Harwood, Director at Barclaycard, said: ‘We’ve seen spending return to a more modest level as consumers balance their budgets after a longer than usual summer of spend. Rising prices are having an impact on shoppers’ spending priorities, with more of their household budget devoted to everyday essentials such as petrol’.
• Researchers from the University College London have found that a third of young people aged between 16-24 years old abstain from alcohol. In 2005 two in five (43%) admitted drinking above the recommended limits, but this fell to just 28% 10 years later.
• No 29 Power Station West has been named the ‘Best Overall UK Bar’ and ‘Best Pub’ in this year’s restaurant & Bar Design Awards. Mel Marriott, Managing Director of Darwin & Wallace, the parent company to No 29, stated: ‘We are blown away to have been recognised three years in a row by a panel of international designers and architects for pushing the boundaries of what is expected from pub design and also creating unique spaces’.
• Wine and spirit sales in UK pubs now accounts for 36% of the value of alcohol sold, contributing £6bn to pub sales. This finding is a 5% increase on last year, according to the Wine & Spirit Trade Association (WSTA).
• Pure reports sales up 27% to over £15m in the 12 months to 28 December 2017, making a loss for the period of £1.58m. Whitbread acquired a 49% stake in the healthy, food-to-go company in 2016. Pure opened 3 sites during the period to bring it to a total of 16.
HOLIDAYS & LEISURE TRAVEL:
• Vacation Rentals UK acquires Mulberry Cottages for an undisclosed fee, adding to its portfolio consisting of English Country Cottages, Salcombe & Dartmouth Holiday Homes, Cumbrian Cottages, Blue CHip Holidays and cottages.com.
• Minoan completes the sale of Stewart Travel leading to Duncan Wilson stepping down from the Minoan board and remaining in charge of Stewart Travel.
• STR has reported that Amsterdam hotels have seen daily rates rise despite anti-tourism measures.
• James Murdoch is said to be the most likely next chairman at Tesla.
FINANCE & ECONOMICS:
• The ONS reports that the UK economy grew by 0.7% in the 3mths to end-August. This is in line with good Q3 numbers being flagged up by Markit’s PMIs. The ONS reports the economy has ‘continued to rebound strongly after a weak spring’.
• The NIESR also believes that the UK economy grew well saying that it is up by 0.7% in Q3 and should grow by 0.5% in Q4.
• The IMF has repeated its concerns that trade wars pose a risk to the global financial system
• Sterling up vs dollar at $1.3217 but little changed vs Euro at €1.1438.
• Oil down sharply at $81.52
• UK 10yr gilt yield unchanged at 1.72%.
• World markets all down yesterday. US suffering sharp fall of 4% in the Nasdaq and 3% in the S&P500. Donald Trump has partly blamed ‘crazy’ US Fed rises in interest rates.
o UK / EU deal possible for next Wednesday says Michel Barnier. Needs UK to give ground on moving the Irish border to somewhere near the Isle of Man. DUP says it will vote down the UK budget if that happens. Mrs May has to decide whether or not to call their bluff.
o Bank of England now estimates c5k financial jobs will be lost by next March due to proposed Brexit changes.
o Imperial College London has tied itself with the Technical University of Munich in a move that will see academic staff ‘jointly recruited’ by both institutions.
PRIOR DAY LATER TWEETS:
• Later tweets: Marston’s FY update. All divisions in growth but numbers cut from £107m to £104m. Total managed LfL +0.6%. Taverns (wet) > destination (food)
• Pat Val suspends shares & CEO as £20m plus hole found. No details. No positive explanation, only shades of negative
• Pat Val. Disagreement over depreciation or intangibles is one thing. Missing cash is quite another. Market awaits details
• Crowd-funded & Leeds-based Burningnight Group has been placed in administration
• More consumers are ‘confused and concerned’ about how Brexit will affect their travel plans after March 2019. Won’t help forward bookings
• Pat Val. Discovered black hole just yesterday; how’d that happen? QQs for auditors, non-execs, chairman etc.
• Pat Val updates further saying it’s principal trading subsidiary is in receipt of a winding up notice from the HMRC.
• Pat Val winding up petition. Only £1m but what the heck?? Are there more bills lying around unnoticed? Not very professional…
START THE DAY WITH A SONG:
Yesterday’s song was 99 Problems by Jay Z. Today, who sang:
When the blood dries in my veins,
And my, heart feels no more pain
I know, I’ll be on my way
To heaven’s door
RETAIL NEWS WITH NICK BUBB:
WH Smith: Today’s finals (for y/e August) from WH Smith show continued progress in overall PBT, earnings and dividends , thanks to the lucrative Travel Division, and such is the strength of cash flow that another £50m share buyback has been announced. But there are a few exceptional write-offs flying around, as a result of a strategic review of the much maligned High Street Division, which has resulted in “a wind-down of non-core trial initiatives including Cardmarket and WH Smith Local and the closure of around 6 High Street stores”. Investors will be pleased, however, to hear CEO Steve Clarke say that “during an encouraging second half, the High Street business traded well and we quickly identified the latest trend in the market, becoming a one-stop-shop for all slime related products”…
Dunelm: Today’s Q1 update from Dunelm (for the 13 weeks to Sept 29th) fits the recent pattern of improved trading in the Home/Furnishings market, with the core business seeing 4.2% LFL sales growth (split +1.3% in Stores and +33% Online) and gross margins up 50bps.
N Brown: The beleaguered Angela Spindler got the push as CEO of N Brown back on Sept 12th, as the new Chairman Matt Davies threw his weight around, implying that today’s interim results (for the 6 months to end August) would be nothing to write home about, but adjusted PBT is “only” 5% down at £30.6m and full year profit expectations are unchanged, surprisingly, thanks to strong Financial Services business and cost-cutting. However, the acting CEO, Steve Johnson says “we were disappointed with our wider product performance, which was impacted by the ongoing decline of our legacy offline business and challenging market conditions” and, with the core business continuing to be weak in the second half, the interim dividend has been “rebased” downwards by 50%…