Langton Capital – 2018-10-17 – Pat Val remains suspended, Domino’s, Nando’s, Uber…
Pat Val remains suspended, Domino’s, Nando’s, Uber…
A DAY IN THE LIFE:
So many sayings in English are contradictory.
I mean ‘look before you leap’ contradicts ‘fortune favours the brave’ and ‘the early bird catches the worm’ doesn’t really look at the situation from the early worm’s perspective.
So, should you put out announcements early? Or wait until you have all of the facts?
Probably, in the real world, it has to be the former because otherwise you would run the risk of promoting false markets or whatever and, when stuck in airports and the like, you want to hear something, even if it doesn’t turn out to be the whole truth.
Hence, whilst it’s a pity that CAKE’s earlier hopes that it would relist as soon as tomorrow may have been frustrated, there can be little doubt that the group was right to move as quickly as it did and, if its comments about the alternative being administration last week are correct (and they are), then it had no choice.
Still, there’s little that can be done now as the group’s shares are suspended. Further cash should come in on 1 November (though only a fraction of it will stay with the company as director-loans will be repaid) and no betting at this stage as to when the shares will once again be freely traded. On to the news:
• We were beginning to fear a second day running without a CAKE RNS but late in the day the company came though & announced the timing for its General Meeting.
• Shares not to re-list tomorrow. Group needs to clarify its financial position. Date for General Meeting announced.
SHARE ISSUE MECHANICS:
• Patisserie Holdings has already issued £5m worth of shares in a firm placing.
• Two £10m director loans should also have been made to the company.
• A second placing will be dependent upon the result of a General Meeting, the date for which has now been set at 1 November.
• After the GM, the group will issue a further £10.7m worth of shares. At this point, the first of Chairman Luke Johnson’s two £10m loans to the company will be repaid.
• The group said on Monday re the first of its new shares to be placed (10m at 50p) that dealings would commence at 8am on 18 October. That’s tomorrow.
• there was some disquiet that AIM may require more clarity on the group’s finances before it allows this to happen.
• This situation has been clarified. AIM will not allow the shares to be relisted until its finances are clearer.
• Patisserie Holdings says ‘dealings in the Placing Shares on AIM will only commence once the Company’s Ordinary Shares cease to be suspended from trading.’
• The FT reports ‘shares in the parent company of café chain Patisserie Valerie will remain suspended until it can give more details about accounting irregularities it uncovered last week and its financial reporting is “appropriate for a quoted company”.
• The group will need the money to change hands, nonetheless, if it is to continue in business.
• CAKE has cautioned that a failure to secure the funding would likely see it enter administration.
• CAKE has said that it needed to move quickly (loans from Mr Johnson, followed by a firm placing, then a conditional placing and a partial repayment to Mr Johnson) as ‘any other arrangements would likely not have been able to be put in place in the same timeframe and would have resulted in the group entering administration on October 12’.
• CAKE continues to say that its investigation into its finances ‘cannot be predicted with any degree of certainty’.
• It is to be hoped that none of the fund raising referred to above was conditional upon the shares relisting this week as that will not now happen.
• Models reworked to show September sales down to £120m from earlier estimates of around £135m, EBITDA of £12m (was £29m plus) and shares in issue 135.25m (was c100m). PBT (ex-exceptionals, and that is a big ex) falls to £7m or so (was £23m), EPS is markedly less than 5p rather than 20p and the dividend falls from c4p to zero.
• At the 50p placing price, valuation (on lower earnings metrics) sees sales multiple fall from 3.2x to 0.6x, EBITDA multiple fall from over 11x to under 5x and the PE ratio halve from 22x to 11x.
• Reality is very, very materially different to the situation that the directors maintained existed as recently as last week.
• Given the massive earnings decline, a multiple contraction is to be expected. Though realistic, these cautionary multiples are perhaps necessary until trust in the company can be rebuilt and directors involved are rehabilitated or replaced.
• AIM’s decision that CAKE is not currently a company suitable to be listed may not reassure would be investors.
• Considering the rehabilitation of Patisserie Valerie has to start with the simple question: is it desirable or even possible?
• Because the directors (probably bar one) and staff that oversaw recent events, presented numbers now known to be false and misleading to the stock market etc. are all still in place and the group’s shops, if over 200 of them are to generate revenues of £120m and EBITDA of £12m, are not very large and must comprise something of a tail.
• Replacing the directors might help. Breaking up and selling off the saleable bits of the company would be a quicker fix.
PUBS & RESTAURANTS:
• Duncan Garrood has stepped down as CEO of Bill’s restaurants less than a year after joining the company. Mr Garrood says: ‘from 17th October I have stepped down as CEO of BIll’s Restaurants, and therefore am no longer with the business.’
• Duncan Garrood said: ‘whilst it has been a relatively short time at Bill’s, a lot of great things have been achieved. A high quality management team is in place; superbly transformed restaurants, which we call New Look Bill’s, are being rolled out and enthusiastically received by guests and they are performing strongly. Bill’s has a new digital presence and has the best team of restaurant staff I’ve had the pleasure to work with.’
• Mr Garrood continues ‘whilst it’s time for me to move on to new challenges, more about which will follow soon, I know the team at Bill’s will go from strength to strength and my heartfelt thanks for all their support, energy and dedication. I shall continue to be an enthusiastic supporter of Bill’s.’
• Brand owner Domino’s Pizza Inc has delivered strong Q3 numbers saying ‘it was an outstanding quarter.’ Same store sales grew by 6.3% y-o-y in the US.
• Honest Burgers has reported numbers to 28 January to Companies’ House saying that revenue rose to £22.3m from £15.6m and EBITDA increased to £3.0m from £2.0m.
• Honest Burger says the growth is ‘due to the maturing of sites opened in the previous financial year as well as contributions from new sites opening in the year’.
• Honest Burger reports PBT of £715k versus £541k last year. The group has shareholders’ funds (net assets) of £3.3m.
• Brewdog has raised more than £26m in a crowdfunding campaign spanning 12 months, bringing its total number of investors close to 94,000.
• If a beer duty hike of 2% in next month’s November Budget is introduced consumers are facing paying £125m more for beer annually.
• Chilango has extended fund raising in its second Burrito Bond after reaching its £1m target within 24 hours. The company has commented: ‘The more we raise in Burrito Bond 2, the more restaurants we’ll be able to open. So let the charge continue!’
• Nando’s has been knocked back in its plans to open a site in a grade II listed site in Canning Town, after the GMB labeled the plans ‘bird-brained’. Warren Kenny, GMB regional secretary, said: ‘We’re delighted Nando’s have listened to the strength of local feeling, seen sense and shelved this proposal before it hatched. There is a time and a place for chicken, but a historic library that forms part of the fabric of Newham’s community was never it’.
• In the US, 400 McDonald’s franchisees are close to forming a group called the ‘National Owners Association’ which will be an ‘owners advocacy group’. The group will call for franchisees to retain more control of menu pricing.
• Punch has named Russell Danks as its new Marketing & Strategy Director. Clive Chesser, CEO of Punch stated: ‘This is a really exciting time for Punch as we build a bold and dynamic business and I am thrilled that Russell will be joining the team. Russell’s energy, leadership and experience in the hospitality sector will help us to deliver plans that are relevant and that add significant value to our publicans running pubs up and down the country’.
• Head of CGA’s retailer business unit has commented that a ‘blurring’ of competition has contributed to a decline in nightclubs as preferred late-night destinations, propel has reported. CGA found that 33% of respondents to its survey preferred a restaurant as a late night venue compared to 30% last year.
• The Imbiba backed, Wright & Bell is to open its third site in London, in a former carpet warehouse in the Square Mile.
HOLIDAYS & LEISURE TRAVEL:
• Goldman Sachs and Morgan Stanley are head to head in the race to secure positions in the listing of Uber next year. The companies have valued Uber at around $120bn.
• The ride-hailing company Lyft has named JPMorgan, Credit Suisse and Jefferies as underwriters for its IPO planned next year.
• TravelPerk secures $44m in Series C funding, planning to use the funds to expand into new markets and accelerate growth.
• Merlin reports LfL revenues for its Legoland division down 0.3% yoy in the 40 weeks to 6 October, with its Midway attractions (including Madame Tussards & the London eye) showing a 0.7% decline in revenues. Merlin’s shares fell by as much as 8%, but the company reported 8.3% LfL growth in its theme parks division.
• Netflix increased its number of new customers worldwide by 7m to 137m in the three months to September.
FINANCE & ECONOMICS:
• Wage growth in the UK has risen to 3.1% in September from 2.7% in August. This is clearly good news for spending power (in the short term) but less good as regards costs for business.
• UK unemployment has remained at 40yr lows of 4%.
• US industrial production rose for a fourth straight month in September. He says this is ‘because the Fed is raising rates too fast.’
• The US has said that it wishes to negotiate separate trade agreements with Japan, the UK and the EU.
• Sterling up to $1.3172 and €1.1394
• Oil up to $81.44
• UK 10yr gilt yield unchanged at 1.61%
• World markets all up yesterday. Far East better today.
• Brexit etc.:
o Talks stalled. Or are they?
o Germany has said that PM Theresa May should ‘take responsibility’ for talks having stalled.
o Donald Tusk has said there were ‘no grounds for optimism’ that a deal would be announced today.
o Some observers saying a deal may be announced as late as March next year. That won’t help investment.
PRIOR DAY LATER TWEETS:
• Later tweets: Here’s a business question for you: how do you give bad news to a bully? Well, you either don’t or, like feeding a dragon, do it carefully.
• Patisserie Holdings debacle. Co now has a tail, is less profitable than we thought and shares relist Thursday
• Cutting ‘service’ cost (i.e. labour) is very tricky in the F&B industry. Forward ordering might help & Synergy Grill likewise
• Idea of ending austerity, spending an extra £20bn on the NHS per annum, coping with lower growth & not putting taxes up is for the birds
• Kantar: grocery price inflation up to 2%. ONS: wage inflation now up to 3.1%. Good for spending power but cements inflation into system
• ONS: Wage inflation 3.1% as staff shortages start to bite. Good for pay-packets, pubs etc. but longer term poor for company margins
• Discounts rumbling on. Pizza Express 2-4-1 (i.e. 50% off) on mains Mon to Wed. Bella Italia 25% off food, Prezzo 40% off mains
START THE DAY WITH A SONG:
Yesterday’s song was ‘Hungry Like a Wolf’ by Duran Duran. Though famously covered by Cake, who originally sang the following:
I just walked in to find you here with that sad look upon your face
I should have changed that stupid lock, I should have made you leave your key
If I’d known for just one second you’d be back to bother me
RETAIL NEWS WITH NICK BUBB:
ASOS: Ahead of today’s finals (for y/e August), the ASOS share price has been under some pressure, but the results look good, with PBT hitting £102m on revenues of £2.4bn, and there is no change to guidance. Nick Beighton, the CEO, says: “This has been another year of substantial progress for ASOS. We delivered 26% sales growth and 28% profit growth whilst investing heavily in the long term potential of the business”. And the sales growth wasn’t all about International as the UK saw 23% growth, accelerating as the year progressed. And ASOS highlight that the reported PBT of £102.0m is after a £2.7m impairment of the recently closed A-List loyalty scheme and facilities transition costs of c£25m (versus 2017’s c£11m), largely relating to the new Euro and US distribution hubs. Analyst’s meeting 9.30am.
Superdry: It turns out that the timing of Monday’s profit warning was partly driven by the need to come clean with the market ahead of a Capital Markets event that Superdry had scheduled at the Regent Street flagship store for 4.30pm yesterday afternoon (to highlight the strategic progress of the business, with presentations on product design, RFID tagging, manufacturing automation, customer segmentation etc). Incidentally, there were some good headlines in yesterday’s papers about the profit warning and the Times was good, as always, with “Fashion chain hung out to dry by long, hot summer”, but our favourite was “Superfry” in the Sun.
Grocery Market Share Watch: We flagged yesterday that the latest Nielsen grocery sales figures (for the 4 weeks to Oct 6th) showed that overall supermarket industry sales value growth slowed to +1.9%. The rival Kantar survey reported similar 2.0% growth for the period, but on a pure Grocery basis (ex-Non Food) sales growth was 3.6%, driven by improved Aldi/Lidl growth of 14.8%. Asda was up by 3.3% gross and Morrisons was up by 1.0%, but Sainsbury was only 0.5% up and M&S Food was as much as 3.2% down…
Waitrose Watch: Over at Waitrose last week was disappointing again, with gross sales 1.0% down, ex-petrol, in w/e Oct 13th (c1% down LFL), despite strong sales of early Christmas lines. The last 11 weeks overall have been down by c0.5% gross, despite the strong start to August for Waitrose, with the “Home and General Merchandise” category running 3.3% down.
John Lewis Trading Watch: Despite the general pick-up in the Homewares/Furniture market, John Lewis continues to struggle, according to yesterday’s weekly sales overview from JLP. W/e Oct 13th saw gross sales down by 2.3% (well over 4% down on a LFL basis, ex new stores), with Fashion sales up 4.0% gross, but with Electricals down by 4.8% in gross terms and Home sales down by 6.2% gross. Overall gross sales are running 0.2% down over the last 11 weeks combined (over 2% down LFL), pulled back by a 4.5% drop in Home sales.
News Flow This Week: Tomorrow brings the ONS Retail Sales figures for September and the John Lewis Cheltenham store opening.