Langton Capital – 2018-11-01 – Patisserie Holdings, Restaurant Group, Just Eat & other:
Patisserie Holdings, Restaurant Group, Just Eat & other:
A DAY IN THE LIFE:
Just back from a short break & feeling a bit irritated with the car hire company that we used.
I mean we’re all used to upselling but telling you that you needed to leave a €1,600 swipe of your credit card if you didn’t take out the extra insurance surcharge waiver was a bit much.
Maybe we should revive ‘scam-watch’. Anyone got any current thoughts? On to the news:
• Questins, questions…
• EGM 9am today to approve rescue issue of shares.
• Patisserie Holdings says it ‘will not be providing any new information at the General Meeting.’
• It says ‘the Company is continuing to work with its professional advisers to understand the extent of the previously announced financial misstatements and potential fraudulent activity.’
• CAKE adds ‘as this work is ongoing, the Board is not yet in a position to advise on when the suspension to trading in the Ordinary Shares will be lifted. The Board is also responding to enquiries from multiple regulators and authorities and the outcomes of which are expected to take some time.’
• The company says ‘in order not to prejudice these investigations, the Company will be restricted at the General Meeting from answering specific questions in relation to these events.’
• Whilst perhaps to be expected, this is interesting. Would-be investors are being invited to put money into the company with relatively little information.
• David Scott, former CEO of Druckers, has said that he ‘is keen to highlight that he has no intention to make an offer or otherwise acquire shares in Patisserie Valerie, the company that bought Druckers in 2007.’
• There is little visibility as to the group’s underlying trading position at the moment as its numbers look to be incorrect, its CFO has gone, PWC is undertaking a forensic review, the group is seeking to understand why it did not report options granted to directors and its shares remain suspended.
• David Scott says ‘despite the media reports, I have not appointed nor do I intend to appoint a company to liaise with shareholders on my behalf and I have no interest in making an offer for or acquiring shares in Patisserie Valerie or any related companies.’
• Times reports ‘Luke Johnson is facing mounting pressure to step down from the Patisserie Holdings audit committee.’
• Despite large shareholding, strong commitment etc., there are some questions as to whether his holding the position is in the best interests of the company. The company and Mr Johnson run the risk of being distracted by litigation etc. for some time to come.
• Re today, Times says (and Langton agrees) that ‘shareholders are expected to approve the fundraising, which the company has made clear is necessary for its survival.’ There isn’t a lot of choice at this stage. Recriminations have to may come later.
• Glass Lewis, a proxy adviser, says that if Mr Johnson remains on the audit committee it will continue to recommend that shareholders vote against his re-election as group chairman. It says ‘in our view, shareholders are better off not having significant shareholders serve on the audit committee as we believe that the area of financial disclosure is critical to shareholders and that any potential conflict between a director’s own interests and those of shareholders should be strictly monitored for board members who oversee accounting and disclosure issues.’
• Invesco has called upon the company not to investigate allegations of its own incompetence.
(still unanswered) Questions:
• Telegraph reports there are a number of questions that need answering today. Time pressures may mean that this is not possible, but it wants to know 1) where the cash went. Our betting is that it was never there or, more realistically, creditor payments were held back at certain times in order to create temporarary cash piles.
• Telegraph asks ‘who knew about the “secret overdrafts”?’ Knowing what you don’t know is always difficult to pin down, but this is a good question. Who were the cheque signatories? Who signed to open the accounts?
• We would like to know just how profitable the underlying business is. The £120m of sales and £12m of EBITDA was announced within days of the discovery that the financial statements were misleading and may have been based on incomplete information themselves. Just what money does the company make at the store level. That’s ‘real’ money.
• Have the ‘irregularities’ been bottomed out?
• Further board changes may be necessary. It’s sometimes more difficult to rebuild reputations than it is to start again with unsullied operators.
• How did governance fall over? How did the company issue more options to directors than it announced to shareholders? Why was this issue not brought to light when the directors exercised their options and sold all of the resulting shares?
• Are suppliers supportive? Has there been a negative swing in working capital? Does the company need more cash?
• The Telegraph also asks when will the shares be relisted? This is of more than passing interest to shareholders who are being asked to stump up more cash. The money, we believe from public documents, has been covered by a loan from the chairman. What happens if shareholders do not take up their placing?
RESTAURANT GROUP WAGAMAMA PURCHASE, RIGHTS ISSUE, DIVIDEND CUT…
• Half term commitments mean that we’re playing catch up here. But that’s not to say that we don’t have a few thoughts.
• The word ‘pivot’ is overused but this is one.
• Wagas has been high growth and, in a market where losers outnumber winners, it stands alongside Nando’s, Franco Manca and very few others as a winner.
• But, as a number of large companies have said candidly, one should ‘never underestimate the capacity of a big company to screw up an acquisition…’
• We can think of quite a few ‘transformational’ purchases that have not gone well.
Issues – the good:
• Wagas is a good brand.
• There will be some sites to convert.
• An element of RTN will be genuinely high growth.
• There are more overseas options.
• Costs can be cut – though this will not be a central issue
Issues – the not so good:
• Langton suggested over a year ago that RTN should cut its dividend and draw a line under its high-margin, more-and-more Frankie sites, recent past.
• The dividend cut has now arrived. There are reasons for this, many of which are very understandable.
• Not all of the management is transitioning across. This, though understandable, could be an issue.
• The purchase price, at £3.5m or so per leased restaurant, looks high. It looks like 13x pre-synergies, 8.7x or so, after. We’ll be checking out the multiple to book value (ex-intangilbes) later.
• RTN’s management is from outside the industry. So it should be said is Whitbread’s and, arguably, that has done the company little harm.
• Year to date trading has slowed in the latter part of Q3.
• RTN will be indebted post the purchase and just ahead of the implementation of IFRS16, which will see it have to bring capitalised leases onto its balance sheet.
• The market has opined & the group’s shares are down 19% or so in the two days since the purchase announcement.
• Dealmaking is a means to an end not the end itself. Execution is now key.
PUBS & RESTAURANTS:
• Just Eat plc has announced revenue up 41% to £195.3m in the Q3 ending 30 September 2018. Group orders also increased 27% to 54.7m, with UK orders up 16% to 30.3m. The group stated that they anticipate 2018 FY revenue to be in the region of £740-770m and EBITDA to be in the lower end of £185-165m. Peter Plumb, CEO of the group commented: ‘The Group has delivered another strong quarter as we helped our 97,000+ restaurant partners serve over 54 million takeaways to millions of hungry customers. Our increased investments in delivery, brand and data are already taking the Just Eat brands to more customers, making it easier for them to order from a widening choice, ensuring their takeaway moments are even more enjoyable’.
• Carluccio’s has appointed Graham Ford as Commercial Director, as the group gears up to implement a £10m investment programme. Mark Jones, CEO of Carluccio’s said: ‘I’m delighted to secure someone of Graham’s experience for our business at this vital time. His strong industry knowledge and insight will be hugely valuable as we embark on a programme that will revitalise the brand and provide a solid platform for the future’.
• KerbEdge, the North East-based burger restaurant concept has been ordered to wind up by the High Court, the MCA has reported.
• Allegra has commented on the US coffee markets saying the ‘total US branded coffee shop market [is now] valued at $45.4bn across 35,616 stores, representing annual outlet growth of 3.8%.’
• Shepherd Neame has announced a private placement issued and extended bank facilities ‘to take advantage of long term growth prospects’.
• YUM Brands has reported Q3 numbers showing Q3 GAAP EPS of 140c, up 18% on last year.
• YUM CEO Greg Creed says ‘we are pleased to deliver third-quarter system sales growth of 5%, consisting of same store sales growth of 2% and net new unit growth of 4%. Core operating profit growth of 2% was consistent with our expectations. We are now two years into our three year transformation and remain firmly on-track to becoming more focused, more franchised and more efficient. The collective power of our three iconic brands, anchored by our four key growth drivers, is helping us deliver long-term sustainable growth and higher returns for our stakeholders.’
• Guinness has announced that it will be offering nearly 10,000 free pints today, as the brewer teams up with Fuller’s 198 venues across the UK to celebrate International Stout Day.
• The Butchery retail chain, Crawshaw has entered into administration after failing to raise sufficient cash to address ‘key issues’. Martin Lane, managing editor of credit broker money.co.uk commented on the group’s administration: ‘All 600 employees of Crawshaw are in for an anxious period as they wait to learn if they’ll suffer the same fate as other high street retailers this year. With the rise of competition from budget supermarkets offering cheap meat options it’s hard for butchers to survive’.
HOLIDAYS & LEISURE TRAVEL:
• PPHE Hotel Group saw LfL sales growth of 4.5% to £114.2m in the quarter ended 30 September 2018.The group announced RevPAR up 5.8% to £128.7 with average room rates climbing 3.4% to £128.7, while occupancy increased 2.7% to 86.6%.
• Profit per room at hotels in the UK has fallen 4% in September according to data from Hotstats. The decline in profitability was mainly driven by a 1.3% drop in room revenue, which fell to £105.77.
• Hyatt Hotels Corp has reported net income of $237m in the Q3 2018, up from $18m during the same period last year. Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation, said, ‘We reported another quarter of solid growth, led by a 9% increase in management and franchise fees and 5% RevPAR growth at our owned and leased hotels, both on a constant-currency basis’.
• Research from the First Rate Exchange’s annual Holiday Confidence Index has found that UK consumers are more determined to holiday abroad but are reluctant to pay more to travel next year. First Rate’s HCI report concluded: ‘Holiday confidence matched last year’s three-year high. Negative views about the economy remain at the rockbottom rate reached a year ago’.
• Virgin Voyages announces a fourth cruise ship to be built for a cost of €700m. The vessel will be a sister-ship to the other three already commissioned by the start-up, with the vessels set to enter its fleet in 2020, 2021, 2022 and 2023. The fourth vessel will be approximately 110,000 gross tons with 1,400 cabins.
• Thomas Cook will open 20 own-brand hotels by the end of next year, with six in Spain, four in Greece and three in Turkey. The new openings will take Thomas Cook’s portfolio to 200 hotels with around 40,000 rooms.
• London and Paris partner to launch a multimedia marketing campaign aimed at American first-time millennial visitors. The mayor of London’s promotional agency, London & Partners, has worked closely with the Paris Tourist Office and Eurostar to present the offer.
• Channel 4 announces a new national HQ will be in Leeds in a move to better reflect life outside London. The broadcaster will keep its other HQ in London, but will be moving around 200 staff to Leeds.
• The Gambling Commission has tightened regulations with companies now facing tougher action if they mislead customers through unfair small print. Companies will also be fined if they fail to respond to customer complaints within eight weeks.
• Facebook reports Q3 sales up 33% to $13.7bn, falling short of expectations and down on Q2’s 42% growth. An average of 1.49bn people used the social network on a daily basis in September, up 9% on last year but below an expected 1.51bn.
• MGM Resorts International has reported quarter results for the period ending September 30 2018, with Jim Murren, Chairman and CEO of the group commenting: ‘Our third quarter operating performance exceeded our expectations despite the tough year on year comparison, resulting from robust casino business and an exceptionally strong event calendar last year.” said Jim Murren, Chairman and CEO of MGM Resorts International. ’.
FINANCE & ECONOMICS:
• Sterling $1.2849 and €1.1326
• Oil $74.67
• UK 10yr gilt yield 1.44%
• World markets up yesterday. Far East mixed today.
o Dominic Raab says should have a deal by 21 November.
PRIOR DAY LATER TWEETS:
• Back tomorrow.
START THE DAY WITH A SONG:
Yesterday’s Song was ‘We Live and Die in These Towns’ by the Enemy, today who sang:
Slowly walking down the hall,
Faster than a cannonball
RETAIL NEWS WITH NICK BUBB:
• Carpetright: We flagged 3 weeks ago that even though the City is nervous about how much damage the expansion of its rival Tapi has done to the embattled Carpetright, the recent share buying by CEO Wilf Walsh (222,000 shares at c18p) must imply that there would be nothing untoward in today’s scheduled first half pre-close update. And although the 65 UK store closures in the period clearly caused disruption, it sounds like underlying trends are improving and that things are on track, despite the absence of any trading figures or comment on the full-year P&L outlook. We are told that “as expected, like-for-like sales performance remained negative in Q2, but there was an improvement in the trend” and the aforementioned Wilf Walsh says: “This is a transitional year for Carpetright as we work through our restructuring plan. I am pleased to report that this activity is firmly on track and
• News Flow This Week: As November gets under way, tonight the Waitrose management team launch their Annual “Food & Drink” Report to the press/analysts in the Cookery Skool at the Kings Cross store. And the Apple Q4 results are out in the US tonight. Before then, we get the latest MPC interest rate decision and Bank of England Inflation Report at midday today.
• WH Smith Share Buyback Watch: To underline the fact that WH Smith’s big £155m US Travel Retail acquisition of InMotion on Tuesday would not affect the company’s dividend or share buyback plans, given the strength of its cash flow, it jumped back into the market on the same day, hoovering up 100,000 shares at c1846p. And it was not put off by the big rally in the share price, as it continued to buy yesterday, picking up 50,000 shares at c1951p.