Langton Capital – 2018-11-27 – Thomas Cook, Gregg’s, pub closures, delivery, Gfinity…
Thomas Cook, Gregg’s, pub closures, delivery, Gfinity…
A DAY IN THE LIFE:
Human nature is what it is and certain things will always happen but we were considering whether fraud, or at least misrepresenting things on purpose, was impacted by the economic cycle.
And we decided that it was, and that it is more likely that frauds will be committed during an upswing and discovered when the wheels begin to drop off for cyclical reasons.
Indeed, the venerable Warren Buffett said: ‘you only find out who is swimming naked when the tide goes out’ and we agree that adding a fraud to tougher trading (witness Madoff etc.) will make a bad situation immeasurably worse.
So why is this?
Well it’s probably easier to commit a fraud when everyone is partying and back-slapping but, when things get a bit more challenging, keeping the party going becomes more difficult & things come to light.
Indeed the more interesting question might be, just how many frauds are there that are never discovered because trading picks up again and they can be covered up again? On to the news:
PUBS & RESTAURANTS:
• Restaurant Group vote tomorrow. Looking like a close call.
• Gregg’s has updated on trading saying total sales are +9.0% for the 9wks to 24 November. The group says company-managed shop like-for-like sales are up 4.5% for the same period with ‘like-for-like performance ahead of expectations and good cost control.’
• Gregg’s says we ‘now anticipate 2018 full year profit before tax (excluding exceptional charges) to be at least £86 million.’
• Gregg’s says ‘the improved trading performance reported in our third quarter trading update has strengthened further during October and to date in November.’ The company says ‘this stronger trading in October and November is particularly encouraging as it builds on good comparative sales in the same period last year. Operational costs have been well controlled and, whilst there is still much to play for over the final few weeks of the year, the Board now anticipate that full year underlying profit before tax (excluding exceptional charges) will be at least £86 million.’
• The number of pubs in the UK has decreased 22% since the financial crisis in 2008, the latest figures from the ONS have indicated. However, the report has also found that more people across the UK are now employed by pubs than 2008, with a 6% rise.
• The ONS report stated that the number of small pubs has fallen 41.2% since 2001 to 22,840, from 38,830. Whereas the number of larger pubs, sites that employ 10 or more people has increased 16.9% to 15,975.
• The BBPA has responded to the ONS report, with chief executive Brigid Simmonds commenting: ‘“Pubs face a number of cost pressures, from high taxes in the form of beer duty, VAT and business rates, to wage increases and food inflation. This means they are under increasing financial pressure from every angle, which is driving closures’.
• Darwin & Wallace, the London based bar group, has opened its seventh site in Ealing, named No 17 Dickens Yard.
• The customer feedback and reputation specialist, Feed It Back has launched a new delivery platform so operators can take back quality control on food deliveries and receive information about the condition of the product when it arrives.
• Loungers has updated on its full year numbers to 22 April 2018 saying that the 137-strong chain achieved revenue growth of 31.9% to £121.1 million (2017: £91.8 million) and LfL sales growth of 6.0%.
• Loungers says ‘this performance is all the more pleasing as prior year margins were maintained in spite of the ongoing cost pressures facing the wider market, reinforcing the resilience of Loungers’ brands. The Group’s performance was driven by strong organic growth as well as continued expansion, with the roll-out of 22 new sites in the period, under the guidance of a prudent and proven management team.’
• Loungers comments that ‘post the financial year end, the business has continued to trade well throughout the summer months and thereafter.’ The group says ‘trading across both brands, in both mature sites and new openings, continues to be strong with like-for-like sales growth in line with the 6.0% achieved in the prior year.’
• Sky News has reported that Deliveroo is set to raise hundreds of millions of pounds from investors, as the group looks to set a valuation floor for a formal takeover bid from rival tech firm Uber.
• The Sunday Times, however, has stated that Uber is planning an $8bn-a-year expansion of Uber Eats, which will include a tripling of staff and broadening its footprint in Britain. Rodrigo Arevalo, Uber Eats’ head of Europe, Middle East and Africa, said: ‘We’ve had . . . healthy engagement with councils in the UK about initiatives for small and medium businesses, to help change this narrative [of empty high streets]’.
• Observers maintain that Domino’s Pizza is under pressure to strengthen its board with a heavyweight non-executive director to challenge its chairman and CEO more effectively.
• The Imbiba backed bar and restaurant group, Wright & Bell has launched its third City site with Lino.
• The Sheffield based coffee specialist, Cafeology is now one of the UK’s largest independent coffee companies with turnover of c£4m.
• UKHospitality has stated that rising costs are threatening investments and jobs in the pub sector, with Chief Executive Kate Nicholls saying: ‘Looking at this data, it is clear that pubs are facing challenges, but that they are also crucial providers of jobs around the UK. The new report underlines the need for support from Government to ensure that vital businesses are not squeezed further’.
• JD Wetherspoon is considering more site openings in Ireland, following the success of five sites it currently has open in the country.
• Moving Mountains, the company behind the meatless ‘bleeding’ burger has stated that its product will now be available to 40,000 restaurants nationwide after agreeing a distribution deal with Brakes.
• The London based bar group, ETM has commented that it intends to ‘expand significantly’ over the next five years, following strong results. The group reported revenue up 37.4% to £27m in the 12 months to 29 February 2018.
• Radiant Insights has said that between now and 2022, the QSR industry should grow by around 5% compound per annum thanks to growth in developing countries.
• Amazon has ceased operating its London restaurant delivery service after less than two years.
• UK Finance reports loyalty incentives has led to credit cards being increasingly used for day-to-day spending rather than big one-off transactions.
• The FT has reported that Black Friday was perhaps more difficult for UK retailers than expected, with footfall in shops down sharply and not enough of an increase in online sales to balance.
THOMAS COOK – EARLY ANNOUNCEMENT, PROFIT WARNING, NO DIVIDEND…
• Thomas Cook profit warning. Co pre-releases some information ahead of its FY numbers on Thursday.
• TCG says it expects ‘lower underlying EBIT of £250 million.’ The group says revenues are +6% at £9,584 million, with profit of around £250m, some ‘£58 million lower than prior year on a like-for-like basis’.
• TCG says its tour operations have been ‘impacted by discounting in ‘lates’ market.’ It says that the UK has been ‘particularly disappointing’.
• TCG says it has ‘net debt of £389 million; increase due to delayed bookings and higher non-cash items’. The group is still trading within its banking covenants.
• TCG is suspending its full year dividend. Re 2019, the group says it should ‘deliver progress on underlying EBIT and lower separately disclosed items, leading to substantial progress on reported operating profit.’
• TCG CEO Peter Fankhauser says ‘2018 was a disappointing year for Thomas Cook, despite achieving some important milestones in our strategy for transforming the business.’
• TCG CEO says ‘after a good start to the year, we experienced a larger-than-anticipated decline in gross margin following the prolonged period of hot weather in our key summer trading period. Our final result is expected to be around £30 million lower than previously guided, due to a number of legacy and non-recurring charges to underlying EBIT.’
• The group adds ‘within this, profit in our tour operating business fell £88 million as the sustained heatwave restricted our ability to achieve the planned margins in the last quarter. The UK was particularly hard hit with very high levels of promotional activity coming on top of an already competitive market for holidays to Spain.’
• TCG concludes ‘looking ahead, we must learn the lessons from 2018 and go into the new year focused on where we can make a difference to customers in our core holiday offering. We will put particular attention on addressing the performance in our UK tour operator where the challenges of transformation in a competitive environment remain significant. Across the Group, we will continue to streamline our cost base and manage our capacity to give us greater operational flexibility and financial discipline, while focusing the team on delivering performance improvements and giving customers more reasons to holiday with Thomas Cook.’
HOLIDAYS & LEISURE TRAVEL
• A drunken Jet2 passenger has been jailed for six months after she confronted and abused other customers, even kicking the seat of a child.
• Moore Stephens reports profitability at the UK’s Top 100 hotel groups rose 13% to £689m in the last year, with inbound travel boosted by a slump in sterling. However, the industry faces a challenging cost environment with both business rates and minimum wage increases.
• France’s Accor Hotels is reported set to offer around $500m to buy the 80% of Polish hotel operator Orbis that it does not already own. Orbis is the largest operator in Central and Eastern Europe with 128 hotels in 16 countries.
• STR has released data on the US hotel market for the week ending 17 Nov, stating occupancy up 0.6% to 66.6%, average daily rate climbing 2.5% to $127.53 and RevPAR rising 3.1% to $84.99.
• Gfinity, the London based e-sport group, has announced revenue up 82% to £4.3m with an increase in EBITDA loss to £12.5m for the year ended 30 June 2018. The group reported at year end a cash figure of £3.7m but has since raised a further £6m from shareholders. Chairman of the group, Garry Cook commented: ‘It has been an exciting year for the company. We have further strengthened the foundations of our business by continuing to invest in our strategic priorities to generate future revenue growth. Over the past 12 months we have connected publishers such as EA and Microsoft, rights holders such as Formula 1 and global brands and media partners with the young, engaged and fast growing esports community’.
• Elon Musk has announced that Tesla was within weeks of going under earlier this year after the group attempted to increase its electric car production to 5,000 cars a week. Musk told HBO: ‘Essentially, the company was bleeding money like crazy, and if we didn’t solve these problems in a very short period of time, we would die’.
• Merlin has said it aims to end the use of plastic straws by next month.
• Pragma Consulting reports the fitness industry has been disrupted by wearable tech in recent years, with wearable sales set to grow to a market size of $29bn by 2023. Pragma claims the fitness industry should focus on innovations such as VR, social media engagement and studio enhancement to retain consumers.
• Aston Martin aims to double production by 2025, with the automaker on target to produce 6,400 vehicles this year.
FINANCE & ECONOMICS:
• Sterling little changed at $1.2814 and €1.1297
• Oil up a fraction at $60.20
• UK 10yr gilt yield up 3bps at 1.41%
• World markets generally better yesterday. Far East mixed in Tuesday trade
o Mrs May pleads with electorate to back her vision of partial Brexit. She is reported to be pushing for a leaders’ debate with Jeremy Corbyn.
o You Gov suggests only 15% of the population support Mrs May’s deal.
o Like one of David Attenborough’s pea-brained but sympathetic penguins, Mrs May is marching boldly in the wrong direction
o FT suggests ‘sympathy for Mrs May is likely to grow in the next few days.’ Cutting a sympathetic figure, however, does not always equate with doing the right thing or with pushing through unpopular legislation.
o Bank governor Mark Carney & chancellor Philip Hammond are to present to MPs on the economic impact of Mrs May’s Brexit deal next week.
o The LSE, King’s College & the IFS (experts) say the UK’s economy could be 5.5% smaller in 10yrs time than it would have been had the country stayed in the EU. The study says that trade friction & less access to labour will cause the slowdown. It says ‘these would far outweigh any gains resulting from reduced EU contributions.’
o Donald Trump has said that the EU / UK deal sounds like ‘a great deal’ for the EU but he says it may hinder trade between the UK and US. Labour MP Tulip Siddiq said ‘even Donald Trump, not the sharpest tool in the box, knows this deal is a bad deal.’
o The ECJ will today consider whether the UK could unilaterally reverse its decision to leave the EU.
o PM May has apologised for accusing EU workers of ‘jumping the queue’
PRIOR DAY LATER TWEETS:
• Later tweets: RTN / Waga. Doing a deal (witness Mrs May) isn’t the same thing as doing a good deal. Execution remains key and, by the way, what is Plan B?
• Bloomberg says new CAKE CEO Stephen Francis (presented as a turnaround expert) ‘presided over losses’ at his prior company
• NIESR says the exit package will leave UK £100bn a year worse off by 2030. No deal will cost £130bn. That’s per annum
• HMG due to release Treasury forecasts prior to ‘meaningful vote’ (c11 or 12 Dec). Will make interesting reading
• View from USA – NBC: ‘UK…is at present a country where the deluded are fighting with those in denial. It could all end very badly indeed.’
• Black Friday not a panacea for UK High Street. Selling same (or less) gear to same people at lower prices?
START THE DAY WITH A SONG:
Yesterday’s song was Suzanne by Leonard Cohen. Today who sang:
Oh, help me Jesus,
Come through this storm
I had to lose her
To do her harm
RETAIL NEWS WITH NICK BUBB:
QUIZ: The share price of the fashion chain QUIZ was smashed to bits after the shock profit warning on Oct 5th (with investors worried about its exposure to third-party Online sales and to department store concessions) and it has remained heavily out of favour ever since, ahead of today’s interims (for the 6 months to end Sept). And although the company tries to put a brave face on things today in the statement, boasting of “continued brand growth despite challenging market conditions”, underlying EBITDA was down 2% in the first half and, with sales only 10% up in the last 8 weeks, all it can say about the outlook is that “the Board believes the Group is well positioned to deliver long-term profitable growth”.
Pets at Home: When it last reported, on Aug 3rd (for the extended Q1 of the 16 weeks to July 19th) Pets at Home reported a good start to the year, but the shares have remained heavily shorted by hedge funds ahead of today’s interims, given the problems with its veterinary practices and the reliance on price-cutting in the core business. And today the company has announced that it is “recalibrating the vet business to deliver sustainable returns”…
Topps Tiles: In its pre-close update for y/e Sept, back on Oct 3rd, Topps Tiles reported improved Q4 trading and flagged that adjusted pre-tax profits for the year would be “slightly ahead of the top end of the current range of market expectations”. But today’s finals flag that adjusted profit before tax was down to £16.0m from £18.6m and the last 8 weeks have seen LFL sales drop by 1.9%, in challenging trading conditions…