Langton Capital – 2019-01-11 – EI Group, Bread, Xmas sales, discounts, holidays & other:
EI Group, Bread, Xmas sales, discounts, holidays & other:
A DAY IN THE LIFE:
Why is it that people who say ‘let me be clear’ are rarely very clear at all?
It’s what they teach in MP school, of course, but when they say ‘let me be frank’ you know your in for a ten minute answer to a yes-or-no question, when it’s ‘to be honest’, it most often isn’t and when they ‘as I’ve said before’ you’d better hit Google because they may be breaking bad news and selling it as something that even an idiot should have known already.
And, talking about MPs, what is it about public school, Oxford PPE, intern to a sitting MP, having a bash at a hopeless seat and them being given a winnable one that makes our (Tory at least) MPs think that they’re fit to govern?
I mean have they ever worked in the real world? Perhaps even at a company that needs to make a profit, and have they raised a family, held a marriage together etc. etc.
Anyway, gone off on one there. It’s just that night after night we’re treated to a parade of bigoted, mendacious or hopeless MPs on the telly telling us how we should be running our lives. Thankfully it’s the weekend. On to the news:
EI GROUP ANNOUNCES SALE OF 370 COMMERCIAL PROPERTIES:
• EI Group has announced the disposal of 370 properties within Ei Commercial Properties for £348m in cash. This is in line with the group’s stated intention to realise value where appropriate and to concentrate on its managed and tied pubs.
• The purchaser, Tavern Propco Ltd, is ‘a newly incorporated private company, which is owned, through intermediate holding companies, by investment funds managed and/or advised by Davidson Kempner Capital Management LP.’
• The disposal comprises the bulk of the current Ei Commercial Properties division of 412 units.
• EI Group says its ‘strategy in recent years to grow the income and quality of the Commercial Properties portfolio has resulted in what the Board believes to be an attractive valuation for the Portfolio.’
• A non-refundable deposit of £33.66m has been paid. EI Group will require shareholder approval.
• The disposal represents a 13x multiple of earnings ‘and is in line with the net book value of the assets, reinforcing the Board’s confidence in the robustness of the net asset value of the Group.’
• EI will reduce debt levels ‘accelerating the delivery of the Group’s medium-term target leverage ratio of 6x net debt to EBITDA.’
• The group will also ‘consider more immediate returns to Shareholders.’ EIG says ‘the Disposal also allows the Group flexibility to invest in driving growth in its core Publican Partnerships, Managed Operations and Managed Investments divisions, whilst at the same time identifying properties to rebuild its Commercial Properties division.’
• Completion should occur in early March 2019. EIG will provide some management services to the new company for 12mths.
• CEO Simon Townsend says ‘we are very pleased to have agreed the sale of the Portfolio, which is in line with our strategy of delivering attractive and sustainable returns to Shareholders by unlocking the embedded value and optimising the returns from every asset within the business.’
• Mr Townsend adds ‘the Portfolio is comprised of high quality assets which we believe are best suited to a free-of-tie, rent-only business model.’
• EIG has not updated on trading. Its AGM will be held on 7 Feb.
A CASE STUDY:
BREAD HOLDINGS – MAJORITY RISK CAPITAL OWNED BREAD MAKER / RETAILER:
Below is the summary of a case study carried out by Langton.
Beauty is very much in the eye of the beholder.
Events last year – January 2018:
• Around a year ago, Bread Holdings, the Risk Capital Partners / Luke Johnson majority owned bakery & chain of bread shops, was deemed to be ‘for sale’. Numbers up to £150m and even higher were suggested. It was suggested that KPMG, the group’s auditor, was exploring the sale process.
• This valuation struck us as odd for a bread shop. Good though Gail’s is, we simply did not get it. We are familiar with the concept of ‘anchoring’. We did work suggesting a valuation of around one third of those being suggested elsewhere.
• We believed that one of the potential purchasers, Patisserie Holdings, was perhaps being used as a valuation benchmark for Bread. CAKE’s valuation was later called into question.
• Although it didn’t make an RNS on the speculation either way, sources close to also-Luke Johnson controlled Patisserie Holdings (CAKE) suggested that a £35m fund raise was being considered to part fund the purchase of Bread (presumably at a price near to that suggested in the Press).
• Given that CAKE has since discovered financial irregularities which drove it to within a few hours of administration prior to a rescue fund-raise at a c90% discount to its prior share price, it is perhaps only the lawyers who are sorry that the above fund raising did not take place.
Last year – August 2018:
• The Bread Holdings accounts, which did not become public (see below) until late-December, were signed & put to bed.
Last year – October 2018:
• Accounting irregularities were discovered at former likely-purchaser Patisserie Holdings. Unpaid bills, non-existent cash, director resignations, police & accountancy investigations, emergency placing etc. General mayhem, loss of credibility etc.
• After nine months of radio silence, Bread Holdings is now deemed by the Press to be no longer for sale. At least ‘until after Brexit’. Accounts still not widely available.
Last year – December 2018:
• Bread’s slightly overdue accounts were filed with Companies’ House on 18 Dec. They took 5-6dys to upload and were only available after Christmas.
• The chain saw profits fall from £3.38m to just £1.07m. Turnover was up 9.4% but margins collapsed from 4.3% to 1.2%. it described the wholesale market as ‘very competitive’. It described the retail bakery market as also ‘very competitive’.
• Retail revenues were up sharply (+25%, more Gail’s shops) but wholesale revenues failed to match inflation. See also caveats below.
• Inaction was the right action. Thankfully CAKE did not raise equity at the wrong price to buy Bread, also at the wrong price.
• It may be some time before Bread feels able to say that its markets are other than ‘very competitive’.
• Buyers may not be willing to pay a price the vendors are keen to accept for some time.
• A few caveats. Note 16 shows that creditors have geen growing. There is £28m of debt compared with negative tangible assets of £12m. High levels of debt are not uncommon in private companies, particularly where the equity holders also hold debt. KPMG is the auditor. That is, it isn’t Grant Thornton. Also, intangible assets are greater than shareholders’ funds.
• We might leave it at this as we’re unsure as to our audience given that Bread is an unlisted company and CAKE is suspended. However, if you would like (to pay for) more information on this (or any other private company that we are able to turn our attention to), please drop us a line.
PUBS & RESTAURANTS:
• Patisserie Holding’s shares remain suspended three months after financial irregularities were discovered at the company. The group has changed its CEO and CFO since and is thougth likely to change its auditors.
• M&B’s shares ended up 7.5% yesterday on the back of a strong Christmas trading update. As mentioned, sales look good for the Christmas period across a number of players but there is little mention of margins.
• Discounts available yesterday were, arguably, an insult to those often asked to pay ‘full price’. Yes, January is tough but various M&B & Restaurant Group brands are 40%. Ditto Pizza Hut, Carluccio, Prezzo etc. etc.
• Brighton Pier’s shares yesterday pulled back some of their losses to close the day down around 22%.
• Former director of Draft House and Million Pound Menu judge Charlie McVeigh has commented further on BBQ Dreamz, the company that he backed on the programme, saying the company and he ‘have big plans, the first of which is running a pop-up in King’s Cross for the next few Sundays, starting this weekend (13 Jan).’ The pop up is at fellow-judge Scott Collins’ King’s Cross Meat Liquor.
• The Craft Beer Co has announced that it has signed a lease on a site at Hammersmith Station opposite the Apollo Theatre. Co founder Martin Hayes says ‘we are thrilled the landlord approached us to take over this highly desirable site’. The venue will open in March.
• Pieminister Ltd has reported FY (March 2018) numbers to Companies House saying ‘we have seen impressive revenue growth in our core business channels’. The company says ‘our restaurants have delivered total growth of 16% in the year with LfL sales up 5%.’ Gross margin was down 1%.
• Pieminister reports revenues of £14.3m (2017: £12.6m) with a loss before tax (after provisions for dilapidations of £186k) of £310k (2017: profit £148k).
• The BBPA has reported that pubs in the UK are thriving, as long as they are broadening their appeal to customers and tapping into tourism. Chief Executive of the BBPA, Brigid Simmonds commented: ‘Despite the cost pressures they face, many pubs continue to do well by innovating and looking to broaden their appeal to customers’.
• Research from TripAdvisor has found that Baby Boomers are spending more on accommodation than other age groups. It was found that Baby Boomers tend to spend nearly three times as much as other age groups.
• The UK based low alcohol brewery, Big Drop, is to move part of its production process to mainland Europe after raising £500k from private investors.
• Winemakers are considering bottling outside of the UK to Europe following Brexit if higher tariffs come into effect, MPs have warned. Simon Stannard of the Wine and Spirit Trade Association (WSTA) commented on the speculation: ‘Whether or not they [wine producers] may be forced to move their bottling plants from the UK, we’ll have to see’.
• The international sushi retailer, Sushi Daily is to open a site on New Oxford Street.
• Groove Armada’s Tom Findlay, The Cuban Brothers, Don Letts and Zero 7 have all confirmed they will be performing at the UK’s largest Craft Beer Festival, CBR19.
• Darwin & Wallace introduces ‘Cluck & Collect’ allowing customers to pre-order healthy food online and pick up their meal at the selected bar.
• The Million Pound Menu contestant, BBQ Dreamz, who secured funding from Charlie McVeigh have announced they will launch a six-week residency at MEATLiquor King’s Cross this month.
• The biggest retailers in the US have seen $34bn wiped from their market values after Macy’s released a profit warning on Thursday.
• Amazon will deliver samples of groceries and pet food free of charge to selected customers.
HOLIDAYS & LEISURE TRAVEL:
• GfK confirms pre-Christmas holiday bookings fell in a report in The Sunday Times with Summer 2019 bookings said to be down 17% yoy in the week of the article, and down 19% the week after.
• HotStats reports UK hotels profit growth in November with rooms, food & beverage and conferencing & banqueting all up. Payroll dropped 0.3% as a percentage of total revenue to 27.5%.
• Iata reports November global airline passenger demand up 6.2% yoy, down on October’s 6.3% increase. Capacity in the industry increased by 6.8% yoy with load factor down 0.4% to 80%
• American Express Global Business Travel predicts fares on many of the world’s major air routes to remain stable in 2019, with capacity and growing competition restraining prices. However, UK and European level air fares are predicted to fluctuate dependent on route.
• US hotels saw occupancy fall 0.4% to 48.8% during the week 30 December to 5 January, data from STR has revealed. The market also recorded ADR up 5.6% to $130.69 and RevPAR up 5.2% to $63.79.
• The Beatles museum in Liverpool is to open a new cafe following a strong first six months in operation. Brother to Ringo, Roag Best launched the museum and commented: ‘Growing up, I wasn’t aware of how famous the Beatles truly were, I just loved spending time with my four friends – John, Paul, George and Ringo’.
FINANCE & ECONOMICS:
• Jaguar Land Rover is to cut 4,500 jobs from its workforce. The move will have a knock-on impact in the areas concerned. The group has pointed to Brexit uncertainty, export issues and uncertainty regarding the future of diesel.
• Ford has announced a ‘consultation’ with staff. Jobs are likely to be cut across its 13k UK workforce.
• Sterling little changed at $1.2798 and €1.1069. Oil up at $61.57. UK 10yr gilt yield up 3bps at 1.28%. World markets up yesterday with Far East higher in Friday trade.
• Brexit etc.:
o PM’s ability to run down the clock reduced. Defeat still likely on Tuesday but PM now appealing to Brexit Labour MPs.
o The Telegraph has quoted US bank JP Morgan as saying that prolonging Article 50 would be the worst outcome for the UK economy as it would extend uncertainty. Sir Keir Starmer has said that this may be inevitable.
PRIOR DAY LATER TWEETS:
• Later tweets: Very good Xmas trading from M&B & shares +5%. Not such good news from Brighton Pier. Profit warning & 18% downgrade. Shares collapse 40%.
• Brighton Pier to miss numbers by 18%. How long has the co known that? Blames summer but then refurb costs & Xmas pushed it over the edge.
• Xmas sales look good for pub (and perhaps to a lesser extent restaurant) companies but there has been little comment on margins
• Pick your ‘incentives’ & you get your outcome. Focus on LfLs & companies ‘buy’ sales. Margins akimbo. Discounts now 40% plus.
• Discounts. Where’s the road back? M&B, RTN, CDG, Prezzo, Pizza Hut now all 40% off. Makes an insulting mockery of ‘full price’?
• Funding crunch for some loss-making companies now finding that ‘EBITDA’ isn’t profit, that ‘I’ isn’t voluntary & neither is T. Or D or A.
• Threats & tears as gangrenous Brexit process rolls on. Soundbites trump facts, sick of experts etc. Embarrassing. Hardly our finest hour
• Sir Keir Starmer suggests that it will not be logistically possible to be ready for Brexit by 29 March. Delay likely. Is ‘worst outcome’ per some
• Serious Q: should politicians lead or follow public opinion? Danger is you get idiots leading & mendacious careerists doing the opposite
START THE DAY WITH A SONG:
Yesterday’s song was Ms. Jackson by Outkast, but today who sang:
Livin’ just to keep goin’
Goin’ just to be sane,
All the while not knowin’
It’s such a shame
RETAIL NEWS WITH NICK BUBB:
• AO.com: The BRC has been highlighting that the white goods market has been tough, but today’s Q3 update reveals that AO.com (aka AO World) is still on track, with total UK revenue up by 4.4%, after a successful Black Friday trading period.
• QUIZ: The struggling fashion chain QUIZ (which has turned into another IPO turkey) has warned again on profits today, after suffering disappointing Christmas trading (with sales only 8.4% up over the last 6 weeks, despite increased discounting).
• Moss Bros: The beleaguered Moss Bros also flags up increased discounting in a challenging fashion market today, but it says that full year performance will be no worse than the market consensus of an underlying £0.6m loss.
• Debenhams: We have been flagging up the potential for Mike Ashley to stir up a revolt against the management of the embattled Debenhams at yesterday’s AGM, but there had been no vibes about any particular problems, so we had assumed that Debs and their advisers had matters in hand. Even by tying up with the disgruntled Middle Eastern investor Landmark, Mike Ashley’s concert party didn’t have more than 38% of the votes, so Debenhams should have been able to fight him off. But they failed to get enough proxy votes in the bank from the other big shareholders, with the result that both Ian Cheshire and Sergio Bucher were voted off the Board… The Chairman is only non-exec and Terry Duddy is a perfectly adequate/experienced replacement, but symbolically it is a major defeat for the company (and a shocking result for its advisers), at a very sensitive time in terms of the discussions with the
• Trade Press: Retail Week has not been published today, alas, but Drapers magazine is out, with its front cover featuring a graphic of the annual “30 under 30” list of rising stars in the fashion industry, which the Editor describes in her column as “the perfect antidote to the post-Christmas blues”. One of the main News stories is that Christmas delivered better than expected sales for fashion multiples and independents alike and that there has been little sign of the predicted surge in returns of Online fashion presents. The main features in Drapers are a review of the 2019 outlook and a list of 2019 forecasts from leading people in the industry.
• BDO High Street Sales Tracker: We flagged on Wednesday that sales at John Lewis grew strongly last week, the first full week of the Clearance Sale, and today’s BDO High Street Sales Tracker for medium-sized Non-Food chains for last week, w/e Sunday Jan 6th, is also very good, with BDO Fashion sales up by 11.8% LFL last week (including Online), despite strong comps. Total BDO LFL sales (including Homewares and Lifestyle sales) were up by a decent 8.2% last week (up by 5.1% in Store sales and up by 16.6% Online), helped by the calm/mild weather.
• News Flow Next Week: There is still plenty of company news scheduled for next week, even after the rush over the last couple of days. The week starts with the JD Sports update on Monday. We then get the Boohoo update and the Games Workshop H1 (as well as the key Brexit vote in the House of Commons…) on Tuesday and The Works’ interims on Wednesday. Thursday brings the ABF (Primark) update, the N Brown Q3 update, the Game Digital AGM update and the Signet update out in the US. Then we get the ONS Retail Sales figures for December on Friday.