Langton Capital – 2019-01-17 – Whitbread, CAKE, Ten Entertainment, Everyman, SSP & other:
Whitbread, CAKE, Ten Entertainment, Everyman, SSP & other:
A DAY IN THE LIFE:
So, our office printer has been telling us to replace the ink cartridge since about Q2 last year.
We’ve ignored it, of course, but have to conclude that either: 1) the ink companies are trying to get us to change cartridges earlier than we need to, 2) we’re going ‘green’ and printing less or, perhaps most likely 3) we’re not doing much work.
Anyway, a bit pushed this morning so let’s move on to the news:
WHITBREAD Q3 UPDATE:
• Whitbread has updated on Q3 trading saying total sales rose by 2.5% with ‘strong progress’ made in the efficiency programme
• The sale of Costa to The Coca-Cola Company for £3.9bn was completed on 3 Jan 2019, ahead of schedule
• The group is buying back an initial £500m of shares
• Re Premier Inn, Whitbread has added ‘over 2,000 new rooms added in FY19 so far and occupancy remained high at over 80%’
• WTB says that FY19 results will be ‘in-line with expectations’ but it adds we ‘remain cautious on UK environment next year given uncertainty and higher inflation’.
• CEO Alison Brittain says ‘this has been a momentous year for Whitbread, with the sale of Costa to The Coca-Cola Company for £3.9 billion completed on 3 January 2019, much sooner than expected.’
• Ms Brittain adds ‘we are now commencing an initial share buyback programme of up to £500 million, with further details about our plans to return a significant majority of the net cash proceeds to shareholders at our Capital Markets Day on 13 February.’
• Whitbread reports ‘we continue to be excited about the opportunity in Germany and our first hotel in Frankfurt remains the number one choice for customers. Our second hotel in Germany will open in Hamburg in February and this year we have continued to extend the total committed pipeline in Germany, which now stands at over 6,000 rooms across 34 hotels.’
• The group concludes ‘our unique model and leading market position in the UK puts us in a strong position to capture structural growth opportunities in the UK and internationally. Investing in growth through our disciplined approach to capital allocation ensures we can create sustainable value for shareholders over the longer-term. We look forward to presenting this in further detail at our Capital Markets Day.’
PATISSERIE HOLDINGS ON THE BRINK (AGAIN):
• Profitability materially below the already-drastically-reduced numbers suggested on 12 Oct last year (of £120m of revenues and £12m of EBITDA.
• Bank facilities as currently negotiated end tomorrow. Group going for an extension.
• Patisserie Holdings yesterday announced that ‘work carried out by the Company’s forensic accountants since then has revealed that the misstatement of its accounts was extensive, involving very significant manipulation of the balance sheet and profit and loss accounts.’
• The company says ‘this involved thousands of false entries into the Company’s ledgers’ and adds ‘it will take some time before a reliable trading outlook can be completed while the above work streams progress.’
• The group says ‘the initial indications from the work carried out to date is that the cash flow and profitability of the business has been overstated in the past and is materially below that announced in the trading update on 12 October 2018, which was based on limited work carried out over a 48-hour period.’
• The group was said to have come within three hours of going bust.
• CAKE says ‘the Company has hired KPMG to assist it in carrying out a review of all options available to it in order to recover from the devastating effects of the fraud, and to preserve value for its stakeholders going forward.’
• It says ‘it will be some time to complete a restatement of the Company’s accounts and prepare the audited figures to 30th September 2018.’
• CAKE adds ‘the Company has also been in discussion with its bankers to extend the standstill of its bank facilities beyond January 18th, and will issue an update when those discussions have concluded.’
What it means:
• The October bailout was not for ‘good-co’. It was for ‘total co’ including the bad bits.
• This is understandable given the time pressures but, in light of the statement above, it is possible that investors were simply sending good money after bad.
• Investors, who will perhaps be reluctant to blame themselves for making the October investments, may be looking at the representations made to them at the time.
• Misrepresentation can be fraudulent, negligent or innocent (i.e. based on a simple lack of knowledge). But that’s one for the lawyers.
• Telegraph says ‘Patisserie Valerie lurched back towards the brink after hiring KPMG to prepare the business for “all options”, including collapsing into an insolvency.’
• Sky also quotes ‘all options’.
• The FT reports the facts % says there is little sign of the shares being re-listed.
• Whilst this is all very interesting, the shares are suspended, nobody can do anything (except dust of their lawyer’s telephone number) and we’re under time pressure this morning.
• However, a number of points arise. Like ven diagrams, the area of maximum overlap may be where the problem lies.
• We would say these things are rarely one-offs and they often include a small team of individuals.
• The more technically able are these individuals, the more serious the problem.
• Where communications are poor (competence issues or bullying bosses), they are more likely to persist.
• Investing, back in October, in total-co, was a leap of faith. The fact that the shares did not relist later that week told us something and now we are where we are. Good luck to all concerned.
• Whether or not the fraud went back to 2014 when the company was listed will be of interest to purchasers of the stock at that time etc.
PUBS & RESTAURANTS:
• SSP has updated on Q1 trading saying it ‘has had a good start to the new financial year. Total group revenue increased by 7.6% on a constant currency basis, comprising like-for-like sales growth of 2.5%, net contract gains of 3.8%, with the acquisition of Stockheim adding a further 1.3% to sales. Total group revenue growth at actual exchange rates was 7.7%.’
• SSP says ‘the trends in like-for-like sales growth in the first quarter of the year were similar to those seen last year in the UK, North America and the Rest of the World. Like-for-like sales growth in Continental Europe was impacted by the recent protests in France towards the end of the quarter and by redevelopment activity at some of our sites. Looking forward to the full year, our expectation for like-for-like sales growth for the Group remains unchanged, at between 2% and 3%.’
• The group concludes ‘the pipeline of new contracts is encouraging. Whilst a degree of uncertainty always exists around passenger numbers in the short term, we continue to be well placed to benefit from the structural growth opportunities in our markets.’
• DP Eurasia reports FY group system sales growth of 30.9% and adjusted EBITDA in line with expectations. The group opened 81 sites during the year bring the total to 724, with the group saying the 2019 pipeline looks strong. CEO Aslan Saranga said ‘ The franchising and geographical expansion efforts in Russia have been a strong testament to our business model; we are now in 12 cities outside of Greater Moscow and our franchise store mix has reached 44% from a standing start two years ago. ‘
• Data from Visa has shown that consumer expenditure decreased over the festive period. Annabel Fiddes, principal economist for IHS Markit, the data company that compiled the findings, stated: ‘December’s CSI data show a disappointing end to 2018, with household spending failing to pick up in the run-up to Christmas’.
• McDonald’s has lost its Big Mac trademark across Europe, after legal battle with Irish fast-food chain, Supermac’s. McDonald’s had previously claimed that customers would get confused between the Big Mac and Supermac brands, however, Pat McDonagh argued: ‘We said there’d be no confusion. Big Mac and Supermac are two different things’.
• Chief Executive of UKHospitality, Kate Nicholls commented on the recent rejection of the PM’s Brexit deal: ‘Tonight’s (15 January) vote in parliament brings into stark reality the prospect of a no-deal Brexit, which would likely be disastrous for the British economy and a hospitality sector that is well-equipped to make a vital economic contribution as we leave the EU’.
• Chief Executive of the Food & Drink Federation, Ian Wright also commented on the result of the recent House of Commons vote: ‘The Prime Minister’s deal has been decisively rejected and it is now vital that the political leadership find a way to indicate what alternative should be pursued. We are calling for an extension to Article 50 in order for parliament to decide what our next steps are; whether that is a new deal, a referendum, an orderly exit from the EU without a deal at a later date, or a general election’.
• Cognac exports have reached €3.2bn in 2018 up 3% by volume and 2% in value compared to last year.
• Diageo is believed to be selling off its Indian winery, Four Seasons Wines, to Grover Zampa Vineyards, the second largest winery in India.
• Donald Trump ordered 300 burgers from McDonald’s to feed an American football team visiting the White House, as the in-house White House kitchen remains closed due to the government shutdown.
• The BBPA comments on a survey finding that 24% of British drinkers have switched to low alcohol alternatives or would consider doing so in the next six months, with Brigid Simmonds saying ‘there is a real need for the Government to engage and help our industry to promote these products and bring the guidance on alcohol descriptors in line with that of our European neighbours.’
HOLIDAYS & LEISURE TRAVEL:
• The government has announced it ‘will keep existing high levels of consumer protection in the UK’ for package holiday bookings.
• STR reports managing director of Red Carnation Hotels as saying ‘I see carnage out there unless the government sorts the deal out…In the last year I have seen applications from (mainland Europe) fall to almost nothing. Sixty of our outstanding managers have returned home.’
• The Association of British Insurers warns UK motorists will need to apply for a Green Card in order to drive abroad after 29 March in the case of a no-deal Brexit. This would also apply to anyone driving across the NI/ROI border.
• On The Beach will now offer direct flights from eight UK airports to Dubai as part of an integration with Emirates. The online travel agent is targeting growth in long-haul holidays.
• Norwegian Cruise Line aims to increase UK customers’ repeat business by encouraging travel agents to talk to past passengers more often.
• Iata warns a no deal Brexit could put a cap on flights, potentially leading to higher prices for consumers. In such circumstances the current level of flights could be maintained, but an increase in 2019 would not be allowed.
• Everyman Media Group has updated on full year trading saying that ‘trading in 2018 has continued to be in line with market expectations.’ It says it ‘continues to source exciting opportunities for future investment.’
• Everyman says ‘the directors are confident of being able to grow the existing pipeline beyond the new sites which are already committed and expected to go live in 2020.’ It says ‘the directors maintain a positive outlook for the cinema industry and for the Company in 2019. Audiences continue to enjoy film, and specifically the Everyman experience.’
• Ten Entertainment Group reports FY sales growth of 7.5%, with LfL sales up 2.7% and expectations for group adjusted EBITDA unchanged. During the year the group acquired four sites and disposed of one underperforming site. Nick Basing, chairman, said ‘I am very pleased with this performance, the 7th consecutive year of like-for-like sales growth, despite the headwinds of the extreme summer conditions.’
• Netflix plans to raise US subscription prices by between 13% and 18% over the next three months to compensate for a debt-fueled $13bn investment in new content. The share price of the streaming giant rose by as much as 6.8% on the news.
• Manual, a men’s health website, secures a £5m seed round with funding from Felix Capital, Cherry Ventures and Cassius Capital. Manual aims to improve the everyday lives of men by providing knowledge and solutions for every part of their wellbeing.
FINANCE & ECONOMICS:
• UK inflation fell to 2.1% in the year to December, the lowest level in two years.
• The outlook for house prices is the most negative seen for two decades reports the RICS.
• Sterling up slightly at $1.2874 and €1.1307. Oil up at $60.96. UK 10yr gilt yield up 6bps at 1.31%. World markets mixed. FTSE set to open 25pts or so down
• Politics etc.:
o Government survives vote of confidence.
o Mrs May to reach out, 900+ days into the process, to other parties
PRIOR DAY LATER TWEETS:
• Later tweets: CGA Tracker Xmas & NY sales +4.1% LfL (6wks). Pubs +5.1%, restaurants +2.4%. London +5.0% versus 3.8% elsewhere. Drink +6.4%, food +3.6%
• ‘Premiumisation’ a big part of the good Xmas says CGA. Price gouging is finite. Heavy discounting (up to 50%) now in evidence
• It’s a long haul to payday. Last Thursday of the month this Jan is 31st. Previous payday probably 20 Dec meaning 6wk gap. Ouch.
• CGA Xmas Tracker well below comments made by individual companies. Suggests the underperformers are staying quiet??
• Government disarray. Smack of incompetence may open door to Mr Corbyn. Mendacious fools play game of chess with our lives?? Fits the facts.
• Visa says consumer spend down 1% in Dec after falls of 0.7% & 0.2% in Nov & Oct respectively. Uncertainty etc….
START THE DAY WITH A SONG:
Yesterday’s song was Heart of Gold by Neil Young. Today, who sang:
And I don’t even care to shake these zipper blues,
And we don’t know just where our bones will rest
To dust I guess
RETAIL NEWS WITH NICK BUBB:
ABF (Primark): Today’s update from the conglomerate ABF covers the 16 weeks to Jan 5th and actually begins with mighty Primark for once, rather than the usual guff about Sugar and Grocery. And the news is fine, although 1% gross sales growth for the core UK business isn’t perhaps quite as good as hoped for, despite the challenging market in November. UK market share grew significantly however. Elsewhere, ABF flag that Germany was “difficult”, but the small US business was “strong”.
N Brown: Today’s Q3 update from the Online fashion business N Brown covers the 18 weeks to Jan 5th and a fall of 6% in Product sales is not the stuff of profit upgrades, but Steve Johnson, the new Chief Executive, says: “The group delivered robust Online “Power Brand” sales growth and a stable margin performance in what was a challenging and highly promotional peak trading period….Based on maintained margin guidance, continued strong Financial Services performance and improved operating efficiency, our full year expectations remain unchanged”.
Game Digital: There was a time when Game would have been first out of the blocks with a profit warning after Christmas, but today’s scheduled update is headlined “Solid sales and margin performance in a challenging trading climate”. Game has separately announced that shareholders have not voted at the AGM to move the listing to AIM.