Langton Capital – 2019-01-21 – CAKE, discounting, Taco Bell, New River, EZH, JDW wine & other:
CAKE, discounting, Taco Bell, New River, EZH, JDW wine & other:
A DAY IN THE LIFE:
I was struck down by some sort of lurgy late last week and, as all I’ve consumed since has been one sausage, a bit of a fish, some soup and about five pints of lemsip, I think that I deserve to have lost some weight.
But, as I don’t have the energy to get the scales off the shelf, any proof thereof may have to wait. Recovery is proving somewhat elusive, hence this rather short intro. On to the news:
PATISSERIE HOLDINGS – FURTHER UPDATE:
• CAKE has announced that it ‘is still in discussions with its bankers to extend the standstill of its bank facilities beyond 18 January and will issue an update when those discussions have concluded.’
• As 18 Jan has passed, suppliers etc will be interested to know whether payments are being honoured by the banks in question.
• The current fragile state of affairs cannot persist for very long. VAT and wage payments etc may need to be made over the next few days.
• The banks could extend the facilities. But, with CAKE having said just last week that underlying trading is materially worse than the already-materially-worse figures that it had mentioned in October, will they have the appetite?
• Banks could take personal guarantees from Mr Johnson. The latter may be reluctant to give them.
• Luke Johnson could make another loan to the company. Possible – but the good money after bad question will remain relevant.
• The company may issue further equity. Unlikely after what happened to the £15m put in by a number of shareholders in October.
• Private Equity may buy the company. Yes, but buy which bits of it? Or the whole thing? And what’s that worth?
• A CVA could be enacted. Possible but timing would be an issue. Could the company move quickly enough? And any threat thereof would change supplier behaviour in the short term.
• Administration and partial sale. This is also very possible. See comments on value below.
• This is completely up in the air.
• EBITDA, which proudly progressed in the company’s Five Year Record section of its report and accounts from £9.5m in 2012 to £25.6m in 2017 and an estimated £30m plus in 2018, was re-estimated first at £12m and now at ‘materially below’ £12m.
• With Depreciation at £5.4m, it is possible that the group is not making a profit at all.
• Certainly, the recent updates imply that there must be a long tail of marginally profitable or loss-making sites.
• This is not comforting for the banks & makes the company hard to value for potential interested parties.
• If EBITDA is ‘materially below’ £12m, let’s say it’s £7m, then it’s worth considering that reported EBITDA pre-IPO was £12m in 2013 and £14.4m in 2014.
• The company has added units since.
• The above could suggest that either 1) underlying trading has worsened materially but it has not been reported or 2) the fraud extended back before the IPO.
• The IPO was undertaken at 170p per share and directors, related parties etc. sold tens of millions of pounds worth of shares on the market based on the numbers that might now need to be carefully explained.
• Interestingly, having IPOd at 170p in 2014, CAKE won ‘IPO of the Year’ in 2015. The prize was presented by Grant Thornton.
• As suggested in the Press, Mr Johnson’s recent loans almost certainly will outrank equity in the case of a winding up.
• More news as it comes.
PUBS & RESTAURANTS:
• Long drag to payday. Discounts still very heavy. Prezzo 40% off, Frankie & Benny;s 2-4-1, Harvester one third off.
• JustEat has announced that Peter Plumb will be stepping down from CEO, with Peter Duffy, Chief Customer Officer, appointed as interim Chief Executive. Chairman Mike Evans commented: ‘The Board would like to thank Peter Plumb for setting Just Eat on a new course which better places it to address a much larger and rapidly expanding market. We wish him well for the future’.
• Commenting on 2018 trading, JustEat stated that revenue was £780m with underlying EBITDA in the range of £172-174m. The group remarked: ‘In 2019, we will leverage the improvements we have made in our marketplace business to drive order and revenue growth, while we now also expect to grow marketplace EBITDA margins year on year’.
• Young’s has announced that it has appointed Daniel Quint as Interim Chief Financial Officer.
• Taco Bell aims to open 200 restaurants in the Uk in the next five years, if the UK market’s appetite for the brand takes off. The General Manager of Europe for the group, Jorge Torres has commented: ‘Over the next five years my dream would be to get to 200 restaurants in the UK. I think there is so much potential — the long-term potential of this brand in the UK is several hundred, let’s put it that way’.
• Wetherspoons has removed all European wine from its pubs as the Brexit deadline approaches. The wines served in Wetherspoons will be sourced from New Zealand, Australia, USA, Chile and Argentina.
• The leisure sector investment group, Imbiba has invested in the immersive entertainment concept The Dream Corporation. The first installation of the group’s virtual reality offering will be placed in Otherworld, Haggerston, east London.
• Pernod Ricard, the French spirits producer has announced it will analyse how it can improve its governance through changes to its board. The group had come under activist pressure from Elliott Management which stated the group’s profit margins were suboptimal due to: ‘inadequate corporate governance and a lack of outside perspectives have contributed to underperformance’.
• Mike Ashley, boss of Sports Direct, is in talks to bailout HMV from administration, Sky News has reported.
• NewRiver REIT plc has stated that it has delivered resilient numbers for its Q3 update. Chief Executive of the group, Allan Lockhart commented: ‘NewRiver has had a solid third quarter as evidenced by the robust operating metrics across our retail and pub portfolios’. Mr. Lockhart continued with: ‘ Looking ahead, we expect the retail sector to continue to face headwinds in the near-term, particularly in the department store and mid-market fashion sub-sectors which we have consistently avoided. We are confident that our focus on the resilient sub-sectors of food and grocery, discounters, value fashion, health and beauty, and community pubs is the right strategy as evidenced by the solid Christmas trading performance recently reported by our key occupiers’.
• The BBPA approves of the House of Lords’ Economic Affairs Committee report on Inflation calling for the Government to switch inflation measurements from RPI to CPI. Brigid Simmonds, Chief Executive of the BBPA said: ‘Beer duty is particularly burdensome for pubs and the Government has year on year RPI linked increases planned for it, which will see beer duty increase by at least 3% every year for the foreseeable future. Increasing beer duty has a real effect on footfall in pubs, so we welcome the recommendation of the House of Lords’ Economic Affair Committee report for the Government to switch from RPI to CPI’.
• US alcohol sales increased 5.1% in 2018 to a value of $253.8bn, according to data from bw166.com. Alibaba’s digital payment service is to launch in Europe for the first time after receiving a licence in Luxemburg.
• Having peaked in 2014, alcohol consumption in volume terms per capita in the UK has fallen since. Over the last couple of years, it has risen slightly.
• The Society of Independent Brewers has announced a partnership with Kegstar, which will see the tech-based keg and cask specialist sponsor the UK’s largest beer and brewing trade event, BeerX UK 2019.
• The ONS reports UK retail sales fell in December by 0.9% MoM. Capital Economics analyst Thomas Pugh said ‘Unless a Brexit deal is signed soon, there is unlikely to be much of a rebound in Q1 2019’.
• The General Meeting to approve EI Group’s sale of the bulk of its commercial properties will be held on 7 Feb
HOLIDAYS & LEISURE TRAVEL:
• easyHotel has reported revenue up 60% with LfLs up 11.2% during Q1, out competing the market. The group stated that it opened three new hotels in Ipswich, Lison and Bernkastel Kues. CEO of the group, Guy Parsons commented: ‘Whilst we are not immune from the ongoing political and economic challenges and their impact on the hotel sector, our robust business model means that we have continued to outperform our markets in the period’.
• The ONS reports Brits made more than 24m trips abroad last summer, a 1% increase yoy with spending up by 3%.
• Abta reports more than 4.5m UK consumers are forecast to take a winter holiday, up 3% yoy. Weather forecasters predict the UK will face cold weather at the end of January and into February.
• Soho House & Co plans to open its first 1950s inspired motel in Oxfordshire at the end of the month, called Mollie’s Motel & Diner.
• STR reports US hotel occupancy up 0.5% in 2018 to 66.2%, with ADR up 2.4% to $129.83 and RevPAR up 2.9% to $85.96.
• Hundreds of holiday goers have been left out of pocket following the luxury lodge group, Dream Lodge Group entered into administration.
• Tesla will cut its workforce by 7% after facing the ‘most challenging’ year in its history.
FINANCE & ECONOMICS:
• China’s economy grew at an annualised rate of 6.4% in Q4 last year. Though impressive, this is the slowest rate of growth since before the financial crisis
• Sterling $1.2869 and €1.1308. Oil $62.90. UK 10yr gilt yield up 2bps at 1.36%. World markets all higher Friday.
• Politics & Brexit:
o Political parties on the alert as Mrs May said that a snap General Election was ‘not in the national interest’. Mrs May similarly ruled out a snap election in 2017, just before she had one.
o UK has yet to finalise a trade deal with any of the 40 big economies that were promised by Trade Minister Liam Fox before the UK leaves the EU on 29 March. The FT says ‘the Department for International Trade says some agreements are at an advanced stage but none of the 40 free trade deals that the EU has with other countries have so far been rolled over so that they will cover the UK after Brexit.’
o Huge effort not to mention Brexit as Philips puts 430 UK workers on notice of redundancy & plans move of world renowned Avent baby feeding bottles to Netherlands. Phillips says it had to ‘proactively mitigate the potential impact of various ongoing geopolitical challenges, including uncertainties & possible obstructions that may affect its manufacturing operations’.
o Reuters reports Blackrock & Goldman Sachs Asset Management are to move some British-based fund managers to New York in the event of a no-deal Brexit.
PRIOR DAY LATER TWEETS:
• Later tweets: CAKE this week: 2 director resignations & another ‘material’ profit warning. Bank facilities expire today. News on extension (or not) later
• Richoux delists from AIM. Younger drinkers ‘cut back’ on alco. More crowd-funded companies announcing losses. Tricky positions re funding
• GfK reports holiday bookings for the current winter up 2% yoy in the week to 12 January, but down 3% for summer 2019.
START THE DAY WITH A SONG:
Last Friday’s song was I Hung My Head by Johnny Cash, now today, who sang:
He’s out on the town tryin’ to find trouble,
When there’s no one left to fight
Boys like him don’t shine so bright
Soon as I see the dust settle
RETAIL NEWS WITH NICK BUBB:
• Ocado: Ahead of the finals on Feb 5th, Ocado is briefing analysts at 3pm today on the apparently dull subject of IFRS 15 (on revenue recognition), as it is adopting this new accounting standard early. We can see why it may affect Ocado, given the plethora of licensing deals it has to operate Online grocery warehouses and sell its software, but we have no idea whether there will be any material changes to the figures, albeit we would hope the company’s existing policies are conservative.
• Sports Direct: More interestingly, perhaps, Sky News reports that “Mad” Mike Ashley has tabled a bid for the bankrupt HMV, as followed up by the Telegraph today. Mike is presumably interested in the fact that the big entertainment suppliers will be offering margin and working capital support to maintain such a big chunk of the UK market, so a deal may look low-risk in the short term. But HMV is hardly a licence to print money, given the way the physical entertainment markets are collapsing, and it goes without saying that Mike ought to have better things to do…
• Dixons Carphone: Ahead of tomorrow’s Christmas trading update (for the 10 weeks to Jan 5th), the hard working Investor Relations team at Dixons Carphone has circulated the following City consensus for LFL sales: UK Electricals +1%, UK Mobile -5%, Nordics +2%, Greece +2% and the group flat. The full year group headline PBT consensus is £297m (versus £382m for y/e April 2018).
• Planet ONS Watch: We flagged on Friday that, in the real world, Retail Sales were pretty subdued last month, despite the late boost to Christmas spending, as per the BRC-KPMG Retail Sales figures for December (the 5 weeks to Dec 29th). And “seasonally adjusted” life was also dull on that strange parallel world, the Planet ONS (aka the Office of National Statistics), via Friday’s official Retail Sales figures for December…As usual, City economists swallowed at face value the 0.8% fall in month-on-month seasonally adjusted sales volume, which was much as expected and which the hapless ONS attributed to stronger Black Friday sales in November. We focused, as usual, on the year-on-year non-seasonally adjusted sales value figures and the split between Large and Small Businesses. Overall Retail Sales (ex-petrol) were said to up by 2.1% (after 4.2% growth in November), but the ONS reported
• Saturday Press and News (1): The main big scoop in the Saturday papers was the Telegraph story that the embattled Philip Green has called in restructuring experts from Deloitte to help slash costs at his struggling Arcadia fashion empire and look at the potential for a CVA to close more stores. The article went on to suggest, laughably, that there would be a lot of interest from buyers (including Mike Ashley) if the rump of Arcadia was put up for sale. Otherwise, the main focus was on the disappointing ONS Retail Sales figures for December, which got the usual uncritical coverage in all the papers eg “Black Friday proves brief respite as retail sales drop in December” in the Times.
• Saturday Press and News (2): In terms of other Retail stories, the news that the bankrupt Online slipper business Mahabis has been rescued by the boss of the mattress-in-a-box firm Simba Sleep got lots of attention. The Times flagged the very strong December sales reported by the toy chain The Entertainer (“Christmas trading is child’s play”). The Guardian had an interesting double-page spread on its News pages about the downsizing of Marks & Spencer, with vox pop from people in all the 17 towns affected by the latest store closures. Talking of M&S, the Daily Mail had an odd story about the disconnect over the years between executive pay and business performance at M&S and the Mail also flagged that the judges in the recent legal dispute between the CMA and Sainsbury/Asda were very critical of the behaviour of the CMA in trying to impose a tight response deadline on the 2
• Sunday Press and News (1): The embattled Philip Green and the struggling Arcadia remained in the spotlight in the Sunday papers, with the main Business story in the Sunday Telegraph headlined “Green’s UK retail empire shrinks by 200 stores”, flagging that 200 Arcadia stores and concessions have been quietly closed over the last 2 years as leases expired. And the Mail on Sunday came up with a different angle, highlighting that another 200 Arcadia stores come up for lease renewal by the end of next year. Not unreasonably, the Sunday Times turned its attention to the impact on shopping centres, and its main Business story was headlined “Retail crisis sparks alert on shopping centres”, flagging that the industry body RICS has instructed property agents to be more realistic in their valuations. And the Business Leader column in the Observer looked at the pressure on listed High Street
• Sunday Press and News (2): In other news, the Mail on Sunday highlighted that Mike Ashley has sidelined his PR friend Keith Bishop and is looking for a mainstream PR adviser for Sports Direct…The Sunday Times had a prominent Business front page photo of the Superdry founder Julian Dunkerton, to flag that he is finding hard to get shareholder support for his campaign to be reinstated, but will still soon call for an EGM to put things to a vote. The Sunday Telegraph took the fashion model photo opportunity provided by the upcoming Burberry trading update, to note that it will allay fears about the slowdown in China, whilst the Sunday Times also had a snippet about the news that Burberry Q3 sales will “creep up”. The Sunday Times also had a feature interview with Kenny Wilson, the new boss of the Dr Marten’s shoe brand. Finally, the Sunday Telegraph had an interesting twist on the
• News Flow This Week: Tomorrow brings the Dixons Carphone update. Then Wednesday brings the Joules interims, the Burberry Q3, the Pets at Home Q3, the Hotel Chocolat update and the WH Smith AGM update, together with the Marks & Spencer Spring Fashion preview. Thursday is a quiet day, but on Friday we get the CBI Distributive Trades survey for “January”.