Langton Capital – 2019-01-31 – CAKE, Britvic, Diageo, Stock Spirits, PPHE, Rank & other:
CAKE, Britvic, Diageo, Stock Spirits, PPHE, Rank & other:
A DAY IN THE LIFE:
Bit too much going on this morning. Minus seven outside. On to the news:
Bids in by Friday:
• Not clear who would buy the company, given the potential for legacy problems including litigation, but administrators want indicative bids in by Friday noon with presentations to take place next week.
• Press suggests Rcapital & Endless could be in the bidding.
• Some other operators may want some units – but only if the rents are reasonable.
• FT reports law firm Teacher Stern has signed up 30 shareholders with a view to suing CAKE to compensate for losses.
• Not clear if there will be any equity value in the company or if the litigants will attempt to sue other parties directly.
• Six months ago would have been a good time to check the group’s professional indemnity insurance, directors’ insurance etc.
• Potential bidders have been told that CAKE’s figures between Sept 2014 and Oct 2018 are potentially unreliable. That’s pretty much the whole time that the group was listed on AIM.
• This may never become publicly available. Though it could be cited in criminal proceedings etc further down the line.
• Various parties have seen the PwC report & suggest that it points the finger at some finance staff & at least one supplier.
• FT quotes Fundamental Asset Management as saying that it was considering action. It says ‘there’s a risk of rushing in and then there might not be anything for shareholders anyway. Clearly creditors are first in line.’
• Telegraph reports HSBC and Barclays, which pulled the plug on CAKE last week, were not given site of the above report.
• Sales said to have been in LfL decline for 3yrs. Was on course for a 2018 loss. EBITDA of £5m (post cost cuts) may be possible but, with £5m of depreciation, this is not a profitable company at first glance.
• Group intimates it can cut costs. Not clear where as it has not been a big spender in the past.
• A look at the 70 closed stores shows unsustainable rents. Landlords may have to prepare themselves to take a haircut.
• HM Government now has website pages set up to help CAKE staff claim redundancy money etc from the company or from government bodies. It says: ‘if you worked for Patisserie Holdings Plc, trading as Patisserie Valerie, Philpotts, or Druckers Vienna Patisserie, and you’ve been dismissed, you might be entitled to redundancy pay, holiday pay, wages owed and statutory notice pay from the Insolvency Service.’
• Telegraph reports Grant Thornton boss as telling MPs that auditors are ‘not set up’ to spot fraud.
• Grant Thornton refers to an ‘expectation gap’. It says ‘we’re not looking for fraud or the future or giving a statement that the accounts are correct. We saying they’re reasonable, we are looking in the past and we are not set up to look for fraud.’
PUBS & RESTAURANTS:
• Cheaper food post Brexit? Perhaps. But 1) our farmers could go bust, 2) the Treasury would lost the element of tariffs that it does not currently send to Brussels and 3) is it food, chlorinated chicken etc., that you’d want to eat?
• Tyson Foods, one of the US’s biggest poultry companies, 16 tonnes of chicken nuggets after customers found pieces of blue rubber inside. It’s not known at this stage whether or not a pair of wellies (or other detritus) found its way into the mincing maching. Accidents happen but the company also recalled chicken in June when plastic was found to have contaminated the food.
• Diageo has reported H1 numbers saying the company is ‘delivering our strategy through strong consistent performance.’
• Diageo reports net sales up 5.8% at £6.9bn with operating profit up 11% at £2.4bn. The group says ‘all regions contributed to broad based organic net sales growth, up 7.5%, with organic volume up 3.5%’.
• Diageo is reporting EPS of 80.9p (down 1.6%) but pre-exceptional EPS is up by 13.6% at 77.0p. The H1 dividend is up 5% at 26.1p. CEO Ivan Menezes reports ‘Diageo delivered broad-based volume and organic net sales growth across regions and categories. We continue to expand organic operating margins while increasing investment in our brands ahead of organic net sales growth.’
• Diageo says ‘these results are further evidence of the changes we have made in Diageo to put the consumer at the heart of our business, to embed productivity and to act with agility to enable us to win sustainably.’ The group says ‘as we deploy our strategy, we remain focused on building the long-term health of our brands and ensuring we grow our business in a consistent and sustainable way.’
• Stock Spirits has announced that it has ‘signed an agreement to acquire Distillerie Franciacorta SpA, one of the leading Italian producers of grappa, liqueurs and Franciacorta – a premium Italian sparkling wine that is produced solely in the Franciacorta region.’
• Stock Spirits says ‘we are delighted to be acquiring Distillerie Franciacorta, which is a business with a fantastic heritage and outstanding brands. This is a truly compelling opportunity that we have been looking at for more than a year now, and we see clear and attractive synergies with our existing Italian operations. Distillerie Franciacorta’s deep expertise in local, premium products resonates strongly with Stock Spirits’ wider strategy of investing in well-loved national brands with genuine and high quality provenance.’
• Britvic has updated on Q1 trading saying that it has been in line with expectations. The group says ‘trading in the first quarter was in line with our expectations. Reported revenue increased 4.5% to £352.4m and organic constant currency revenue, excluding the soft drink levies, increased 1.5% to £337.3m.’
• Britvic CEO Simon Litherland says ‘we have delivered a solid start to the new financial year, with performance in line with our expectations. Given the resilience of our business, the strength of our portfolio and exciting marketing and innovation plans, we are confident of making further progress in 2019.’
• Caffè Nero has acquired Coffee#1 from the S.A. Brain. The cafe chain currently operates 92 units across Wales, the Midlands and Southern England, with the group reporting £30m in turnover.
• HelloFresh has seen revenue grow by 41% to 1.3bn euros in 2018. Dominik Richter, CEO and co-founder of HelloFresh commented: ‘We look back on a successful fourth quarter and full year 2018, with strong growth and a significant improvement in profitability’.
• LVMH Moët Hennessy Louis Vuitton has recorded sales up 10% in 2018 to 46.8bn euros. Bernard Arnault, Chairman and CEO of LVMH, commented: ‘LVMH had another record year, both in terms of revenue and results. In particular, profit from recurring operations crossed the €10 billion mark’.
• The Food and Drink Federation has responded to the Brexit Commons’ votes, with Chief Executive, Ian Wright commenting: ‘We welcome the House of Commons’ rejection of a no-deal Brexit. Now their good intentions must be turned into concrete actions. Until that time, the Government – and food and drink manufacturers – will continue spending hundreds of millions of pounds preparing for a disorderly EU exit’.
• Data from the Bank of England has shown that UK consumers borrowed £92m more than they repaid in December, this is the lowest rate of borrowing since September 2014.
• Moody’s has reported that Asahi’s proposed purchase of Fuller’s brewing interests is credit positive. It says ‘the acquisition is credit positive for Asahi because it will improve the company’s overseas premium beer products offerings, the main driver of its growth and margin improvement in recent years. Furthermore, we expect Asahi will improve its leverage after incorporating the acquisition and keep this leverage within ranges we expect.’
• KAM Media reports more than half of consumers eat out to experience a particular venue, rather than for a specific occasion. Furthermore, 1 in 3 consumers are influenced by how ‘photogenic’ the dishes are.
• McDonald’s reports revenue marginally up yoy to $5.163bn in Q4, driven by strong international growth. However, US same-store sales missed expectations, growing by 2.3% compared to an expected 2.4%. McDonald’s warned higher labour costs, expenses for remodelling stores and a stronger dollar would weigh on its earnings in 2019.
• Nation’s Restaurant News reports strong Taco Bell LfLs lifted Yum! Brands’ overall performance, but elsewhere, Kona Grill reported its eighth quarterly decline.
HOLIDAYS & LEISURE TRAVEL:
• GfK has reported summer bookings fell sharply in the week to 26 Sat (by 9%) after hard-Brexit warnings. Bookings earlier in the month had been ahead. There had been Press comment on cancelled flights & invalid passports, driving licences and health insurance cover in the days before the booking slump.
• Travel Weekly reports ‘the damage was immediate. GfK senior client insight director David Hope said: “Sunday and Monday were strong, but dropped off a cliff and declined through the week.”’
• PPHE Hotel Group has updated on trading for the year to end-Dec saying ‘on a like-for-like basis1, total room revenue for 2018 increased by approximately 6.7%. Reported room revenue in 2018 increased by approximately 5.7% year-on-year.’
• PPHE says ‘as a result of the above, the Group’s overall trading performance for the year ended 31 December 2018 is expected to be in line with the Board’s expectations.’
• The number of over 50s planning to spend more than £3,000 on their holiday has dropped for the second year in a row to 30%, data from Silver Travel Advisors has found.
• London hotels have recorded a strong Q4 2018, with RevPAR up 10%, however, growth in the regions was more subdued with RePAR up 1.5%.
• Royal Caribbean reports full year 2018 net income of $1.8bn with gross yields up 3.8%. However, gross costs per available passenger cruise days rose by 3.0%.
• Liverpool airport’s runway was temporarily shut yesterday morning due to snow.
• HotStats reports US hotels GOPPAR up 1.5% in December to $71.41. However, profit levels were affected by rising costs in labour and overheads.
• UK Hotel Market Tracker reports London occupancy up 5% yoy in Q4 compared to just 1% in the provinces. ADR rose by 5% in London with RevPAR up 10% compared to the provinces showing ADR flat and RevPAR up 2%.
• The Scottish Tourism Alliance warns Edinburgh’s proposed £2 tourist tax could lead to a downturn in bookings. However, it is estimated the tax could raise up to £14.6m per year with surveys showing 90% of residents are supportive.
• Elegant Hotels announces the departure of its CFO, but remains optimistic for the year ahead.
• STR reports US hotel RevPAR growth estimates for 2019 have been scaled back to 2.3% yoy, with ADR growth projected at 2.3%.
• Rank Group has reported H1 numbers to end-Dec saying that the full year outlook remains in line. Rank says LfL revenue fell by 2.4% to £366m and adjusted PBT was down by 27.6% at £29.1m. EPS was down 23.8% at 6.1p.
• Rank CEO John O’Reilly comments ‘the first half of our financial year has been a tough trading period, I am however encouraged by the Group’s improved performance in Q2.’
• Rank says ‘the three year transformation programme that we outlined at our Full Year results in Agust 2018 is now well underway with nearly 300 initiatives identified and tasked. The programme will gain further momentum in H2 2018/19 and the management team is positive about what can be achieved. While there is lots to be done to deliver the revenue improvements and cost efficiencies identified, I am confident in the outlook for Rank and excited about the opportunities that exist.’
• eBay announces its first dividend alongside adding $4bn to its share buyback programme. Revenues for Q4 were $2.9bn with active users up 4% to 179m.
• Facebook reports US Q4 profits of $6.9bn with revenue up 30% yoy to $16.9bn. Monthly active users increased by 9% to 2.3bn.
• Tesla announces Q4 profit od $139.5m, driven by strong demand for its Model 3, manufacturing improvements and effective cost-cutting. The company forecasts strong growth, as Model 3 sales start in Europe and China.
FINANCE & ECONOMICS:
• House prices are up most rapidly in the UK in the Midlands & the North per Zoopla. Some 25% has been wiped off house prices in some wealthy areas.
• Sterling up at $1.3125 and €1.1407. Oil up at $62.18 with UK 10yr gilt yield down 1bp at 1.26%. World markets mostly up.
• Brexit etc.:
o EU says no to reopening exit negotiations. Mrs May now saying her final deal was not final. UK firms said to be stepping up plans to cope with a no-deal Brexit.
o Ireland says dropping the backstop, negotiated over a 2yr period, is wishful thinking. HMG may be preparing for the blame-game post a crash out on 29 March.
o Sky reports Barclays set to move £166bn of assets out of the UK.
o Mrs May accused of running down the clock. She and Mr Corbyn managed to meet yesterday without shouting. The party leadrs had a ‘useful exchange of views.’
PRIOR DAY LATER TWEETS:
• Later Tweets: CAKE was apparently heading for a £2.6m loss. It said in Oct it would make £12m in EBITDA. Co says data between 2014-18 ‘not reliable’
• KPMG says CAKE in LfL sales decline for >3yrs. The c70 units that are closed show a very over-rented estate. Lawyers ‘considering action’
• Crazy Pat Val rents agreed by a property department told the units were super-profitable. Garbage in, garbage out
• CAKE: Penny wise, pound foolish? Any internal auditor following audit 1.01 procedures should have spotted this. Co didn’t. For 5yrs…
• MA reports JD Wetherspoon employees formed group complaining ‘wealthy, exploitative bosses like Tim Martin’ are driving down wages
• GfK says o/seas holiday bookings down 9% in wk to 26 Jan on Brexit related travel concerns, delay fears, lack of health cover etc.
• Tory Party unites to promote wish-list deal the ERG & others said was ‘worse than staying in the EU’ only 2wks ago
• Various ‘bidders’ said to be interested in Pat Val. But what are they buying? Any skeletons or legal actions yet to be unearthed??
START THE DAY WITH A SONG:
Yesterday’s song was Tempted by Squeeze. Today, who sang:
Dream of better lives the kind which never hates,
Trapped in the state of imaginary grace
I made a pilgrimage to save this humans race
Never comprehending the race has long gone bye
RETAIL NEWS WITH NICK BUBB:
• AO World: Out of the blue, AO World (aka AO.com) has announced that Steve Caunce has decided to step down as CEO and from the Board with immediate effect…We are told that “having led the Group through two years of intense activity, he has now decided to step back to a less demanding business role and re-balance his lifestyle”. But (surprise, surprise) we are also told that John Roberts, AO’s founder, who stepped back from day-to-day involvement in the business in February 2017 “now has a renewed energy to focus on the business he created and to lead AO on the continued execution of its strategy”. As John Roberts is back in charge, City analysts will probably shrug at the reshuffle news and move back to filing their 2017/18 tax returns today…
• ScS: With its half-year end trading update today, the sofa retailer ScS has confirmed that it has pulled out of running the House of Fraser furniture concession business (as announced back on Oct 25th), but there is no further reference to the discussions it is having about buying the struggling Online furniture retailer Sofa.com. It has, however, said that trading has been in line with its expectations, even though LFL order intake growth over the last 26 weeks has slowed to +1.5%, from +3.5% after the 16 weeks to Nov 17th. ScS note that there was one less trading day in the week of Boxing Day.
• News Flow This Week: With the beginning of February looming large, we get the GFK Consumer Confidence survey for January first thing tomorrow.