Langton Capital – 2019-02-11 – CAKE, experiential leisure, Whitbread, TCG, Brexit & travel etc.:
CAKE, experiential leisure, Whitbread, TCG, Brexit & travel etc.:
A DAY IN THE LIFE:
So, I’m in trouble now for gardening in my Christmas trousers.
I was only popping out for a few minutes and I mean how was I to know that the strimmer would leak oil onto my legs? It wasn’t meant to and, swinging it around and turning it upside down etc. shouldn’t really have made much difference.
But my arguments, much like those of Mrs May in Brussels, were demolished on the grounds of credibility and I’m in the doghouse.
Again. Though I did manage to hide the Santa pullover, which has been largely shredded by thorns and is smeared with green gunge, under the bed. On to the news:
• Administrator KPMG’s ambition to sell off large pieces of CAKE in one go took a blow yesterday when Sports Direct pulled out of any bidding for the company (or parts thereof).
• In a brief statement to the Stock Exchange on Friday, Sports Direct had said it ‘confirms that it has made an offer to acquire the business comprising the trade and assets of Patisserie Holdings plc and its group companies out of administration.’
• The wording suggested that it was looking at parcels of shops rather than at the company itself.
• Sports Direct has complained of having been shut out of the bidding process. Sports Direct is reported to have written to the administrator on Sunday saying that it lacked the information to take its interest any further.
• Sports Direct deputy CFO Chris Wootton saying that it was perturbed having been told that it would have to up its offer (of £15m) reports the FT. Mr Wootton says ‘SD has not been allowed access to a data room, any financial information or meetings with management’.
• KPMG had earlier said that information from CAKE between 2014 (the time of the IPO) and 2018 was not reliable.
• SD says it has ‘reluctantly decided to withdraw its offer for the businesses, as it is not able to match an offer of £18+m without having access to any due diligence, financial information or management meetings.’
• Any purchase of Patisserie Holdings PLC would mean that the purchaser was taking on the liabilities of the former (as Lloyds found out with HBOS, RBS found out with ABN Amro etc.)
• A company may therefore be toxic. Particularly if controls were so poor that the directors, auditors & brokers did not know how the company was performing. Buying parcels of assets should come with a finite risk.
• A purchaser may not be willing to take this risk and could, instead, be interested in parcels of shops or a brand, or both. In this case, SD seems to have concluded that the lack of certainty meant that it did not know what it was buying.
• The widespread fraud, which inflated profits and overstated cash by £40m, must have extended to a number if not all of the stores meaning that, if this information could not be relied upon, SD had little choice but to consider its position.
• CAKE’s former CFO is being investigated by the police & former auditors Grant Thornton are being investigated by the auditing watchdog. Lawyers have said that they are considering legal action against the company.
• The Daily Mail reports that CAKE chairman Luke Johnson was considering a bid for a ‘sizeable stake in trendy Italian restaurant chain Polpo – before pulling out of a deal when Patisserie Valerie collapsed.’
• CAKE trading subsidiary Stonebeach officially informed Companies House on Saturday that it had appointed an administrator.
PUBS & RESTAURANTS:
• CGA has reported that experiential-based pub are set to grow in 2019. CGA’s report found that the number of pubs that rely on drink have decreased 17.3% in the last five years, whereas, food-led pubs have increased 2% over the same period.
• Sapient Corporate Finance has announced that it has advised S.A. Brain on its sale of its stake in Coffee#1 to Caffè Nero.
• Sapient has also acted as advisors for the sale of six prime bars for Novus Leisure to Stonegate Pub Company for an undisclosed sum.
• NPD research predicts the eat-out foodservice market will fall over the next two years, with the ‘off-premise’ market providing all of the meaningful growth. Customers are increasingly favouring convenience driven by technological innovation.
• Moody’s reports Carlsberg Breweries will buyback DKK4.5bn worth of shares this year as well as increasing its dividend by 13%. Moody’s says ‘this year, we expect ongoing low- to mid-single-digit organic profit growth, again driven by stronger volume and price mix.’
• The Sunday Telegraph reports a record number of shops closed in 2018, with LDC data saying the figure was 18,355. 13,676 shops opened last year, producing a net loss of 4,679 retail outlets.
• The Inn Collection Group acquires The Queens Hotel in Ambleside, Lake District. The purchase comes at a time of significant growth for the firm, following its successful bid to gain £10m of funding for future acquisitions.
HOLIDAYS & LEISURE TRAVEL:
• Whitbread investors day set for Wednesday. The company is set to reveal plans to investors following last month’s sale of Costa to Coca-Cola for £3.9bn. Whitbread is set to return £2.5bn to shareholders and will set out its strategy for Premier Inn in Britain and Germany. The now-purely-hotel company is deemed by some to be a takeover target.
• Moody’s reports that Thomas Cook’s strategic review of its airline, which may entail a sale, is credit positive (under some circumstances). Moody’s says ‘the review process is at an early stage and the implication for creditors are far from being certain. Ultimately, a sale would be credit positive depending on the price and whether the proceeds are used for deleveraging.’
• This is true as far as it goes but, as we do not know any details at this stage, there is little concrete to go on.
• Yes, TCG would reduce its debt but it would need to buy ‘lift’ from someone. It would very likely sell its airline with a contract to use it for many years. To this extent, it would be just swapping one liability for another.
• Also, as the group would own less of the value chain, it would expect to make lower margins over the longer term. This would come with a lower level of risk but, given the uncertainties at TCG, it is hard to conclude that it is making these moves from a position of strength.
• PwC partner Andrew Gray has told an ABTA briefing that the travel industry ‘should be thinking about the worst case’ and not expect certainty ‘for some time’.
• PwC says ‘there are going to be unintended consequences and a ripple effect from all businesses having to readjust at the same moment.’ PwC says ‘the possibilities of a second referendum or the withdrawal of Article 50 are remote. To have a referendum would require a major political party commit to a referendum and neither has.’
• Inbound bookings to the UK from the EU has decreased by at least 10% on a year ago. Sally Balcombe, VisitBritain chief executive, told the UKinbound convention in Glasgow: ‘All the concerns about Brexit are filtering into the results. We saw a decline of 10%-14% in December and when we look forward we see a decline across the board. Even as we were preparing these figures we saw the trend data declining’.
• Industry leaders has spoken out against Brexit uncertainty amid clear evidence it is affecting bookings despite clarity emerging on flights, visa and passports. Tourism Alliance chairwoman Deirdre Wells, a former senior Whitehall official, declared the lack of answers as ‘disgraceful’.
• VisitBritain has teamed up with British Airways to encourage more Chinese visitors to come to the UK. Forward flight booking data showed that bookings from China to the UK were up 24% year-on-year from January 30 to February 12.
• Edinburgh is poised to introduce a £2-per-night tourist tax after receiving backing from councillors. The Scottish parliament now needs to pass enabling legislation to allow the levy to be imposed.
• Iata reports slowing global airline growth in the second half of last year blaming Brexit and US-China trade tensions. Overall passenger carryings rose by 6.5% to more than 4.3 billion.
• Travelzoo announces Q4 revenue of $27.1m, up 2% yoy in constant currencies, and operating profit of $2.8m. Holger Bartel, CEO, said ‘Our attractive core business in North America and Europe generated an operating profit of $4.3 million’.
• Flybe warns shareholders the company will be wound up if the Connect Airways acquisition offer is not accepted.
• An equine flu crisis is shutting down British horse racing as three more cases have been confirmed. As part of a six-day racing shutdown, all meetings have been cancelled in Britain until Wednesday at the earliest, providing a challenging situation for bookies.
• Twitter warns Q1 revenue will be weaker than expected and that full-year operating costs will increase. The announcement sent shares down 7% in premarket trading. Twitter also said it would stop disclosing the number of monthly active users.
FINANCE & ECONOMICS:
• Sterling little changed at $1.2932 and €1.1418. Oil up at $61.74. UK 10yr gilt yield down another 3bps at 1.15%. World markets mixed with Asia mixed in Monday trading.
• Germany may have slid into technical recession at the end of 2018.
• Brexit etc.:
o Mrs May says she needs ‘more time’ to finesse the backstop. We have about 50dys to go until Brexit and the process started more than 950dys ago. This seems a little late in the day. PM still playing for time. Says will give another vote by 27 Feb.
o DExEU sucking in thousands of civil servants.
o Guardian reports exporters need certainty now. Goods shipped may be arriving in foreign ports two, three, four weeks from the time of shipment meaning that some understanding as to what the regulatory regime may be is needed earlier than one might think.
o HMG to sign trade deal with Switzerland. FT reports ‘corporate America is sounding an alarm over mounting Brexit risks’. It’s countries like the US, where the UK has a trade surplus, that we need to get on board.
o Institute of Government says ‘the politicians are completely distracted by Brexit and the civil servants are increasingly taxed by preparations for no deal. Many major domestic policy issues facing the country are not being addressed.’
o Dutch government in talks with 250 UK companies about moving their operations to the Netherlands.
PRIOR DAY LATER TWEETS:
• Later tweets: Shaftesbury says it’s seen ‘robust footfall and trading over the festive period.’ Can’t really extend that to the whole economy
• Tui shares recently down 16% on slower summer sales. Playing catchup with Thomas Cook. Latter share price rose on airline sale chatter
• Spin likely to come to the fore as Mrs May prepares to package a defeat & re-label it victory. Nobody getting what they want
START THE DAY WITH A SONG:
Last Friday’s song was Rebellion by Arcade Fire. Today, who sang:
Oh, please don’t drop me home,
Because it’s not my home, it’s their
Home, and I’m welcome no more
RETAIL NEWS WITH NICK BUBB:
Saturday Press and News (1): The big focus in the Saturday papers was on the embattled Philip Green, after he dropped his futile legal injunction against the Daily Telegraph, incurring a £3m legal bill. On the back of that, the Telegraph unleashed no less than 9 pages of lurid allegations about his bullying and abuse of 5 former Arcadia employees (and the journalists who tried to uncover the story). And all the other papers had front page coverage of the Philip Green scandal, eg the Daily Mail, whose Business Editor also penned an article about the “Bombastic bully who laces charm with menace”, noting that “he never saw the need to evolve (his behaviour) and that his been his downfall”.
Saturday Press and News (2): The other big story was the late news on Friday evening that “Mad” Mike Ashley has, through Sports Direct, tabled a late bid for the bankrupt Patisserie Valerie…The Daily Mail certainly went to town on the news, claiming to have been the first to predict the bid 10 days earlier. Much of the coverage of the bid for Patisserie Valerie was surprisingly uncritical in tone, but at least the Times highlighted that “Mike Ashley’s capacity to take the City by surprise had reached new heights” and its Business editorial mocked “Patisserie Asherlie”.
Saturday Press and News (3): In terms of other Retail stories, the Times was the only paper to pick up on the losses reported by the struggling Australian Online retailer MySale (another of Mike Ashley’s punts…). The Times also flagged that Superdry founder Julian Dunkerton has parted company with the City broker Cenkos over his campaign to be re-instated at the company. The Daily Mail noted that the beleaguered Debenhams is close to securing a lifeline from its banks. The Guardian highlighted that the new owner of HMV is keen to re-open the Oxford Street flagship store if the landlord will agree a deal and the Daily Mail flagged up the Retail Week website story that the Canadian Doug Putnam thinks the HMV business can be back in profit by the end of the year. The “Big Shot of the Week” profile in the Daily Mail was of former Apple Retail boss Angela Ahrendts and the FT also had a
Sunday Press and News (1): The increasingly embattled Philip Green remained in the spotlight in the Sunday papers, with more lurid revelations in the Sunday Telegraph, which highlighted the internal cover-up at Arcadia about the investigation into his behaviour and flagged that the hapless Karren Brady has refused to criticise Philip Green or resign as the Chairman of his holding company. The Observer noted that the calls for Philip Green to be stripped of his knighthood are growing louder and Philip Green’s scourge, Oliver Shah of the Sunday Times (“the new wave of abuse and bullying claims come as no surprise to the journalist who knows best how he operates”) also stuck the boot in.
Sunday Press and News (2): The Mail on Sunday followed up on its recent scoops about Ocado with the revelation that CEO Tim Steiner had just put to bed a lucrative new executive share option scheme on the day that the Andover warehouse fire broke out, but that a potential £100m bonus and the mooted M&S deal are now at risk (“Has Ocado boss’s £20bn gamble gone up in smoke?”), with Ocado likely to have to go back to keeping Waitrose happy. The Observer had a similar article about the new problems of Ocado (“Ocado prays warehouse blaze won’t douse its hopes for a hi-tech future”).
Sunday Press and News (3): The Mail on Sunday also had a feature interview with the new Canadian owner of HMV, Doug Putman (“The vinyl junkie who’s saved a High Street legend”), noting that his wife, with their first child on the way, was not best pleased when she first heard of his UK expansion plans. The Sunday Telegraph took the fashion model photo opportunity provided by the otherwise unexplained story that hedge funds have bet £330m against Online fashion giants Asos and Boohoo. The Sunday Telegraph also flagged that struggling retailers closed a record 18,355 stores in 2018, according to Local Data Company figures, and also had a big feature on the “Shock in store over swollen property prices”, noting that local authorities and property funds face huge losses if High Street/shopping centre values crash. And on the same topic, the Sunday Times flagged that the embattled
Today’s Press and News: The big news today is that “Mad” Mike Ashley has abandoned the Sports Direct bid for the bankrupt Patisserie Valerie after just 2 days, complaining of being shut out of the information room set up by KPMP (despite tabling a late offer of over £15m), according to a letter seen by the FT. The Daily Mail also flags that the Debenhams refinancing deal has been delayed (“Debenhams scrambling to secure a lifeline from its lenders in a desperate bid to survive”). And the Telegraph continues its campaign against the embattled Philip Green, with a front page headline that the Met Police have been asked to investigate his behaviour and 4 more pages of coverage, including a column by Frank Field MP calling for the “king of the High Street” to be stripped of his knighthood.
News Flow This Week: As we move further on into February, the main spotlight this week will be on the provisional verdict of the CMA on the planned merger of Sainsbury and Asda, which is expected any day now. Otherwise, the focus will be on the Dunelm interims on Wednesday, the next Brexit vote in the House of Commons on Thursday (which is Valentine’s Day…) and the ONS Retail Sales figures for January on Friday.