Langton Capital – 2019-02-15 – CAKE, Restaurant Group, M&C, discounting, coffee shops & other:
CAKE, Restaurant Group, M&C, discounting, coffee & other:
A DAY IN THE LIFE:
All set to have a ramble & then the phone rang. Will have to wait until Monday. On to the news:
LANGTON PREMIUM EMAIL:
Langton is set to introduce a Premium email. The current Daily will remain free. The Premium product is priced at:
• £295 plus VAT per annum for a single subscriber
• £495 plus VAT for an unlimited number of subscribers at any one domain name
The Langton Premium service will incorporate the existing Daily plus additional content including:
• Company & topic-specific ‘Flash Notes’, ‘60-seconds’ and ‘Questions, Questions’ articles amongst others
• Links to longer pieces (capacity, discounting, over-expansion, bullying-bosses, fraud, incompetence, oligarchic tendencies etc.)
• An occasional ‘From the Archive’ section and other ad-hoc investigations into topical issues such as IFRS16, property voids, consumer confidence and the like.
Examples of what will be included in the Premium Email are included below. Please reply to this email if you would like to subscribe.
PATISSERIE HOLDINGS DUE TO BE ‘CANCELLED’ ON 25 FEB:
• So, RIP Patisserie Holdings. The group announced yesterday that it is to be cancelled as a limited company on 25 February.
• We would suggest that the ‘Pat Val Rescued from Administration’ are a little misleading. I mean tell that to former shareholders who saw the stock suspended at 429.5p after fraud, misstatements and black holes were discovered in the company in October last year.
• As far as shareholders are concerned, the company has lost at least 97% and more likely 100% of its value under the custodianship of its former management team.
• The lawyers will be crawling over this for years because, as the FT points out, not everyone lost money on Pat Val over the years as the directors and related parties took out tens of millions of pounds at the IPO and over the subsequent years.
• Outgoing chairman Luke Johnson said ‘I’m pleased that Patisserie Valerie has been saved and the cloud of uncertainty lifted for its 2,000 employees. While I’m naturally deeply disappointed at the events that led us to this point, I wish the company well.’
• The group yesterday announced that ‘it has today completed the sale of Patisserie Valerie to Dublin based Causeway Capital and Philpotts to A.F.Blakemore for a total consideration of £13m comprising £10m cash and £3m deferred consideration.’
• The holding company, which may well never be sold due to potential unquantified liabilities following its collapse & administration.
• The company has today announced that it has ‘completed the sale of Baker & Spice to the Department of Coffee & Social Affairs for a total consideration of £2.5m.’
• It says: ‘the remaining assets, which were not included in the three separate transactions, will be realised during the administrations.’
• The group announces that ‘following the loss of its nominated adviser and the appointment of administrators the Company is provisionally scheduled for cancellation with effect from 7:00am on 25 February 2019.’
• A sobering thought but, taking Pat Val’s October market cap of c£450m & adding in the (now-lost) £25m of rescue funding, the £10m of undisclosed bank loans & chairman Luke Johnson’s £3m loan in order to pay some staff wages for October implies an EV of not far shy of £500m. It is likely that the administrators will recover around 3% of this.
• Causeway Capital has said that Patisserie Valerie is a ‘much loved’ heritage brand. Outgoing chairman Luke Johnson has said that he wishes the company well. Current CEO Steve Francis will remain with the business.
RESTAURANT GROUP – LEFT WITH A LOT TO PROVE :
• Sounds simple but ‘get a new CEO’ and ‘then execute on the biggest purchase in our history’ could be something of a challenge.
• Restaurant Group shares flirted with new 10yr lows before finishing down 11% yesterday after announcing that CEO Andy McCue, who recently spearheaded the group’s acquisition of Wagamama, was to leave the company for personal reasons.
• The idea of a ‘multipronged growth strategy’ will now have to be executed by somebody else.
• Restaurant Group’s share register will have churned a bit since it announced that it would push ahead with a dividend cut and the purchase of the Wagamama noodle chain.
• With this in mind, the fall in the share price yesterday is perhaps understandable as people who thought RTN would struggle to harness the Wagamama brand sold stock & buyers who thought it was a good idea (or the shares were just cheap) stepped in. This latter group may now be feeling a little disappointed.
• Press suggestions that former Wagamama bosses David Campbell or Jane Holbrook could, would or should rejoin the expanded chain have yet to be put to the test.
• The FT says ‘Mr McCue’s departure arguably leaves the Wagamama business with plenty of able sous chefs but no passionate star chef in charge.’
• Some 40% of the group’s shareholders voted against the transformational deal. RTN is now left looking for a replacement to the person who most thought the idea was a good one.
PUBS & RESTAURANTS:
• Discounts seem to be dropping off a bit in the run up to half term. The holidays are staggered with most of the country off next week & the remainder the week after.
• MCA reports that the food-to-go market continues to outperform the overall Eating Out market ‘and remains a key growth opportunity for operators and retailers.’ It says ‘growth of £2bn is forecasted for the FTG market by 2022, but it will be those operators and retailers that truly understanding the behaviour of consumers and target specific key areas, that maximise their share of the prize.’
• Ei Group has announced it is looking for partners outside of London t open three pubs per year, for the next five years, to its Managed Investments division.
• Diageo has announced plans to convert a building in the heart of Edinburgh into a visitor centre for its blended Scotch whiskey brand Johnnie Walker.
• The Distilled Spirits Council has asked the US government to resolve the ‘harmful’ export tariffs that have contributed to a ‘sharp downturn’ in whiskey exports. Tariffs on exports to the EU have resulted in a 8.7% decline in US whiskey orders to $312m.
• The London Borough of Redbridge has announced it will hold consultations on the introduction of a Late Night Levy until the 7th of April.
• Bloomin’ Brands, owner of Outback Steakhouse and Carrabba’s Italian Kitchen, saw off-premise and delivery sales up 18% in Q4 2018. Elizabeth Smith, CEO and president, said ‘We believe off-premise represents a structural tailwind for the category and has the potential to reach 25 percent of total sales in our restaurants over time’.
• JAB Holding Co plans to IPO Acorn, owner of Keurig, Dr. Pepper, Peet’s Coffee and JDE Coffee in the next two to three years.
• Denny’s has sold 10 of its 125 company operated sites, as the group undergoes a refinanching effort. John Miller, CEO, commented: ‘As we transition to a more asset-light model, we will remain committed to our revitalization initiatives while continuing to drive same-store sales growth and profitable returns for our shareholders’.
• Greene King is to team up with the national broadcaster, talkSPORT, to sponsor the Hawksbee and Jacobs weekday afternoon show.
• Fullers has added bedrooms to its Cornhill and Earl’s Court sites, The counting House and The Blackbird respectively. Jonathon Swaine, Managing Director of Fuller’s Inns, said: ‘I’m delighted with these exciting additions to two popular Fuller’s pubs. We are proud of the rooms in our estate and are shouting about them through our Beautiful Bedrooms campaign’.
• Asahi Group announces its goal to become carbon-neutral goal for 2050, with a benchmark for 30% reduction by 2030.
• Premier Foods has discontinued discussions that could have led to the sale of its Ambrosia business.
HOLIDAYS & LEISURE TRAVEL:
• Millennium & Copthorne Hotels has reported full year numbers to end December saying that total revenue fell by 1.1% to £997m and PBT was £106m against £147m last year.
• M&C Chairman Mr Kwek Leng Beng comments ‘the hospitality industry faced a range of geo-political and global economic headwinds in 2018, many of which look set to continue in the current year, including US/China trade relations, Brexit and increasing minimum wage levels in many jurisdictions.’
• Mr Kwek says ‘we continue to invest in and reposition our hotels.’ The chairman concludes ‘2019 will be another challenging year for the Group, with significant capital projects underway and several large hotels earmarked for major renovations. These investments will be carefully managed and phased to deliver the right returns to shareholders and underline the Group’s intention to maintain strict control of costs throughout the business.’
• Leading travel industry figures will lobby the government over Brexit concerns including the FCO’s no deal preparations, the top risks for the industry and customers and an update on public information campaigns the FCO is co-ordinating.
• An All Party Parliamentary Group consisting of MPs from across the political spectrum has been formed to encourage the government to cut Air Passenger Duty (APD). The British rate is currently the highest in the world and more than double that paid in Germany, according to the APPG, with long-haul flights subject to a £78 additional cost for economy tickets and £156 for business class.
• Hilton Worldwide Holdings is confident it can raise room rates in the US in 2019 as occupancy rates are at record levels. US RevPAR is set to grow by 1-3% in 2019 with China in excess of mid-single digits, albeit at a slower pace than 2018.
• Hyatt Hotels Corporation reports Q4 2018 net income of $44m, compared to $213m in Q4 2017. Mark S. Hoplamazian, president and CEO of Hyatt Hotels Corporation, said ‘We had a very strong 2018 driven by another year of double-digit growth in management and franchising fees, nearly offsetting the earnings decline in our owned & leased segment, resulting from over $1.0 billion of asset sales.’
• Travel delegates at a Majorca summit have called for sales of alcohol on holiday flights and airports to be stopped, in an effort to combat bad behaviour by holidaymakers.
• In the US, retail sales fell by the sharpest amount in nearly a decade in December, sending a warning about consumer spending. Separate figures showed a rise in claims for jobless benefits last week.
• STR reports US hotel occupancy up 0.2% to 59.9%, ADR up 1.5% to $126.68 and RevPAR up 1.7% to $75.84 in the week ending 9 February.
• MGM Resorts reports Q4 net revenues up 18% and consolidated adjusted EBITDA up 21%. Jim Murren, president and CEO, said ‘our recently announced plan dedicated to improving efficiencies, reducing costs, and investing in key technologies to position the Company for further profitability. Through MGM 2020, we are reinvesting in our business and we expect to begin to see the financial benefits in the back half of 2019’.
• Manchester United reveal sacking Jose Mourinho cost the club £19.6m.
FINANCE & ECONOMICS:
• Germany’s economy has escaped falling into recession after registering zero growth in Q4 last year.
• House repossessions fell to their lowest level since 1980 in the UK last year.
• Sterling down at $1.2799 and €1.1339. Oil up at $64.78/ UK 10yr gilt yield down 4bps at 1.15%. World markets down except for the UK, which rose on Sterling weakness.
• Brexit, politics etc.:
o Mrs May lost another vote last night but she didn’t turn up at the Commons to see it (or to vote in defence of her own deal)
o Britain has become a ‘diminished’ country in the last two years. It faces ‘insurmountable’ problems over the near term says Dutch PM Mark Rutte. The Dutch PM
o Dutch PM Mark Rutte has said that ‘hundreds of companies’ now had plans to relocate across the North Sea to the Netherlands from Britain.
o Led by Donkeys quotes:
o Michael Gove – ‘the day after we vote to leave, we hold all the cards and can choose the path we want.’
o Mrs May – ‘I believe it is clearly in our national interest to remain a member of the EU.’
o David Davis – ‘There will be no downside to Brexit, only a considerable upside’.
o Liam Fox – ‘the free trade agreement that we will do with the EU should be one of the easiest in human history’.
o There’s no fool like a rich fool. They can to be ‘speak-only’ with no checks & balances. The air is rare up there. Remember that the next time a bullying public school billionaire (often from his villa in Marbella) tells you a Hard Brexit is a good thing.
PRIOR DAY LATER TWEETS:
• Later tweets: CAKE. Irish PE house Causeway to buy 96 Pat Val sites. Assume not the Co. Official statement likely later today
• Restaurant Group CEO Andy McCue to leave Company due to personal circumstances. No detail. Wagamama strategy needs to be executed
• RTN outgoing CEO’s departure will cause some consternation. Wagamama needs integrating. It’s all, all in the execution
• Whitbread, now flush with cash, is to return £2.5bn to shareholders & double its number of hotel rooms
• GfK says last 3wks seen holiday demand down 8%, down 10% and down 9% respectively. Delay + uncertainty = low bookings, discounts etc?
• Brexit adviser Olly Robbins tells a Brussels pub that Mrs May’s plan is to get deal through or go for Article 50 extension.
START THE DAY WITH A SONG:
Yesterday’s song was Set Fire To The Rain by Adele. Today, who sang:
I needed somewhere to hang my head,
Without your noose
You gave me something that I didn’t have
But had no use
RETAIL NEWS WITH NICK BUBB:
• Tesco: You may recall that Ocado held an analysts presentation last month on the subject of the new IFRS 15 accounting standard on contract revenue recognition, but Tesco is holding an analysts presentation today on the more important subject of the new IFRS 16 accounting standard on lease liabilities (which becomes effective for accounting periods beginning on or after Jan 1st 2019). And Tesco has restated its first half results to show that the P&L impact won’t be too dramatic: pre-exceptional PBT would fall from £667m to £566m, although net debt would jump from £3.1bn to £13.7bn…
• Planet ONS Watch: Helped by some calendar timing factors, the overall BRC-KPMG Retail Sales figures for January (the 4 weeks to Jan 26th) were surprisingly good, but we will find out at 9.30am what “seasonally adjusted” life was like last month on the High Street on that bizarre parallel world, the Planet ONS (aka the Office of National Statistics), via their official Retail Sales figures…City economists (who still treat the dubious ONS figures as the gospel truth) generally expect a 0.2% rise in month-on-month seasonally adjusted sales volume, although Capital Economics have pencilled in a 0.4% increase in January (to give year-on-year volume growth of 3.6%), for what it’s worth. We will be focusing, as usual, on the year-on-year non-seasonally adjusted sales value figures and the key split between Large Businesses and Small Businesses (as the ONS persistently thinks, despite
• BDO High Street Sales Tracker: We flagged on Wednesday that sales at John Lewis were poor again last week, even after “the snow” disruption had passed, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains for last week, w/e Sunday Feb 10th, is still quite good, with BDO Fashion sales up by 2.9% LFL (including Online). Total BDO LFL sales (including Homewares and Lifestyle sales) were up by 2.4% last week (down 1.4% in Store sales, but up by 12.8% Online).
• News Flow Next Week: The provisional verdict of the CMA on the planned merger of Sainsbury and Asda is expected at some point next week, hopefully before the Wal-Mart/Asda Q4 results on Tuesday afternoon. Otherwise, we get the McColl’s finals on Monday, the Intu Properties finals on Wednesday and the CBI Distributive Trades survey for “February” on Friday.