Langton Capital – 2019-04-29 – PREMIUM – Silver linings, CAKE, ESC, landlords, crowd funding etc.:
Silver linings, CAKE, ESC, landlords, crowd funding etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
You know sometimes people park outside the lines. Meaning you have to park similarly outside the lines as there’s nowhere else to go – and then the villain drives away and you look like the plonker who kicked the whole thing off?
But then you wonder if the ‘plonker’ you’d been blaming in the first place had had the whole thing imposed on them by an original, let’s call them the ground-zero original plonker and then you haven’t even got anyone to blame, etc. etc.?
Well that happened to us on our flight back from a short break last week and, though we’ve been righteously ironically clapped down the aisle on an aircraft on a number of occasions, this time we were somewhat chagrined.
Because we’d been sitting on the airport shuttle bus at the terminal waiting for stragglers for 15 minutes before the driver flushed out the last of them out. However, that was all lost on our fellow passengers and to avoid endless finger-pointing, we had to take it on the chin.
There are some very interesting behavioural studies on how people behave when they feel they’ve been wronged but now’s not the time. On to the news:
LOOKING FOR THE SILVER LINING: Sainsbury didn’t get to merge with ASDA. Is that good news for the on-trade? For brewers? For food producers? Or is it bad news all round? 29th April 2019:
• Companies trying to pull off a merger may have to suggest one thing to the Competition & Markets Authority whilst signalling another thing to shareholders unspoken. And perhaps also to staff, suppliers, competitors and the like. But, on occasion, the CMA takes the view that if it looks like a move to cut costs, drive price and widen margin, it may be exactly that.
A little more detail:
• Sainsbury wanted to merge with ASDA. It said it would cut costs and pass the benefits on to customers.
• This all kicked off a year ago. Early publicity focused on SBRY CEO Mike Coupe inadvertently singing we’re in the money when he presumably thought that his microphone had been turned off.
• But where was this ‘money’ going to come from. Competitors (and probably suppliers) thought they knew. They will have made representations to the CMA.
• The CMA, meanwhile, seemed to already be in a disbelieving frame of mind from the start. It suggested earlier this year, after more than 9mths of deliberations, that it saw real obstacles to the deal working to the benefit of customers and the wider market.
• Last week, the CMA blocked the deal outright.
So, are there winners, or just fewer losers?
• It is hard to believe that the merged SBRY / ASDA would not have tried to drive harder bargains with their suppliers, brewers amongst them.
• They may (or may not) have passed some benefits on to consumers.
• If they had done, this would have been a negative double-whammy to the integrated brewers / pub companies as they would have been faced with lower receipts from a major off-trade customer whilst the price at which their own retail customers could buy beer to rival that down the pub, would have fallen.
• Overall, therefore, a merger would have been less-than-positive for the brewers. Probably also negative for the pub retailers and doubly negative for companies such as GNK, MARS, FSTA, YNGA etc. that both brew and retail beer in the on-trade.
GENERAL NEWS – PUBS & RESTAURANTS:
• FT reports CAKE shareholders critical of KPMG for taking the role of administrator to the company despite the fact that Grant Thornton is their own auditor.
• This led KPMG to conclude that it was not appropriate for it to investigate GT’s role (or lack of a role) in the collapse and suggesting that a second investigation by another firm would be necessary to pursue this.
• The FT quotes a creditor as saying ‘for KPMG to take on the work, pay themselves handsomely, and then say they need a second administrator to pursue Grant Thornton — that’s outrageous. The main asset is a lawsuit against Grant Thornton.’ The creditor said that ‘the sale of the operating assets only raised a small number of millions, which is now rapidly being spent on professional fees. There will not be a lot left for anyone else.’
• Big four auditor PwC has also produced a report, which has not been made public, into the fraud that ultimately led to the collapse of Patisserie Holdings. The FT suggests that KPMG has earned £1.5m on the administration. It’s charges range up to over £800 per hour.
• The FT quotes ‘a senior partner at a major UK accountancy’ as saying it was “shameless” and “just appalling” that KPMG had put itself forward for the role.
• CAKE overstated its assets by around £94m. The company has raised some cash for creditors and there is likely to be a modest pay-out. There will likely be nothing for shareholders in the once-£500m company.
• The buck stops where? Landlords will be ultimately left holding the baby if the High Street withers. The FT reports today both that ‘UK shopping centre investment hits 16-yr low’ and ‘City figures warn high street landlords face ‘tsunami’ of pressures’. See earlier Premium Emails.
• Sunday Times reports Hop Stuff, which raised more than £1.5m from crowdfunding investors ‘has had its brewery seized by the landlord, been chased for an unpaid debt and delayed its accounts.’ See earlier Premium Emails for comments on the perils of crowd-funding.
• Hop Stuff has reportedly been served with a winding-up petition by a shopfitter over an unpaid £30k bill. The Sunday Times reports Hop Stuff was founded in 2013 by former bank worker James Yeomans. It has raised money on Crowdcube three times, tapping more than 1,300 investors. In January last year, it raised £734,000 at a valuation of £25m. The brewery also has two bars.
• The future of the 1p and 2p coins will be decided this week. Chancellor Philip Hammond has suggested that inflation has made them ‘obsolete’.
• Red’s True Barbecue is to open permanently in Leicester after having operated a five-day-a-week kitchen residency at BrewDog since the end of February.
• A new study from CV Library has found that salaries advertised for hospitality jobs have increased by 10.3% in the first four months of 2019. FTI Consulting has reported that between 25.7% and 38% of employees in the hospitality sector in London are EU nationals, with FTI stating leaving the EU ‘could have significant implications’ for employers.
• Uber Eats has introduced an in-app pre-ordering option alongside its delivery business in London and Paris. Toussaint Wattinne, general manager of Uber Eats UK and Ireland, said: ‘we’re launching a new service to help bricks and mortar restaurants grow their business, while providing users with a quick and convenient way to access food on-the-go. Whether that’s grabbing a coffee on the way to work or skipping the queue during the lunchtime rush’.
• Brasserie Bar Co CEO Mark Derry has been appointed a director at New World Trading parent company Christopher Topco
• Discounts available. Bella Italia 30% off, Café Rouge 25% off food, Prezzo 30% off food. Operators still struggling to get back to full prices.
• KAM has reported that only 0.8% of Generation Z does not have either a smartphone, a tablet or a laptop/desktop computer. Youngsters are ‘connected’.
• KAM reports ‘half of the most popular apps on the phones of Generation Z are messaging/ communication apps’ suggesting that Gen Z loves ‘to share and interact with each other as well as with their favourite celebrities, social issues and brands.’
• It’s been suggested that Facebook is where you lie to your friends & Twitter is where you tell the truth to strangers. That may be at least partly true.
• Against such a backdrop, it can be difficult to get some would-be customers off the settee.
• FOMO (fear of missing out), however, is a potentially powerful tool and, whilst it would be a shame to see it used cynically, it does underline the importance of having photogenic products, venues and the rest in which case emotion and Instagram may be left to do the rest.
• Interestingly, KAM reports that ‘single purpose apps, i.e. eBay, Uber, Deliveroo, etc., whilst still featuring, are less likely to feature on every Gen Z phone and also, by their nature, are used less frequently.’ Things are changing quickly. KAM suggests that, not only do younger consumers want to buy a product (or service), but ‘they also want to be a part of the story and feel like the brand is part of them – it’s more than just a transactional relationship that really wins over this generation.’
• The Sunday Times has suggested that five-site strong American-style barbecue restaurants chain, Rib Shack Holdings could be on the verge of administration.
• The 23 sites strong Black Sheep Coffee has seen LfL sales grow by 22.6% in 2019.
• Jason Atherton has placed his Social Wine and Tapas restaurant up for sale as the chef looks to simplify his restaurant portfolio.
• Fuller’s has launched its second Fuller’s & Friends collaborative six-pack of bottled beers. The six-pack will include beers from Magic Rock from England, Tiny Rebel from Wales, Pilot from Scotland, Mack from Norway, Woodstock from South Africa and Stone & Wood Brewing Company from Australia.
HOLIDAYS & LEISURE TRAVEL:
• The government of the Balearic Islands has teamed up with local communities in order to create a ‘network’ of smoke-free beaches.
• Customer flight cancellations to Sri Lanka has increased 86% following the terror attacks on Easter Sunday which killed 350 people.
• STR reports Q1 European hotel occupancy down 0.2% yoy to 63.7%, ADR up 1.6% to €101.28 and RevPAR up 1.3% to €64.56.
• STR reports US hotel occupancy down 6.2% to 65.7%, ADR down 1.9% to $128.79 and RevPAR down 8% to $84.63 for the week ending 20 April.
• Thomas Cook has stated that UK holidaymaker’s booking to non-EU destinations has increased 10% on last year as customers look to avoid Brexit uncertainty.
• The Daily Mail has reported that airline bosses have accused airports of acting like nightclubs by offering double measures of spirits travellers ‘fuelling’ binge drinking.
• Uber drivers in seven US cities are planning to turn their app off for 12 hours on 8 May, calling the movement ‘Gig Workers Rising’. The dispute is over working conditions and wages.
• P&O is taking legal action against the UK government regarding the £33m of taxpayer money which it claims was ‘unlawfully’ given to a rival. Last month, the Department for Transport (DfT) was forced to settle with train operator Eurotunnel regarding a similar case.
• Escape game operator Escape Hunt has announced that it has signed heads of terms with a US franchising partner for a roll-out of new franchisee sites across the US and Canada. It says ‘although the heads of terms are detailed, they are still subject to a contract being completed.’
• ESC reports ‘the US partner brings a wealth of experience both as a franchisee and franchisor of a number of leisure businesses, with dedicated management and the financial resources to execute the anticipated roll-out. A detailed plan to address the significant market opportunity has already been developed with this US partner during discussions over the last six months.’
• ESC reports ‘in line with its ambition of growing the franchise estate by two to three times over the medium term in conjunction with well-resourced partners, Escape Hunt believes that this deal represents a significant step towards achieving this goal.’
• ESC currently has around 45 franchised sites in addition to the 8 that it owns and operates. The group last updated on trading in January, at which time it said of its managed units that it was ‘pleased with their early performance, with sales in line and EBITDA slightly ahead of Board expectations.’
• Synthesia, a London-based startup uses AI to help brands and content creators scale their video production, has raised $3.1m in a financing round led by LDV Capital.
• Avengers: Endgame has beaten box office records by taking in $1.2bn in its first five days. Walt Disney Studios chairman Alan Horn said: ‘Though Endgame is far from an end for the Marvel Cinematic Universe, these first 22 films constitute a sprawling achievement, and this weekend’s monumental success is a testament to the world they’ve envisioned, the talent involved, and their collective passion, matched by the irrepressible enthusiasm of fans around the world’.Uber will seek an IPO valuation of just over $90bn, pricing 180m shares at between $44 and $50. There would be an additional 27 million shares sold by current equity holders, Uber said.
FINANCE & ECONOMICS:
• Morgan Stanley has suggested that US growth is running at an annualised 1.1% in Q2 to date as a surge in exports has moved into reverse.
• The ONS has reported that pensioners’ incomes have risen by more than inflation over the last year whilst working-age families have struggled to keep wages moving in line with prices. Coincidentally, perhaps, some 46% of Tory voters are above the statutory retirement age.
• Sterling up at $1.2936 and €1.159. Oil down sharply over the weekend at $71.74. UK 10yr gilt yield unchanged at 1.15%. World markets mixed with UK set to open up perhaps 10pts.
• Brexit, politics etc.:
o Brexit Party may push Tories into third place in this week’s local council elections. Truism. If the Right wing vote is split, the Left will get in.
o Political realignment possible as Labour inhabits the extreme Left, Lib Dems & Change UK take the middle (and even the slightly right of middle) ground and the Tories, UKIP and Brexit Party fight for the extreme Right.
o Union under threat as Brexit debacle encourages SNP to push for another vote.
o FT suggests ‘the feeling of Brexit paralysis at Westminster is more palpable than ever.’
o Guardian suggesting Labour may cave & support Tory Brexit plans. Though others will ask ‘why would even Mr Corby want to partially wear this mess?’
o European Elections (yet another red line crossed) more likely than not to take place on 23 May.
o RBS Friday said that continued Brexit uncertainty is ‘likely’ to dampen income growth.
START THE DAY WITH A SONG:
Last Friday’s song was ‘Caught by the Fuzz’ by Supergrass, today who sang:
Behind movie scenes
Behind the movie scenes
RETAIL NEWS WITH NICK BUBB:
• Saturday Press and News (1): The big Retail story in the Saturday papers was the news that the embattled Debenhams launched its CVA plan on Friday and announced that 22 stores would be closed early next year. The Guardian had some vox pop from consumers in Ashford, one of the towns to see its Debenhams close (with some people hoping that Primark might replace it) and also noted that the struggling Cotswold Outdoor sportswear chain is also seeking a CVA, whilst the Telegraph flagged that #MadMike is still waiting in the wings to snap up some of Debenhams’ prime sites for Sports Direct. The other big focus was on Ocado, after it admitted in its shareholder circular on Friday that a faulty robot had caused the disastrous Andover warehouse fire, as highlighted by the Times and the FT.
• Saturday Press and News (2): Sainsbury remained in the spotlight, after the cruel decision of the CMA to block the planned Asda deal, with CEO Mike Coupe winning the “Zero of the Week” award in the Daily Mail (it suggested shareholders sing him the song “So long, farewell” from “The Sound of Music”), whilst the veteran City commentator, Neil Collins, whose one-man campaign against the Sainsbury/Asda merger was fully vindicated in the end, thundered in his FT column that “Mr Coupe has much to do, not least to prove that he is a good loser after all”. However, the FT flagged separately that Mike Coupe is expected to come out fighting on Wednesday with the final Sainsbury results, having secured the backing of the Board, and the Times noted that Sainsbury is expected to get “back to basics” post-Asda and focus on being a quality and convenience-led supermarket. In other news, the FT had a
• Sunday Press and News (1): The Sunday papers largely moved on from the problems of Debenhams, although the Business Leader column in the Observer noted the grim implications for shopping centre landlords of the rush for CVA’s to cut rents and the Sunday Times flagged that #MadMike is still planning to cause mischief in the Debenhams CVA process by trying to do his own deals with landlords. In a similar vein, the Sunday Telegraph noted that the beleaguered Arcadia has struck a deal with HSBC to help its restructuring efforts by acting as a guarantor to suppliers (a move that the Mail on Sunday flagged separately was “unusual”). The Sunday Telegraph also said that the private equity owner of the footwear chain Kurt Geiger has put the business up for sale for £450m and it also took advantage of the fashion model photo opportunity provided by the news that the new sportswear brand
• Sunday Press and News (2): And Sainsbury remained in the spotlight, ahead of its finals on Wednesday, with the Sunday Times highlighting that Q4 LFL sales are expected to have dived by over 1.5% and the Mail on Sunday noting a City analyst’s view that Sainsbury is “a decade behind” Tesco. The Sunday Telegraph said that Sainsbury’s management is still scrambling to come up with a new strategy after the CMA blocked the planned Asda deal, whilst its Business editorial thundered separately that it is “Time for Sainsbury’s to taste the difference” and that Mike Coupe’s reign “is over, sooner or later and one way or another”. In other news, the Mail on Sunday highlighted the likely investor revolt against CEO Tim Steiner’s huge new share incentive plan at Wednesday’s Ocado AGM. And the Sunday Telegraph had an interview with the co-founder of Boohoo, Carol Kane, in which she said that “My
the story that the private equity owner of the footwear chain Kurt Geiger has put the business up for sale. The Guardian flags that Hammerson faces an investor revolt over Director pay at tomorrow’s AGM and the Telegraph highlights that the share price of Intu Properties has sunk to a record low ahead of Friday’s AGM update, although the main feature of its preview of this week’s company news concentrates on the fact that the Sainsbury finals on Wednesday have been overshadowed by the botched Asda deal.
News Flow This Week: Ahead of the much-awaited Sainsbury finals on Wednesday, the latest monthly Kantar/Nielsen grocery sales figures tomorrow morning (for the 4 weeks to April 20th/21st) will make interesting reading, despite the Easter distortions. In the world of Non-Food, tomorrow also brings the Apple Q2 results out in the US, whilst the Next Q1 update is also on Wednesday and Thursday brings the N Brown finals and the Howden trading update. It is also a busy week for AGM’s, with Hammerson tomorrow, Ocado on Wednesday and Intu Properties on Friday. And the widely followed monthly GFK Consumer Confidence index is out first thing tomorrow.