Langton Capital – 2019-05-17 – PREMIUM – Restaurant Group, TCG, Pret, Amazon/Deliveroo etc.:
Restaurant Group, TCG, Pret, Amazon/Deliveroo etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, I was helping to do our daughter’s maths homework yesterday, which reminded me very pointedly that I cannot and never could ‘speak maths’.
It’s a skill, I’m sure but, with the exception of the fact that I had to do an A level equivalent test in the first year of university to assess my competence, I’ve carved a career out of arithmetic, spreadsheets and chatter rather than anything too intimidatingly heavy.
But I can tell the time & know how many pennies make a pound and, as our printer is still telling us to replace our printer cartridge some four months after I first wrote about it begging us to spend more of our hard-earned funds on ink in this email, that comes in useful. The weekend’s upon us, let’s move on to the news:
RESTAURANT GROUP AGM TRADING UPDATE: The Restaurant Group has updated on trading to its week 19 saying that this remains in line with expectations. 17 May 2019:
The Restaurant Group has this morning released the trading update that will accompany its AGM later today and our comments thereon are set out below:
The Restaurant group has today released a trading update covering the first 19wks of the current year.
• Restaurant Group says ‘current trading is in line with our expectations with Group like-for-like sales for the 19 weeks ended 12 May 2019 up 2.8%.’ They were also up 2.8% at week 10
• The Beast from the East was end-Feb and early March last year but the latter nine weeks will benefited from The Avengers film, the fastest selling film ever
• RTN says ‘total sales were up 57% in the period reflecting the benefit from the Wagamama acquisition and the record number of new Pubs and Concessions sites opened during 2018.’
• Wagamama last separately reported on trading to 3 Feb, at which time its LfL sales were +9.1%
• RTN says ‘in the period we saw strong performances from Wagamama which has continued to significantly outperform in its core UK market, and from our Pubs business, which consistently traded ahead of the pub restaurant sector.’
• The group adds ‘our Concessions business traded well and we remain focused on optimising our Leisure business against the backdrop of a declining market.’
• Recent sales trends are shown below:
Tab.1. Restaurant Group Recent LfL Sales’ Trends:
Period LfL in (%)
H1 – 2010 -0.5
FY – 2010 -1.0
H1 – 2011 +3.0
FY – 2011 +3.3
H1 – 2012 +3.3
FY – 2012 +4.5
H1 – 2013 +5.0
FY – 2013 +3.5
H1 – 2014 +2.5
FY – 2014 +2.8
H1 – 2015 +2.5
FY – 2015 +1.5
H1 – 2016 (27w) -3.9
FY – 2016 (53w) -3.9
H1 – 2017 -2.2
FY – 2017 -3.0
First 20wks -4.3
H1 – 2018 -3.7
FY – 2018 -2.0
10wks – 2019 +2.8
19wks – 2019 +2.8
Source: Company Reports
• RTN reports ‘we are comfortable with the performance in the first 19 weeks of the current financial year and remain focused on realising the synergies from the Wagamama acquisition, executing on our multi-pronged growth strategy and optimising our Leisure business.’
Restaurant Group – A Tumultuous Few Years:
• Restaurant Group has warned on profits four times, had three CEOs (soon to be four), three CFOs and two chairmen in less than five years. It has announced the largest acquisition in its history and has cut its dividend.
Aug 2014 – CEO departs – Andrew Page retires
Aug 2014 – CEO appointed – Danny Breithaupt
Jan 2016 – Profit warning
Mar 2016 – Profit warning
Apr 2016 – Profit warning
Apr 2016 – CFO departs, Stephen Critoph steps down
May 2016 – Chairman departs, Alan Jackson retires
May 2016 – Chairman appointed, Debbie Hewitt joins the group
Jun 2016 – CFO appointed – Barry Nightingale
Aug 2016 – CEO departs – Danny Breithaupt leaves
Aug 2016 – CEO appointed – Andy McCue joins
Jan 2017 – Profit warning
Apr 2017 – CFO departs – Barry Nightingale leaves
May 2017 – Trading update re ‘transitional year’
Aug 2017 – CFO appointed – Kirk Davis
Oct 2018 – Acquisition of Wagamama, Rights Issue & dividend cut
Dec 2018 – Rights Issue completed
Feb 2019 – CEO departs – Andy McCue resigns
May 2019 – Co announces Andy Hornby as new CEO
• The Restaurant Group has had an eventful few years since Andrew Page hung up his boots in August 2014.
• The group maybe pushed its Frankie & Benny’s brand too hard & ‘took price’ when it might have been better-advised to develop another brand and/or to introduce EDLP (every-day-low-pricing).
• Last year, the Wagamama acquisition, which was enacted against significant shareholder opposition, topped off what RTN described as a ‘pivotal’ year.
• The debate continues as to how ‘mature’ Wagamama is but, in the short term, conversions of existing RTN sites should provide opportunities for growth.
• CEO Andy McCue announced that he is to leave the company and the transformational, multi-pronged growth promised at the time of the purchase will have to be delivered by new CEO, Andy Hornby.
• The shares have bounced from 10yr lows with LfL sales likely to be buoyed by Wagamama (itself benefiting from delivery sales) for some time to come. LfL sales will also benefit during the summer as 2018 (heatwave & World Cup) comps will be rather soft.
• Execution on the integration of Wagamama remains key. Handling delivery whilst retaining the unique benefits associated with actually dining in the company’s restaurants is also critical. At the same time, RTN (along with the industry as a whole) must deal with the delivery companies building dark kitchens and trying to literally steal the operators’ lunch.
• Today’s statement reassures that, buoyed by Wagamama, concessions & pubs, RTN’s trading remains in line with expectations. As this is just a trading update, there is no comment on margin, debt or IFRS16.
• Prima facie, with group is relatively cheap as it is yielding over 5% even on a cut dividend. But execution is key & the competition will not stand idly by whilst RTN integrates Wagamama & gets its existing business back in order.
GENERAL NEWS – PUBS & RESTAURANTS:
• Pret a Manger has been linked with an offer to buy rival Eat with the aim to turn the 94 stores into vegetarian outlets. Vegetarianism has hit the mainstream.
• Amazon has announced its intentions to invest in Deliveroo. The food courier, Deliveroo has raised $575m in total from investors, with Amazon providing a substantial proportion of this. This will sharpen competition in delivery. It could put pressure on Uber. The temptation for Deliveroo & others to move into bricks & mortar will
• The BBPA has asked the Southwark and Redbridge councils to reconsider its proposals to introduce a Late-Night-Levy. Brigid Simmonds, Cheif Executive of the BBPA commented: ‘Introducing a Late-Night Levy is a backward step for any local authority. The current Late-Night Levy framework does not work effectively in addressing local late-night alcohol-related issues. It is a tax and unfair to well-run and responsible businesses such as pubs – many of which are SMEs already struggling to get by’.
• The American owners of ASDA, Walmart have warned of an ‘incredibly challenging backdrop’ after reported a fall in quarterly sales and the failure of its merger plans with Sainsbury’s.
• A new report by Diageo’s Distill Ventures suggests that customers are still being ‘underserved’ when it comes to the choice of drinks that they are offered. The report suggested that 61% of Brits would like a better choice when it comes to non-alcoholic drinks.
• Despite the desire for even more choice, the range of non-alcoholic drinks in the UK has risen rapidly over the last year or so. Diageo suggests that, as of October 2018, there were 42 non-alcoholic ‘spirits’ available in the UK, up from just four products in April.
• The Sunday roast has been named Britian’s favourite pub food according to research from Nisbets, with 17% of repondents saying they would choose it over any other dish. Coming in at second place was fish and chips with 13% of the vote and steak and chips was third with 12%.
• Mintel has stated that the UK leisure industry is set to grow 16.7% by 2023 to a value of £126bn, with experiential leisure leading the way. Mintel commented: ‘The UK Leisure industry is flourishing. This is driven by consumers’ desire to go outside their comfort zone and try new things. Disposable income that was once spent on tangle items is being redirected to the pursuit of creating wonderful, intangible memories’.
• CBRE has reported on ONS data that shows the UK consumer spends 13.3% of their weekly household spend on recreation and culture, up from 10% in 2001.
• HSBC UK grants Berkmann Wine Cellars £14m of funding to support its global expansion plans.
• Wine Paris and Vinexpo merge to create a mega-show on 10-12 February 2020. The event has been created to cater to the needs of the global wine and spirits industry at a key time in the drinks-buying calendar.
• The Inn Collection Group pledges its support to the Refill campaign by registering each of its inns as refill stations where people can replenish their water bottles for free.
HOLIDAYS & LEISURE TRAVEL:
• Thomas Cook shares were down by 15% yesterday to around 19.6p on the back of record H1 losses driven by intangible asset write-downs. TCG said that Brexit was impacting booking patterns, that discounting had picked up and that the outlook was challenging.
• TCG warned on profits twice towards the end of last year and, if yesterday’s update was not a profit warning, then it was very close to being one. Indeed the only reason that the company may not have warned on profits is that the situation is so unclear that it is uncertain what they will be at all.
• TCG debt has been marked down in debt markets. The group is past the low point in terms of cash flow but it is attempting to secure more funds in order to deal with the autumn and winter outflow of funds.
• TCG says any new financing arrangement will be ‘principally dependent on progress in executing the strategic review of the group airline’. It says that it has had multiple bids for bits and for all of its airline.
• The FT points out that TCG’s auditors, EY, yesterday ‘flagged uncertainty over the group’s sale of its airline, on which a new £300m bank facility depends.’
• US hotels have seen occupancy decrease 0.3% to 68.3% during the week of 5-11 May 2019. The sector also saw ADR increase by 1.2% to $131.72 and RevPAR up 0.9% to $89.94.
• UEFA has launched a probe into Man City regarding possible breaches of financial fair play. The Premier League champions could face a possible Champions League ban.
FINANCE & ECONOMICS:
• Sterling weaker at $1.2791 and €1.1443. Oil up at $72.81. UK 10yr gilt yield up 1bp at 1.07%. World markets up yesterday, Far East mixed on Friday.
• Politics, Brexit etc.:
o Mrs May has said she will resign as Tory leader if her Brexit bill does not achieve a Commons majority in early June. She has also said she will resign if it does pass. Bottom line, she will resign.
o Boris, who was denounced by friend and rival Michael Gove in 2016 as being not competent enough to lead the party, has thrown his hat in the ring.
o 1922 Committee Chair and Brexiteer Sir Graham Brady said that there had been a ‘very frank exchange’.
o Mrs May’s former right hand man, Nick Timothy, described as Theresa’s ‘brain’ until he was sacked in the aftermath of the 2017 General Election debacle, has said that Mrs May should resign in order to stop the current ongoing ‘national humiliation’. Mr Timothy, not that he’s upset, of course, tells the Daily Telegraph ‘her premiership has failed, and her authority is shot. Every day wasted from here makes life harder for whoever leads Britain into the future.’
o Current transport secretary Chris Grayling, known as ‘failing’ to his political enemies, has overseen the waste of £500m of taxpayers’ money at the justice department according to reports re the renationalisation of parts of the probation service.
START THE DAY WITH A SONG:
Yesterday’s song was When Doves Cry by Prince, today who sang:
Four a.m. We ran a miracle mile,
We’re flat broke,
But hey we do it in style
RETAIL NEWS WITH NICK BUBB:
• Asda Watch: After all the press speculation about a potential Asda IPO, Walmart confirmed the plan in yesterday’s Q1 update, while playing down the timing: “We’re focused on continuing to execute the strategy to strengthen Asda’s long-term success, including the potential of an IPO at some point in the future. We’ll be thoughtful and measured in our approach”. As for the Asda Q1, the calendar quarter was down 1.1% LFL (ex-petrol), but on an Easter-adjusted basis the outcome was said to be up 0.5% LFL. Asda CEO Roger Burnley said, in somewhat convoluted terms: “We have maintained our focus and momentum, against an increasingly challenging backdrop and we remain entirely focused on delivering our strategy, without the benefits the proposed merger with Sainsbury’s would have delivered. Our strategy remains as it always has been – winning on price for customers, whilst delivering a
• BDO High Street Sales Tracker: We flagged on Wednesday that sales at John Lewis were given a net boost last week by the cooler weather, given the household goods weighting of the sales mix. The BDO High Street Sales Tracker for medium-sized Non-Food chains is more Fashion weighted, however, and last week, w/e Sunday May 12th, was subdued. BDO Fashion sales were down by 4.0% LFL (down 11.6% ex-Online), not helped by another tough comp. Total BDO LFL sales (including Homewares and Lifestyle sales) were down by 1.3% last week (down by 7.7% in Store sales, but up by 18.4% Online).
• News Flow Next Week: Another busy week kicks off on Monday with the Ocado EGM to approve the M&S deal. Tuesday then brings the Halfords finals, the Topps Tiles interims and the Shoe Zone interims, as well as the Greggs AGM. On Wednesday we get the much-awaited Marks & Spencer finals, the Pets at Home finals, the French Connection AGM and the publication of the Watches of Switzerland IPO prospectus. Then Thursday brings the Mothercare finals, the Inchcape Q1/AGM, the Hotel Chocolat Capital Markets Day, the ONS Retail Sales for Apriland…the EU Elections.