Langton Capital – 2019-10-07 – PREMIUM – Time Out, Welcome Break, Pizza Express, FSTA, G1 etc.:
Time Out, Welcome Break, Pizza Express, FSTA, G1 etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Observing our dog quite quickly becomes a study in the trade-off between greed and laziness.
Because he’ll stir himself for food (and he can occasionally be motivated to chase a rabbit) but sloth is arguably the default position and, as he’s getting a bit older, he’s been known to run out of enthusiasm half way through a meal and fall asleep.
Which is all well and good whilst we’re there to watch his back but, if he had canine enemies, peers or even friends, he’d have to buck up his ideas or go hungry. And the latter just doesn’t seem to be acceptable, to say the least.
Anyway, an autumnal week is dawning upon us. On to the news:
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PRIVATE COMPANY RESULTS. Several companies are reporting figures to end-Dec 2018 to Companies’ House & here we look at Welcome Break. 7 Oct 2019:
Welcome Break – introduction:
o Welcome Break operates across the UK’s motorway network. The number of units is controlled by government. The level of trading is dependent upon motorway usage, which is itself a measure of wider economic activity in the UK.
o Pricing is high as the group services a captive market.
The company comment:
• Welcome Break Holdings is reporting 11mth figures to end-Dec 2018 having changed its year end.
o The company says it ‘had a positive year with turnover of £684.1m which was +5.5% up year on year (based on a comparable 11 month period).’
o Welcome Break reports operating profit before exceptional items, depreciation amortisation and rents (EBITDAR) was £84.6m (52 weeks ended 30 January 2018: £92.0m), with operating profit before exceptional items for the 11 months ended 31 December 2018 £33.6m (52 weeks ended 30 January 2018: £42.7m).’
o The company reports ‘traffic on UK motorways has remained flat year on year with SMART motorway works adversely affecting traffic volumes in certain locations.’
o It says ‘continuing the investment strategy from previous years, the business has added further Pizza Express restaurants bringing the total in the estate to five.’ It adds ‘a new KFC unit has been added at Michaelwood.’
o The group has added more hotels to the Ramada brand as well as extensions at Gordano and Oxford hotels to increase room stock. It says ‘the Ramada brand continues to work well for the business.’
o Welcome Break reports ‘whilst there has been some economic uncertainty in the UK broadly, centred around how and when the UK leaves the European Union, the business has remained resilient throughout this period and our view remains optimistic.’
o The company concludes ‘Brexit will not cause a significant impact to the performance of the business.’
o It adds ‘despite a slowdown in UK GDP, contrary to some expectations the economy continues to grow.’ This is under review by some observers.
o Welcome Break concludes ‘there are continuing excellent opportunities for the business to grow.’
The numbers & other:
o The company reports PBT after substantial interest charges of £14.9m (2017: £14.7m for 12mths).
o Welcome Break has retained profits of £38.7m.
o The company has net negative shareholders’ funds of £101.2m which it says ‘reflects the debt funding structure in place for the Group’. The group has longer term bank loans totalling £318m
o It says ‘the directors are not aware of any material uncertainties related to events or conditions that may cast significant doubt upon the Group’s ability to continue as a going concern’.
o The auditors, PwC, have signed off on this basis.
GENERAL NEWS – PUBS & RESTAURANTS:
• Bloomberg has reported that Pizza Express Ltd has appointed financial adviser Houlihan Lokey Inc. to prepare for debt talks with its creditors. Bloomberg cites ‘tough trading conditions for U.K. restaurant chains.’
• Pizza Express bondholders are also reported to be preparing for a lively debate as to what their debt is worth. The group, which has a billion pounds worth of debt and counting, admittedly some of it to its own equity holders, has around two thirds of a billion pounds worth of third party secured bonds. Bloomberg reports that the August bonds are trading at 84p in the pound whilst the 2022 bonds are trading at 23p in the pound. Not prizes for guessing who the market expects to be taking a haircut.
• Back in June, Langton commented in its Premium Email that Pizza Express’ full year numbers (to 30 Dec 2018) included some ‘very large numbers and many of them are negative.’ We pointed out that ‘the group has £1.6m of debt per restaurant. Quite an achievement as leasehold restaurants may only cost a third of that to build.’
• Furthermore, we said that Pizza Express ‘has 14x debt to EBITDA. Even for a company with a large number of freehold properties, this would be extremely high. For a leasehold company, it is almost intolerable.’ We added ‘40% of debt is owed to the parent company. As this is based in the Caymans, we have little detail as to how it is sourced.’ In the short term, it would appear that it is the 60% of debt held by third parties that is likely to be causing a headache.
• Pizza Express has regularly been offering 25% off menu prices with rivals such as Prezzo often 40% off.
• The Telegraph reports that former Greene King CEO Rooney Anand has turned down a ‘plea’ from Domino’s Pizza investors to take over as its chairman. It says that, in doing so, ‘landing a blow for the takeaway chain in its attempt to calm down warring franchisees.’
• The Telegraph reports ‘it is understood that Mr Anand, who stepped down as Greene King chief after 14 years at the helm earlier this year, spurned the approach from the board amid concerns about the recruitment process.’
• Time Out has announced that it is to place up to 13.5m new shares at a price of 127p in order to fund development. It says the ‘net proceeds of the Placing [are] to be used for continued investment in the roll-out of Time Out Market and to reduce Group indebtedness.’ The group says the funds ‘will provide capital for Time Out’s next stage of development. The Company expects to raise gross proceeds of approximately £17.1 million from the Placing, which will provide additional financing for continued investment in the roll-out of Time Out Market, and allow the Group to reduce its indebtedness.’
• Administrators have been appointed to Ignite Bars Ltd, the owners & operatros of the Bumpkin and Eclipse chains of outlets. Ignite once boasted Princes William and Harry amongst their patrons.
• Ignite has appointed Ben Woodthorpe and Lee Manning of Resolve Advisory Ltd to administer the company. Ignite last reported numbers to 25 March 2018 to Companies House last December. The shortened accounts showed that retained profits had fallen by £549k to an accumulated £174k. If losses had continued at anything like that rate, then the group would have been struggling to remain solvent.
• Fuller’s is thought to be in advanced talks to purchase Cotswolds Inns & Hotels in a deal worth around £40m reports Propel. The target company operates seven hotels and two bars.
• Cotswold Inns & Hotels last reported numbers to Companies House for the year to end-September 2018. The group turned over some £21.5m with trading profits of around £301k. The group had shareholders funds of £20.9m including £28.4m of freehold property. Some of the property was revalued in 2008 and 2009 with the remainder either included at cost or revalued in 2014.
• JDW announced on Friday that it had bought back another c82k of its own shares at an average price of 1529p per share. The shares will be cancelled leaving JDW with some 104.7m shares in issue.
• Pursuant (not a word we use often) to our comments on Friday about Pubs being more flexible than Restaurants in their aspiration to provide a ‘third-space’ for customers (in addition to home & work), we should have added that coffee shops here will be providing some competition. Whilst we’ve yet to see a coffee-shop football, darts or quiz team, it may only be a matter of time. On the other hand, maybe not.
• Propel reports that the owner of what is left of the Handmade Burger Co is considering his options for the chain. The Burger Chain was set up to oversee the assets. Its maiden accounts are now overdue. The group closed its Manchester unit last month.
• The Ivy Collection has taken over the former Jamie’s Italian site at 66 Victoria Street. The large unit is has almost 300 covers.
• Fleurets has promoted Ed Sandall to its main board.
• G1 Group, the operator of the Scotman hotel in Edinburgh is to move into providing services apartments. Chairman Brian McGee commented that it acquired a group of apartments at George IV Bridge in Edinburgh, which he described as ‘an initial move for the group into serviced apartments’.
• G1 Group Holdings last week reported full year numbers to 31 March 2019 to Companies’ House showing that revenue for the group had risen to £132.2m from £125.7m with PBT up to £10.8m from £9.9m last year. The group has retained profits since incorporation of £76.7m with total shareholders’ funds of £77.3m.
• CGA’s latest Business Confidence Survey has found that leaders of the pub, bar and restaurant sector expect to see more mergers and acquisitions as groups look for growth in a broadly flat market.
• The 21 restaurant strong, Thai Leisure Group has seen its CVA passed by its creditors.
• Coca-Cola has created its first marine plastic bottle, featuring 25% recycled plastic retrieved from the Mediterranean Sea.
• Research from CGA has found that the food to go sector has continued to outperform the wider eating out market, with visit numbers increasing 6.4% to 4.4bn in Q2 2019.
• The fried chicken and cocktail themed Chick ‘n’ Sours is set to open in Shoreditch East London next month.
• Tesco acquires Best Food Logistics in an effort to increase Booker’s footprint in the catering sector, subject to CMA approval.
HOLIDAYS & LEISURE TRAVEL:
• UK tech firm Oxbotica operated a fleet of autonomous Ford Mondeos in a ‘complex urban environment’ in London, representing a milestone for driverless cars in Britain.
• Dame Deirdre Hutton, head of the CAA, has called the repatriation of Thomas Cook customers ‘a success’ this week with 150,000 passengers repatriated in the fortnight since the company’s collapse.
• The final Thomas Cook passengers are being flown home today as the CAA brings to a close its operation to repatriate 150,000 passengers potentially left stranded by the operator’s collapse. Passengers wishing to return after 7 October have been told they will have to make their own arrangements.
• Uber rolls out its helicopter service to the public in New York, offering lifts between Lower Manhatten and JFK International Airport from 7 October for $200.
• MGM reaches a settlement with victims of the 1 October 2017 Las Vegas shooting, paying between $735m and $800m to the victims.
• TUI has rejected a call for union recognition in its agency network.
• Instant messaging start-up Yapster, which is offered as a corporate alternative to WhatsApp, has raised £2.6m. The company allows staff without IT systems to communicate across a platform. The App is used by retail and hospitality firms including Next, Caffè Nero, Carluccio’s and Wagamama.
• Moody’s reports that Flutter Entertainment’s purchase of The Stars Group is credit positive for The Stars Group ‘because it will result in a combined company with enhanced size, scale and diversification that will enable it to continue pursuing growth opportunities in the evolving online gaming and sports betting industry.’ It is not commenting in this release on the outlook for Flutter.
• Rank BidCo announces the acquisition of the entire issued ordinary share capital of Stride.
FINANCE & ECONOMICS:
• The BCC has said that the UK economy is beginning to flag as a result of ‘unrelenting uncertainty’ in the run up to the latest Brexit deadline. Last week Markit pointed out that its September PMIs suggested negative GDP growth.
• The SMMT has said that car sales rose 1.3% in September on depressed numbers from last year. The trade body labelled the increase ‘fairly paltry’. The SMMT said that it had been hoping for a double-digit increase.
• The government has reported that UK housebuilding is running at its lowest level in three years. Construction began on 37,220 homes in England in Q2, down 8% on Q2 last year.
• Sterling flat to down a bit at $1.2327 and €1.1226. Oil up a little at $58.32. UK 10yr gilt yield down 4bps at 0.44%. World markets better Friday but Far East lower in Monday trade.
• US unemployment fell to a 50yr low rate of 3.5% in September.
• Brexit & politics:
o Consternation still as to how the Brexit process can legally be ‘extended but not delayed’.
o EU comments that a decision could be made by the end of this week.
o Uncertainty prevails re Brexit, an election, future government complexion etc. Not the best environment in which to do business.
START THE DAY WITH A SONG:
• Training courses intruding. Back soon.
RETAIL WITH NICK BUBB:
• Ted Baker: The unexpectedly poor interims from the wretched Ted Baker on Thursday came out just as we were flying to Italy on holiday and we are not clear why management allowed City expectations to be so far adrift of reality or why the City hadn’t been better prepared…But, given the cautious outlook statement, no prisoners were taken and there were c40% full-year downgrades by analysts. And after the 40% slump in the price on Thursday, the shares fell another 10%, to just 500p, on Friday, which doesn’t imply that there is much hope in the City for the much-touted MBO from the founder Ray Kelvin …Yet logically he would probably have always waited for the interims before making a move, so, if he is ever going to step in to protect the fast-shrinking value of his big 30% plus shareholding in Ted Baker, it’s now or never…
• Weekend Press and News: In the Saturday papers, the problems of the John Lewis Partnership were the main focus, with the FT highlighting the cost-cutting pressures at JLP and the Times profiling the Chairman Charlie Mayfield, whilst it was generally reported that John Lewis is trying to cut its landlord service charges. In the Sunday papers, the Mail on Sunday flagged the need for John Lewis to close stores, but the focus moved on otherwise to all the other companies in the news last week: the Mail on Sunday also noted that Ted Baker founder Ray Kelvin lost £66m in 2 days on the value of his stake in Ted Baker after the profit warning. The Sunday Times flagged that M&S FD Humphrey Singer was pushed out by Archie Norman because of the botched Ocado rights issue and the Sunday Times also had a feature on JD Sports and how the CMA investigation into the Footasylum deal could expose
• News Flow This Week: Tomorrow brings the BRC-KPMG Retail Sales survey for September (which is likely to be pretty subdued, on a line through the John Lewis weekly sales figures). Wednesday brings the Vertu Motors interims and the Laura Ashley AGM. On Thursday we get the Dunelm Q1 update and the N Brown interims, with the QUIZ trading update on Friday.