Langton Capital – 2019-10-08 – PREMIUM – MOD, Pizza Express, Hollywood Bowl, Stock Spirits etc.:
MOD, Pizza Express, Hollywood Bowl, Stock Spirits etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The question mark key on my keyboard has started sticking and it can be embarrassing.
Because saying ‘well done’ isn’t the same as saying ‘well done?’ and adding a question mark to a compliment is akin to saying you don’t sweat much for a fat bloke.
Anyway, that’s a twenty-first century problem and, as we’re a little pressed for time, we’d better move on to the news:
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PRIVATE COMPANY RESULTS – MOD PIZZA: Pizza company Mod Pizza UK Ltd, which operates the brand in this country, has reported results to end-Dec 2018 to Companies’ House. 8 Oct 2019:
o MOD Pizza operates the US brand’s stores in the UK. It is owned 50:50 by the US brand owner and Sir Charles Dunstone’s Freston Ventures.
o The company was incorporated in July 2015 in order to open stores. The market, arguably crowded at the time, became more crowded still with discounts now a feature across a number of operators.
The company comment
o MOD UK says ‘during the period we opened four restaurants and ended the period with nine restaurants in operation.’
o It says ‘as we build brand awareness in the UK we are predominantly focussed on driving sales growth and our primary key performance indicator is like-for-like revenue.’
o It adds ‘average sales per restaurant have increased significantly since we opened our first site and like-for-like revenue growth was 10% for the period.’
o This is a good performance but the co says ‘performance varied within the portfolio of sites with city centre and leisure park sites significantly outperforming the rest of the estate and it is these types of sites we will be focusing on as we seek to grow the brand in the short-term.’
o The brand, which fortunately has deep pockets, is learning on the job and says ‘we are aiming to open a further seven sites during 2019 – however it is quality rather than quantity which will be the focus and the actual number of openings may therefore be lower (or higher) than this figure.’
o The company is justifiably proud of its repeat business. It says ‘we also ran a number of marketing campaigns in the period with the prime objective of driving new customers into our restaurants and we will continue to be active in the markets and communities in which we operate.’
o The numbers make slightly less pleasant reading.
• MOD UK turned over £5.4m in the year to end-Dec 2018, up from £3.7m in the prior year.
• Gross profit percentage was up, but only from 4.3% to 14.4%.
• The group made a loss before tax of £7.0m (2017: loss £11.1m).
• Retained losses since incorporation are now £23.1m and shareholders’ funds are a negative £3, (2017: positive £926k).
• The company has loans of £2.25m from each of its major shareholders.
• Re Going Concern, MOD UK says ‘the Company is a party to a joint venture agreement between shareholders Freston Ventures Investments LLP and MOD Super Fast Pizza (International).’
• It says that ‘based on the funding contemplated by that agreement, along with assurances provided by the shareholders to continue to finance the company, the directors believe there is sufficient funding available to support the company financially for the next 12 months from the date of approval of these financial statements.’
• MOD says ‘accordingly, they continue to adopt the going concern basis in preparing the financial statements.’
• The group says that it is ‘well placed to withstand the implications of Brexit [but] the terms under which Britain will exit the European Union are not yet known and the implications of Brexit therefore remain uncertain.’
• The auditors are Ernst & Young.
• Companies are sometimes criticised for coming to the market too early. That is before their business model has been proven and profits are either already present or at least are on the horizon.
• MOD can’t be accused of that but to lose an accumulated £23.1m in opening & operating only nine restaurants is quite an achievement.
• The group has been accused (albeit by peers who will have strong views) of paying too much for trophy sites and of bidding up property costs in the market as a whole.
• The same accusation could be levelled re wages (though that is a bigger market).
• Profits will need to be earned at some point. The company is private and information is limited but, at this stage, profitability would appear to be some way off.
GENERAL NEWS – PUBS & RESTAURANTS:
• Pizza Express was in the news yesterday and the structure of its balance sheet (too much debt) was the focus of attention. Only around two thirds of the group’s debt is to third parties (the rest is provided by its owners, ultimately China’s Hony Capital), but that still amounts to more than £600m. The first of two major tranches of debt needs to be refinanced shortly.
• The traded debt at Pizza Express is trading at material discounts (see yesterday’s email). The shorter dated instrument is trading nearer to full value, the market presumably believing that the company will move to refinance this, potentially to the disadvantage of, in reverse order, the remaining third party debt, intercompany debt and equity. It is hard to imagine that equity has much if any value when some debt is trading at around a quarter of its face value.
• Chinese investment. Worth pointing out that Hony Capital (Pizza Express) and Fosun (Thomas Cook) have taken major hits on the value of their UK investments. CKA Group (Hong Kong) and CDL (Singapore) are bidding (or have bid) for Greene King and Millennium & Copthorne Hotels. The difference here would appear to be that the more recent targets include freehold properties whereas Pizza Express and Thomas Cook have or had leasehold or no assets at all.
• Some analysts are pointing to overexpansion as the root cause of Pizza Express’s problems. And this won’t have helped but, in business as in war, ‘the enemy gets a vote’ and the behaviour of competitors (either over-expanding themselves or simply in providing a better or cheaper or more fashionable product) will have had an impact as well.
• Prezzo 25% off food, Cafe Rouge 50% off. Bella Italia second main for £1 and Pizza Express 25% off.
• Auditors have been under pressure recently to justify their auditing with regard to a number of failed companies. Some are making moves to split their advisory from their auditing functions. Grant Thornton has announced that it has parted ways with a dozen UK partners in a restructuring.
• Stock Spirits Group has updated on trading saying that overall, it has been ‘in line with our expectations.’
• The group says ‘the Polish and Czech spirits markets, which together deliver approximately three-quarters of our revenue, continued to show growth in both volume and value terms.’ It adds ‘our Polish business has continued to perform well despite trading conditions remaining highly competitive, outperforming total vodka growth in both the clear and flavoured sub-categories, and gaining volume and value share. We are also pleased with the strong performance of our Czech business, which outperformed total spirits growth and achieved both volume and value growth.’
• Stock Spirits says that tax increases including a 13% increase in the excise tax on spirits are likely to be enacted. It says potential tax increases have not been progressed (to date) in Italy or Poland.
• Barclaycard has reported that consumer spending rose ‘modestly by 1.6 per cent in September as Brits remain cautious about the economic outlook.’
• Barclaycard says ‘essential expenditure increased slightly, with supermarkets seeing only muted growth while fuel spend remained flat.’ It adds ‘at the same time, spending on entertainment and nights out rose in September, as Brits continued to prioritise experiences.’ This may be partly as a result of the switch from cash to plastic on a night out (or even in Pret etc.)
• Barclaycard adds ‘the stockpiling trend continues, with one in eight already buying Christmas food and drink in case of shortages between now and the festive season.’ It says ‘entertainment, which includes cinema, sports and theatre tickets, grew by 4.7 per cent. Similarly, spending on digital content and subscriptions grew by 9.8 per cent, demonstrating the rising popularity of online services and streaming subscriptions.’
• KFC has seen its revenue and profits decline in 2018, after a logistics failure saw more than 600 units forced to temporarily close due to chicken shortages. Turnover for the group fell 73% between 2017 and 2018 to £207.3m.
• JDW announced yesterday that it had bought back for cancellation another 50,000 of its own shares at an average price of 1525.7p.
• Shake Shack has announced it will open its 12th UK location at Brent Cross shopping centre in London.
• Scottish craft brewer and pub operator, BrewDog has launched a flexitarian burger that will contain 50% UK beef and 50% plant-based Beyond Meat meat alternative.
• AB InBev has entered into an agreement with The Indian Hotels Company to launch a chain of microbreweries in India.
• Cybersecurity specialist DynaRisk has commented that hacking among accounts of delivery brands such as Deliveroo, Domino’s, Papa John’s and Nando’s is ‘rife’.
• Shepherd Neame acquires the Crown in Rochester, which was marketed with a guide price of £1.1m by Fleurets.
• One Group Hospitality completes the bankruptcy court purchase of Kona Grill, acquiring 24 domestic restaurants and franchise rights for one international location in Dubai, for $25m in cash and assumed of working capital liabilities of about $11 million.
• Time Out completes a fundraise of £17.1m, issuing 13.47m new ordinary shares at 127p per share.
HOLIDAYS & LEISURE TRAVEL:
• A confidential report produced in the run-up to the collapse of Thomas Cook suggests that creditor claims could rise to above £10bn reports the Daily Telegraph. The risk that liabilities will balloon is said to depend upon how a complex network of off-balance-sheet guarantees is unwound. Equity will be worth nothing if the suggestion that bondholders could get as little as 2p in the pound is anything like correct. The Telegraph reports that other creditors may get between 3p and 4p.
• AlixPartners has suggested that the Thomas Cook brand could be worth as little as £1.5m. That does seem rather low. The cost of flying home customers alongside redundancy payments could total around £160m. Thomas Cook has around 200 slots at Gatwick airport and 350 at Manchester. These will have a value but overseas slots may be worth very little.
• Travelodge is set to open its first new-build Travelodge Plus hotel in Scotland in Edinburgh by Christmas. This will be the company’s 46th hotel in Scotland, 11th in the capital and the second Travelodge Plus in the city.
• India-based Oyo Hotels and Homes is raising $1.5bn from Ritesh Agarwal, SoftBank Group Corp and other investors, with the aim of expanding into the US and Europe. Agarwal, who founded Oyo in 2013, has built it into India’s second-most valuable startup with a valuation of about $10 billion. Its service covers 1.2 million rooms in over 80 countries, including 590,000 rooms in China.
• Per licensing solicitors John Gaunt, new figures show a fall in alcohol-related arrests in airports in 2018/19 compared to the previous year, down to 87 arrests compared to 117 the year prior.
• Research from Abta shows the number of Brits taking a holiday is the highest it has been since 2011, with 88% taking a holiday in the 12 months to July 2019. Foreign holidays saw an increase, with 64% of those polled having taken a holiday abroad, compared to 60% the year prior.
• Merlin announces Legoland New York will open on Independence Day in 2020, becoming the ‘largest theme Park it has ever built’. Legoland New York is slated to include more than 50 rides, shows, and attractions across seven themed lands.
• Best Western launches SureStay Studio, an extended-stay version of its existing SureStay brands. The new-build prototype has 67 rooms in a 32,000-square-foot building.
• Hollywood Bowl has updated on trading for its full year to end-Sept saying it has mad an ‘ongoing investment in customer experience and estate [which is ] driving continued growth.’
• Hollywood Bowl says it has ‘continued to make progress with its customer-led strategy, delivering returns from product innovations, new centre openings and its refurbishment and rebrand programme.’
• Total revenue for the year grew 7.7% with LfL sales +5.5%. Hollywood Bowl says it ‘expects to report profit before tax growth in excess of 10%, slightly ahead of market expectations.’ CEO Stephen Burns says ‘I am delighted to report another year of strong financial and operational performance for the Group.’ Mr Burns adds ‘we continue to create value for all of our stakeholders, through the evolution of our great value family entertainment offering and returns generated on our investment in people and centres alike.’
• Per Sky, Michael Spencer, founder of ICAP, has taken up a substantial minority stake in Tote’s parent company.
FINANCE & ECONOMICS:
• The Halifax has reported that house prices are increasing at their lowest rate in 6yrs with September 2019 prices up by only 1.1% on the same month a year ago.
• Sterling down at $1.2294 and €1.12. Oil up at $58.68. UK 10yr gilt yield up 1bp at 0.45%. World markets mixed with Far East up in Tuesday trade.
• Brexit & Politics:
o PM Boris Johnson has said that the Brexit ball is back in the EU’s court. Reuters reports that, with just 24 days to go before the United Kingdom is due to leave the EU ‘both sides are positioning themselves to avoid blame for a delay or a disorderly no-deal Brexit.’ Mr Johnson said that ‘this is a very generous, fair and reasonable offer we’ve made.’
o The IFS has said that a no-deal Brexit would see government borrowing rise to almost £100bn a year and overall debt reaching levels not seen since the 1960s. It suggests that many of the points made during the referendum campaign remain valid.
o Brexit-supporting hedge fund manager Crispin Odey, who denies making bets against British assets in the hope that a hard Brexit reduces their value, is reported to have lost 12.7% of his fund’s value in September reports the FT.
o The FT reports that Boris Johnson is stepping up preparations for a General Election in the belief that a Brexit deal will not now be concluded. Mr Johnson, who has said that he would rather be ‘dead in a ditch’ than extend Brexit further, may have little choice other than to do so.
START THE DAY WITH A SONG:
• Training courses intruding. Back soon.
RETAIL WITH NICK BUBB:
• BRC Retail Sales for September (the 5 weeks to Sept 28th): We flagged yesterday that the latest BRC-KPMG Retail Sales survey (which is still the most reliable guide to monthly High Street trends) was likely to be pretty subdued, on a line through the John Lewis weekly sales figures, and the September outcome was indeed a disappointing -1.7% LFL, despite a sluggish comp. The exact Food/Non-Food LFL sales split for September is, as usual, buried in the 3-month moving averages of +0.3% and -1.7% respectively, but it looks like Food is on an improving trend and was just under 1% up LFL and that means that Non-Food must have been just over 3.5% down LFL last month…Demand for Clothing was poor and Furniture sales were in steep decline, but Household Appliance sales were up, oddly enough (ie it wasn’t a case of all big ticket spending being bad). As for why trading was so poor, “the warm
• News Flow This Week: Tomorrow 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.