Langton Capital – 2019-11-04 – Marston’s, Soho House, McDonald’s etc.:
Marston’s, Soho House, McDonald’s etc.:
A DAY IN THE LIFE:
Scary to consider that the original Blade Runner film (1982), with its flying cars, lifelike androids and the rest, was set in 2019.
And, whilst tech has certainly evolved over the last 37yrs, it’s fair to say that social media and hand-held devices are more in evidence than are hover cars, robot snakes and perma-rain in a dystopian Los Angeles.
But what does it matter, it remains a good film. On to the news:
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PRIVATE COMPANY ACCOUNTS – SOHO HOUSE: Soho House, which last month raised $100m of a $2bn valuation in order to fund expansion, has reported numbers to end-Dec 2018 to Companies’ House. 4 Nov 2019. See Premium Email.
MARSTON’S PUB DISPOSAL:
• Marston’s has confirmed that it has sold 137 of its bottom-end pubs to pub company Admiral for £44.9m.
• The group says ‘this disposal is in line with Marston’s plans to reduce its debt in part through the disposal of certain non-core assets. The assets being disposed of are smaller wet-led leased, tenanted and franchised pubs. The deal is expected to complete before the end of November.’
• The units sold generated £4.8m of EBITDA and the disposal represents an exit multiple of 9.4x EBITDA or 10x EBITDA inclusive of associated central costs.
• The sold pubs’ operating profits were £3.7m.
• The sale represents a book loss of £17m but, as the units generated EBITDA of only £30k each, they are not typical of the group’s estate and the valuation cannot be carried across to other units.
• The sale of bottom end units will increase Marston’s average profit per pub by 7%.
• Group profit estimates are unlikely to change on the news, which represents a major step towards the group’s c£70m of disposal proceeds (and subsequent debt reduction) for the year as a whole.
• CEO Ralph Findlay says ‘we are making good progress with our plans to reduce our net debt by £200 million by 2023 in part through the disposal of non-core assets.’
• Mr Findlay says ‘we are encouraged by the level of market interest that this portfolio of pubs has attracted. This further underpins our confidence in achieving the accelerated £70 million disposal proceeds target that we have set ourselves for the current year.’
• As regards debt as a whole, the company says ‘we remain focused on our stated objective of reducing our net debt by £200 million by 2023 or earlier, and thereafter operating a high quality business generating consistent net cashflow, after dividends, of at least £50 million per annum.”
• Langton Comment: Marston’s has recently indicated that debt reduction is a major priority and the disposal to Admiral will help in this regard.
• Tails have a habit of re-growing and it makes good sense to address this periodically.
• This is sometimes because the pubs in question slide in terms of profit contribution etc but it is more often because the costs associated with running a pub increase and the units impacted would be better off under a different ownership structure.
• Here Admiral has become something of a specialist and the deal this morning announced could be something of a win-win.
• For its part, Admiral Taverns comments that its ‘latest acquisition builds on the Group’s successful track record of acquiring, integrating and developing sustainable tenanted pub businesses, unlocking new growth opportunities through its award winning and operations-centric approach.’
• CEO Chris Jowsey says ‘this is another exciting acquisition for our business, building on the strong momentum established over the course of the year.’
• Mr Jowsey comments ‘we remain fully committed to the leased and tenanted model and through this acquisition have been able to acquire an excellent portfolio of pubs which we look forward to developing through our award-winning and highly supportive approach.’
GENERAL NEWS – PUBS & RESTAURANTS:
• Takeaway.com has announced that it ‘remains committed to implementing the Combination [with Just Eat] and therefore will implement the Combination by way of a recommended offer by Takeaway.com for Just Eat.’
• This is in light of the rival offer that has emerged from Prosus.
• Takeaway.com says ‘management believes the Combination offers a future value far superior to both Just Eat and Takeaway.com separately, and to the recent cash offer made by Prosus in particular. By implementing the Takeaway.com Offer instead of a scheme of arrangement, Takeaway.com will provide Just Eat’s shareholders with increased deal certainty.’
• Takeaway.com’s CEO Jitse Groen says ‘we believe that the Just Eat Takeaway.com combination offers its shareholders a future value far superior to both Just Eat and Takeaway.com separately, and to the recent cash offer made by Prosus in particular. With this switch, we provide additional deal certainty to the Just Eat shareholders.’
• Richard Caring is reported to have sold a 25% stake in his nightclub and restaurant business to the former prime minister of Qatar for £200m. The Daily Mail reports that the deal ‘values his business at a ‘staggering’ $1billion (£800million).’
• Moody’s reports that Molson Coors’ ‘revitalization plan for its business, along with a name change’ is ‘credit negative because they reflect the challenges the company faces to grow.’ Moody’s says that, although the restructuring ‘will free up cash to invest in growing the business’, the success of any reinvestment ‘will only become evident over time.’
• Big ticket spending under pressure reports car dealer Lookers. The company’s profit warning on Friday may be worth a look. The company says that ‘trading over recent weeks, since mid-September, has been much more challenging than expected.’
• The Sunday Times reports that Honest Burger is looking for investors ‘as the chain dodges the casual dining crisis’. The company, which was set up in 2009, is thought to have entered into talks with Trispan, the owner of Rosa’s Thai, where former Yo Sushi boss Robin Rowland is a partner.
• Data from Harden’s has indicated that the average price of dinner in London has increased 6.3% in the last year. The cost has increased from £55.76 to £59.28 over the last 12 months.
• Harden’s co-founder Peter Harden commented: ‘Any book on entrepreneurialism will tell you that just to stand still it is necessary for any business constantly to reinvent itself. That is ever-more the case in the London restaurant scene where any site that is not performing at its peak, will quickly be reformatted under the same brand or a new one’.
• Small Batch Coffee Holdings, which was bought by Coffeesmiths Collective Limited in March this year, has produced accounts to end-January 2019, its last as an under its former structure. It reports that accrued interest on its loan notes was now up to £5.0m and that accumulated losses, partly driven by the capital structure of the company, had risen by around £388k in the year to £1.26m.
• Coffeesmiths Collective Limited was incorporated in March this year. It is a 100% subsidiary of The Coffeesmiths Collective Inc of Illinois, USA. In addition to Small Batch Coffee, the group owns UK operators the Dept of Coffee & Social Affairs and Baker & Spice. In May 2019, the group took over 10 of the 17 former Filmore & Union sites in a pre-pack administration.
• KPMG has produced its Administrators’ final progress report for Stonebeach (in administration), the major operating company within Patisserie Holdings. KPMG reminds readers of its earlier sales of a part of Pat Val to Pippen Productions for up to £8m (with £5m up front – though only £3.96m went to the company) and the sale of Baker & Spice for £2.5m (though the company was due only £619k of these proceeds).
• It recommends that the final exit from administration should be a voluntary liquidation. KPMG says ‘based on current estimates, we anticipate that unsecured creditors should receive a dividend.’ It says it is up to the liquidators to ‘determine the quantum of this dividend in due course after completing the realisation of assets, the payment of associated costs and assessment of creditor claims.’
• KPMG confirms that it is billing £2.5m at an average of £461 per hour. The main tasks of the liquidator, Kingston Smith, will be to realise remaining assets but, above all, to assess ‘whether there may be sufficient grounds to establish potential legal claims against a number of parties, and, if appropriate, pursuing these claims.’
• The Italian drinks group, Campari has sold the mansion Villa Les Cèdres in St-Jean Cap Ferrat for €200 million.
• CGA has reported that 66% of consumers are proactively trying to lead a healthy lifestyle, with the trend most common among younger age groups.
• Former Sainsbury’s boss Justin King has called for VAT to be raised to 22% and business rates halved in a bid to save the High Street. King said ‘The services that those business rates pay for are used by online retailers…They drive on the roads that are maintained by them, the brown cardboard boxes they deliver are collected by dustmen or taken to tips paid for by those business rates.’
• Barworks will turn Fifteen, Jamie Oliver’s former flagship restaurant in Shoreditch, into a pub.
• McDonald’s fires CEO Steve Easterbrook after he ‘violated company policy’ by having a relationship with an employee. Mr Easterbrook is widely credited with revitalising the firm’s menus and restaurants, by remodelling stores and using better ingredients. The value of its shares more than doubled during his tenure in the US.
• McDonald’s launches a Surprise Happy Meal promotion with participating restaurants around the world stuffing Happy Meals with one of 15 popular toys from the past.
• The global production of wine has dipped 10% on last year, with analysts blaming the decline on unfavourable weather conditions.
• The number of children being treated for allergies has increased 65% since 2013-2014. Schools have called on the government to provide further guidance on how to treat children with allergies.
• China’s Alibaba Group has reported revenue up 40% in Q2. The company’s U.S.-listed shares rose more than 2% to $180.25 in trading before the market opened.
HOLIDAYS & LEISURE TRAVEL:
• Fosun acquires the Thomas Cook brand and its IP assets for £11m, in a move which could see the brand be revived as an online travel agent.
• Krakow has been rated as the best short break destination in Europe above Amsterdam, Rome and Paris for the third consecutive year. Krakow received five stars for value money, with a good meal for under £7 and a beer for less than £2.
• Tui will resume flights to Sharm el Sheikh in Egypt in February 2020 as customer demand rises after the Department for Transport (DfT) lifted restrictions.
• US hotels saw RevPAR down 0.3% in September, with ADR up 0.6% but occupancy down 0.9%.
• Per HotStats, US hotels saw Q3 occupancy down 0.3% yoy but RevPAR up 1.1% and ADR up 1.4%. Total revenue for the month was up 3.3% yoy but labour costs on a per-available-room basis were up 4.5%.
• Hyatt Hotels reports an outsized negative impact from unrest in Hong Kong in its Q3 earnings call.
• Google will acquire Fitbit for $2.1bn in a move to take on Apple and Samsung in the crowded market for fitness trackers and smart watches.
FINANCE & ECONOMICS:
• The US economy added 128k jobs in October, well above the forecast of 89k.
• The Telegraph reports that a fall in private sector activity ‘intensified in the three months to October’. The CBI says that activity fell by 11% in the quarter compared with a year ago. The CBI forecasts a drop of 17% in Q4.
• Sterling down a shade at $1.2934 and €1.1581. Oil up at $61.31. UK 10yr gilt yield up 4bps at 0.66%. World markets higher Friday, Far East mixed this morning.
• Politics & Brexit:
o The freeze in working-age benefits introduced in 2016 is to come to an end. Labour called this (alongside the U-turn on fracking) a ‘cynically-timed’ announcement ahead of the general election on 12 December.
o PM Boris Johnson has said he will not do a deal with Nigel Farage that would see him drop his withdrawal bill and move to a harder Brexit. Farage has said that, in the absence of a deal, the Brexit Party will field candidates in all constituencies in England, Scotland and Wales.
START THE DAY WITH A SONG:
Last Friday’s song was These Days by Nico. Today, who sang:
“I know you’re gonna let him bore your pants off again.
Oh God, it’s half past eight,
You’ll be late.”
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The profit warning from the car dealer Lookers got plenty of coverage and Editorial comment in the Saturday papers, although nobody came up with an explanation for the remarkable recovery in the share price on Friday (after an initial slump of c25%). The Business editorial comment on Lookers in the Times was headlined “Wheels coming off” and highlighted the problems facing the Chairman Phil White in taking over the CEO role, whilst the Business editorial in the Telegraph was headlined “Struggling Lookers stuck at the wacky races”. In other news, the main Business story in the Telegraph was that the row between Mike Ashley and the Labour Party has escalated, with a local authority pension fund activist (who happens to be a Labour councillor) disinvited to the Sports Direct Board meeting next month, whilst the City Editor of the Daily Mail attacked Asda’s
• Saturday’s Press and News (2): The Daily Mail highlighted that the former Sainsbury boss Justin King has called on the Government to slash Business Rates and raise VAT, whilst the Telegraph also flagged that the Monzo bank card has had problems with Tesco’s payment systems. The Daily Mail featured the problems of Marks & Spencer in its “Popular Shares” column and also noted the Sky News scoop that Clinton Cards is preparing a CVA plan. The Times flagged up the good results reported by the electronics retailer Richer Sounds. Finally, the Guardian had a feature on the Christmas TV ads that retailers are just launching (“Brands seek prestige with Christmas TV ads, but will spend more Online”), highlighting that Iceland has opted for a tie-up with Disney film “Frozen 2” and that Argos has elected to pull on the heartstrings with an ad about a father buying his daughter a drum kit for
• Sunday’s Press and News (1): There were plenty of Retail stories in the Sunday Times, which led its Business section with the news that the embattled Philip Green may be struggling to refinance the £300m loan due on his Top Shop flagship property at Oxford Circus. Elsewhere in the Sunday papers, the Mail on Sunday had more lurid revelations from the legal battle in the US over the acquisition of the bankrupt Eastern Outfitters sports chain by Sports Direct (“How Sports Direct tried to persuade Trump to plug its US deal…”), whilst the Sunday Telegraph, somewhat shamefully, chose to illustrate a perfectly good story about the funding problems of the Indian Online fashion firm Koovs (“”Asos of Asia” in danger of falling out of fashion”) with a photo of a scantily-clad fashion model on the front page of its Business section…On a different note, the Observer had a feature on the
• Sunday’s Press and News (2): Continuing with the pressure on landlords, the Sunday Times highlighted that landlords blocked the planned Regis/Supercuts CVA plan because they suspected the American parent had been asset-stripping, following the story up with a feature on the fightback by beleaguered landlords against rent cuts (“Landlords run out of patience with retailers playing CVA card”). The Sunday Times also flagged that Marks & Spencer is expected to report a fall of 21% in interim profits and the City Editor Oliver Shah thundered in his column that “M&S swamp threatens to drain Norman”, noting that Archie Norman may have to break the M&S business up “to escape the quagmire”. The Sunday Times also noted, in passing, that Sainsbury is expected to report a fall of 22% in interim profits this week. On a happier note, the Sunday Times highlighted that the fashion
• News Flow This Week: As we move further on into November, there is plenty going on in the Retail sector this week to distract us from all the Election campaigning…First thing tomorrow we get the BRC-KPMG Retail Sales survey for October (with a better month for Fashion likely to push overall Non-Food sales over the line, despite “big-ticket” spending weakness), closely followed by the ABF (Primark) finals. Wednesday brings the much-awaited Marks & Spencer interims and the Intu Properties Q3 update. Then a busy Thursday brings the Sainsbury interims, the Halfords interims, the Inchcape Q3 update, the Superdry pre-close, the Howden update and The Works’ pre-close update. Finally, Sky News reports that Mothercare is about to put its UK operations into administration, but there is no confirmation of that.
• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Asda win again. The Asda basket cost £53.45, just over £2 cheaper than second placed Sainsbury on £55.61. Tesco was a distant third, on £59.99, Morrisons was on £60.40 and Waitrose was well off the pace, as usual, on £68.30. The separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability was won by Waitrose, however, as its 15,000 sq ft store in Buxton in Derbyshire came top, with 71 points out of 100, in another relatively low-scoring week.
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 5 Nov 19 Marriott Q3 numbers
• Est 7 Nov 19 JD Wetherspoon H1 update
• 7 Nov 19 Bank of England MPC interest rate decision
• 12 Nov 19 G4M H1 numbers
• 13 Nov 19 Coca Cola HBC Q3 update
• 14 Nov 19 Young & Co H1 numbers
• 20 Nov 19 SSP FY numbers
• 21 Nov 19 William Hill Q3 update
• 21 Nov 19 DART Group H1 numbers
• 21 Nov 19 Hotel Chocolat AGM
• 27 Nov 19 Marston’s FY numbers
• 27 Nov 19 Britvic FY numbers
• 27 Nov 19 On the Beach FY numbers
• 28 Nov 19 Greene King H1 numbers
• 3 Dec 19 Gym Group analysts site visits
• 4 Dec 19 Loungers H1 numbers
• 4 Dec 19 Stock Spirits FY numbers
• Est 6 Dec 19 EasyHotel FY numbers
• 12 Dec 19 TUI Group FY numbers
• Est 12 Dec 19 Fulham Shore H1 numbers
• 12 Dec 19 Fuller’s H1 numbers
• 12 Dec 19 Vianet H1 numbers
• 13 Dec 19 Hollywood Bowl FY numbers
• 19 Dec 19 Bank of England MPC interest rate decision
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