Langton Capital – 2019-12-09 – Nov Tracker, Just Eat, Chilango, overcapacity etc.:
Nov Tracker, Just Eat, Chilango, overcapacity etc.:
A DAY IN THE LIFE:
To live a ‘dog’s life’ is a pejorative term but, at times, it does seem an attractively simple option.
I mean, though few people would like to rootle in the dirt, eat garbage and drink bin juice for dessert whilst smelling like, well, a wet dog, it would be nice to see things in black and white from time to time because, to the dog, there’s food and there’s not food, there are goodies and baddies etc. etc.
And unknown people are just baddies that you haven’t got to know yet such that dogs, to all intents and purposes, behave like the most biased of football fans with an eye only for their own team, where the referee should be lenient one moment and utterly rigorous the next.
Indeed, they live a life with no pride, shame or regrets and in which they can do no wrong; more of them should go into politics, don’t you think? On to the news:
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COFFER PEACH TRACKER FOR NOVEMBER: Eating out spend ‘under pressure’ in November though pubs do manage some growth. 9 Dec 2019:
• The November Coffer Peach Tracker reports that ‘both pubs and restaurants feel pressure on eating-out spend.’
• LfL sales in total across both pubs & restaurants were up by 0.5%
• It says that drink sales held up relatively well with managed pubs growing LfL sales by 0.7%. Whilst this is positive, it is below the rate of general inflation and well below the rate of inflation felt by pubs.
• Restaurant chains meanwhile reported a like-for-like sales slip of 0.1%. See Premium Email.
MEXICAN FOOD – TOO HOT FOR SOME:
• City AM reports that ‘Chilango is considering shutting some of its restaurants as it fights to avoid administration.’
• Writing on Sunday, the paper reports ‘the stricken Mexican chain will launch a company voluntary arrangement as soon as tomorrow [Monday], ahead of a crunch meeting with shareholders next week.’
• Langton wrote in October that ‘Mucho Mas (trading as Chilango), which was incorporated in 2005, is part funded by crowd-funded ‘Burrito Bonds. The appropriateness of this is open to question.’
• We pointed out that the latest accounts available were the rather aged documents to March 2018. The company at the time said it was ‘pleased with the current trading performance’. We did not see it that way & pointed out that the group made a March 2018 loss of £1.4m versus a loss of £3.2m in the prior year. There are accumulated losses of £14.4m – and this to a point some 20mths ago.
• We said ‘although we do not have sight of a current balance sheet, the company subsequently issued shares in July 2018, and in May, June and September 2019.’ We have said that Chilango was offering information on ‘Burrito Bonds’ to passers by on London Wall (beneath Langton’s offices) and said that we were not sure that this was advisable.
• We also pointed out that Grant Thornton, which was the auditor to Patisserie Valerie, the company that failed amidst allegations of incompetence and dishonesty, signed Chilango off as a Going Concern.
• City AM says Chilango ‘will propose exiting several restaurant leases as part of the restructuring.’ It says that it is late in posting its accounts. The fate of its Burrito Bonds’ backers is unclear. It says ‘Chilango declined to comment.’
• City AM points out that Chilango, which has been in operation for some 12yrs, has never turned in a profit.
PUBS & RESTAURANTS:
• Prosus confirms higher bid for Just Eat. South African company Prosus has announced the terms of an increased cash offer for Just Eat. It is now offering 740p per share, which values the issued and to be issued ordinary share capital of Just Eat at approximately £5.1 billion and represent a premium of approximately 25.6 per cent. to the Closing Price of 589 pence per Just Eat Share on 21 October 2019 (being the last Business Day before the date of the Offer Announcement).
• Bob van Dijk, the Group CEO of Prosus comments ‘following the announcement of our offer, we have had the opportunity to listen to the views of Just Eat Shareholders, share our perspective on the global food delivery sector and reflect on the unquestionable challenges Just Eat faces, as clearly seen in its Q3 results.’
• Prosus says ‘as disciplined investors we obviously need to factor the required investment into our value considerations.’ It says ‘Just Eat is a quality business, which we believe has all the ingredients to be transformed into a long-term sector winner. In recognition of this potential, we have decided to increase our offer to 740 pence per share, which we believe provides Just Eat Shareholders with compelling value and therefore good reason to accept our all-cash offer.’
• EI Group has welcomed the announcement by the Competition and Markets Authority of its initial decision that the proposed acquisition by Stonegate ‘does not raise UK-wide competition concerns and that the acquisition will be cleared if local concerns are overcome.’
• The parties will now put proposals to the CMA to address the concerns that it has raised. EI Group says ‘the parties are confident that these proposals will enable the transaction to be approved by the CMA without a Phase 2 referral and our expectation remains that the transaction will complete in the first quarter of 2020.’ A number of disposals are expected and EI Group says ‘further announcements will be made in due course.
• The MCA’s UK Foodservice Delivery Market Report finds that 62% of consumers intend to order more takeaway food deliveries in the next 2-3 years. This number rises to 76% of 18-24s. The MCA says ‘undeniably a strong opportunity for the foodservice market, takeaway delivery is having a disrupting effect on footfall to physical sites.’ It says ‘operators are rightfully concerned with the levels of sales cannibalisation when 37% of consumers say that using takeaway delivery services makes them less likely to have a meal in a restaurant.’
• Foodservice Equipment Journal reports that grill manufacturer Synergy Grill Technology ‘has introduced stainless steel dividers for its grills – which it claims solves the issue of vegetarian and meat-based products being cooked on the same appliance.’ This follows news that a vegetarian in the US is suing Burger King having found that plant-based foods could have been in contact with meat (or meat fats).
• Synergy Grill’s revolutionary technology carbonises fats meaning that, even in the absence of a steel divider, the chances of cross-contamination are reduced. Synergy says there is no cross-flavouring through smoke contamination. Any moisture expelled from the food transforms into steam.
• KAM Media reports that, whilst 42% of pub-goers say they have watched sport in a pub in the last 3mths, the number rises to 47% for Generation Z. This demographic, which is hard to reach, can be incentivised to visit licensed premises by sports.
• Representatives of the champagne industry in France, which could shortly be in receipt of 100% tariffs on exports to the US, have told their government to do what it can to prevent implementation of the tariffs, which are ‘inconsistent with prevailing principles.’
• UK Hospitality has written to Derek Mackay MSP, Scottish Finance Secretary, on behalf of a consortium of leisure interests, to voice strong opposition to plans for a tourist tax.
• The MA reports that gin is worth £2bn p.a. to the on-trade and is set to exceed vodka in market share next year if it can maintain current growth rates.
• The Telegraph reports that Vietnamese street food chain Pho ‘is expected to change hands as it ramps up expansion across the country.’ It says that its private equity owners Gresham are considering a sale. There have been moves to deny the story.
• The MA reports that sugar-free drink sales in the on-trade rose by 75% year on year to £168m.
• Carlton & United Breweries has bought Australian craft beer producer Balter Brewing Company for an undisclosed sum.
• Tesco has confirmed newspaper reports that it is considering the sale of its Asian businesses following an approach from a third party investor. The group says that it has had ‘inbound interest’ in the unit.
HOLIDAYS & LEISURE TRAVEL:
• ABTA is to launch its ‘travel with confidence’ campaign next week in an attempt to persuade would-be travellers that it is safe for them to book a holiday ahead of Brexit.
• Travel Weekly quotes independent research earlier this year as finding that 78% of people felt more confident when booking a holiday with an ABTA member.
• Environmental protestors blocked a road near Heathrow over the weekend to highlight opposition to a planned third runway.
• Caesars Entertainment Corporation has announced that it has completed the previously announced sale of the Rio All-Suite Hotel & Casino to a company affiliated with Dreamscape for $516.3 million.
• Manchester United has signed a deal with Alibaba to supply content to the latter’s online video platform Youku.com.
FINANCE & ECONOMICS:
• The NIESR has said that the moves by both main parties to increase the scale of government spending will give ‘only a small boost to overall economic growth.’ It says ‘the impact on overall economic activity of tax and spending measures will be small. All parties’ plans involve a reallocation of resources from the private sector to the public sector, which is substantially larger for Labour and Liberal Democrat plans compared to Conservative proposals.’
• US jobs growth was the highest in 10 months in November.
• Chinese exports to the US fell by 1.1% y-o-y in November.
• Sterling mixed at $1.3144 and €1.1885. Oil up at $64.22. UK 10yr gilt yield unchanged at 0.77%. World markets better on Friday, Far East mixed in Monday trade.
• Brexit & politics:
o Polls have Tory Party c10pps ahead of Labour going into the last few days of the election campaign.
o PM Boris Johnson has told Sky that there will be no checks on goods travelling from Northern Ireland to Great Britain under his Brexit deal.
o Johnson said a leaked Treasury analysis document was ‘wrong’ to suggest this was the case.
o The FT reports that UK officials have been telling Downing Street that its assertions that it will be able to leave the EU with a trade deal by December next year are doubtful.
o Observers suggesting that ‘Brexit fatigue’ is hitting Labour support in a number of key marginal seats.
START THE DAY WITH A SONG:
• Taking a break due to exam commitments. Back middle of next week.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News: The main Retail story in the Saturday papers was a jobs row at John Lewis, after staff at a Plymouth call centre were laid off amidst accusations that the work was being moved to the Philippines, as flagged by the Guardian and the Daily Mail. The Guardian also noted that the struggling camera chain Jessops has called in administrators to its property arm, after failing to win approval from landlords to a CVA plan. On a happier note, the Daily Mail’s “Hero of the Week” was Dunelm boss Nick Wilkinson, whilst the Daily Mail also featured Dixons Carphone in its “Popular Shares” column (ahead of next week’s interims). The market reports in the FT, the Telegraph and the Times highlighted that M&S got a boost on Friday from an upgrade by JP Morgan. The FT had a big feature (“Retail landlords in a far from festive mood”) on the fall-out from the problems of the
• Sunday’s Press and News (1): The embattled Ted Baker was in the spotlight in the Sunday papers with the Sunday Times highlighting that the company is to shake up its Board, with Korn Ferry appointed to find a replacement for the Chairman David Bernstein, amidst continuing speculation that founder Ray Kelvin could yet seize back control, a theme also flagged up in the preview of next week’s trading update from Ted Baker in the Observer (“Ted Baker needs a saviour. Could that be its founder?”). The Observer also had a big feature (“Retail landlords fall into new crisis as crucial Christmas season nears”) on the fall-out from the problems of the M&G Property Fund, highlighting its exposure to secondary shopping centres like the Gracechurch in Sutton Coldfield and the risk that other property funds, as well as the likes of Intu, could be hit if panic selling takes hold…
• Sunday’s Press and News (2): The Mail on Sunday noted that Marks & Spencer is actively looking to sell off the upper floors of its bigger stores, like Marble Arch, whilst its “Stockmarket Watch” column noted the recovery hopes for Superdry, ahead of Thursday’s interims, and its “Director Dealing’s” column featured the recent share sales by the co-founders of Boohoo. The Sunday Times flagged that Debenhams has parted company with its Property Director, Clive Bentley, and that the struggling family-owned department store Fenwick’s is still able to pay out preference share dividends despite its poor trading. The Sunday Times also noted that the next headache for shopping centre landlords may be the shoe chains, with both Office and Schuh warning that they may have to pursue CVA’s (“The other shoe finally drops for the footwear retailers”). Finally, the Sunday Telegraph had a
• Tesco: The company has confirmed the press speculation that Tesco is weighing up a bid for its operations in Thailand and Malaysia. It is unclear who the unnamed bidder is, but it is presumably a trade operator (rather than a financial buyer) and they must have deep pockets, because these highly profitable Asian operations are worth many billions. It is also unclear what Tesco would do with the money, but perhaps we shouldn’t get ahead of ourselves, as Tesco has said the strategic review of Asia is at an early stage and “there can be no assurance that any transaction will be concluded”. The Tesco share price will no doubt perk up, however…
• News Flow This Week: The General Election on Thursday will dominate this week, but there is plenty going on in the Retail sector to distract us, kicking off with the McColl’s pre-close update, which is now confirmed for tomorrow. Tomorrow also brings the Watches of Switzerland interims and the Mothercare interims, as well as the latest monthly Kantar/Nielsen grocery sales figures. On Wednesday we then get the much-awaited Ted Baker trading update, whilst the Superdry interims, the Dixons Carphone interims and the Ocado Q4 update are also on Thursday.
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 6 Dec 19 Gfinity AGM
• 6 Dec 19 Whitbread AGM
• Est 6 Dec 19 EasyHotel FY numbers
• Est 7 Dec 19 Games Workshop H1
• 12 Dec 19 General Election
• 12 Dec 19 TUI Group FY numbers
• 12 Dec 19 Vianet H1 numbers
• 13 Dec 19 Hollywood Bowl FY numbers
• 16 Dec 19 Fulham Shore H1 numbers
• 19 Dec 19 Bank of England MPC interest rate decision
• Est 20 Dec 19 Carnival Q4
• 16 Dec 19 Fuller’s H1 numbers
• Early Jan 20 Xmas statements (in the order presented last year) – Stonegate, Morrison’s, Naked Wines, Gregg’s, Sainsbury, Constellation Brands, C&C, Brighton Pier, Everyman, M&B, M&S, Tesco.
• Mid Jan 20 Xmas statements (in the order presented last year) – Revolution Bars, Games Workshop, Gym Group, Cineworld, City Pub Group, Saga, DP Eurasia, Whitbread, Ten Entertainment, Premier Foods, SSP, EasyHotel, William Hill.
• Late Jan 20 Xmas statements (in the order presented last year) – JD Wetherspoon, Hotel Chocolat, Restaurant Group, Starbucks, Fevertree, AG Barr, Fullers, DPP, Domino’s, Hollywood Bowl, Britvic, Rank, Diageo.
• 23 Jan 20 G4M Q3 update
• 24 Jan 20 Marston’s Q1 trading update
• 29-31 Jan 20 – Springboard charity Snow White pantomime at Leicester Sq. Theatre
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