Langton Capital – 2019-12-16 – PREMIUM – Fulham Shore, Caffe Nero, Cineworld, millennials etc.:
Fulham Shore, Caffe Nero, Cineworld, millennials etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, Christmas is nearly upon us and, as I have never been very good at taking hints – I’m much better if you tell me something clearly and don’t leave the slightest room for error, sarcasm is wasted on me – I have to be careful to get things right.
Or at least try to minimise how wrong I can be because I know that my thought process, whilst not indicative of autism as such, can be a bit linear.
I mean if your nearest and dearest mentions that the ironing is a bit of a drag, it’s not likely that she wants a new iron. But, if there’s mention of her tablet being a bit slow (or short of memory or broken) then you might be on much safer ground buying a new mobile device and, throw in Bluetooth speakers and earphones, and Bob’s your uncle, you’re home and dry.
That is at least if you remember to get them out of the puddle in the greenhouse where the dog-bothered delivery man has left them – and then remember not to leave them lying around, not to use them yourself for a couple of weeks and to wrap them up properly.
However, nobody said that Christmas was easy. On to the news:
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FULHAM SHORE H1 NUMBERS: Franco Manca & Real Greek owner Fulham Shore has this morning reported H1 numbers for the 6mths to 29 September and our comments thereon are set out below. 16 Dec 2019:
• Fulham Shore reports H1 revenues up by 9.3% to £36.0m.
• EBITDA is £7.8m after the adoption of IFRS16 and £4.2m before its adoption (against £4.1m in 2018).
• Operating profit is £2.1m post IFRS16 and £1.5m before (compared with £1.6m last year). Diluted EPS is 0.1p this year against 0.2p last year.
• In line with the group’s ongoing policy, there is currently no dividend. The company reports ‘subject to the availability of distributable reserves, dividends will be paid to shareholders when the Directors believe it is appropriate and prudent to do so. As previously indicated, a modest dividend will be considered by the Board at the year-end, if it is considered prudent.’
• Operating cash flow was a positive £9.4m after IFRS16 (£5.6m before) versus £4.9m last year. Net debt (excluding lease liabilities) is £8.8m against £9.4m at the March full year end
• Fulham shore opened 6 new Franco Manca pizzeria during the year and 1 new The Real Greek restaurant
• Post the H1 end, it is opening another Franco Manca today (Middlesex Street, off Bishopsgate) and a further Real Greek at Tower Bridge
• It has launched its Franco Manca loyalty scheme and mobile app with more than 55,000 users registered to date
• The group operates 18 The Real Greek and 51 Franco Manca restaurants.
• IFRS16, as it has done across the entire sector, obliges Fulham Shore to capitalise both the lease values and liabilities associated with its 100% rented estate
• Chairman David Page comments ‘we are pleased to have delivered good performance during the first half of the current financial year with revenue increasing by 9.3% across the Group.’
• Mr Page says ‘the performance was driven by seven successful new restaurant openings as well as increased customer numbers in our restaurants.’
• The group maintains that ‘this demonstrates the exceptional quality and value-for-money proposition at both Franco Manca and The Real Greek.’
• Fulham shore says ‘looking ahead, the Board remains confident that Fulham Shore is well positioned for continued growth and a great future. We look forward to continuing this positive momentum in the period ahead.’
• Fulham Shore says that Franco Manca traded satisfactorily during the Half Year, increasing revenue and profits.’
• It adds that, the weather-impacted Real Greek had a difficult summer in 2019 against hot weather comps in 2018. FUL says ‘we have seen improving trends across our Real Greek restaurants.’
• Regarding current trading, FYL says ‘current trading remains satisfactory but the sector’s outlook is not helped by poor consumer confidence.’
• It says it has opened two restaurants in H2 to date, bringing the total estate to 69 units. The group says ‘we are close to agreeing terms on further sites due to open in calendar years 2020 and 2021 in London and around the UK.’
• Going forward, the group says ‘our opening plan contemplates growing the UK business by 8 to 10 new restaurants in the next financial year.’ Interestingly, FUL adds ‘over the next couple of years, we will seek to establish one of our businesses internationally.’
• FUL concludes ‘the Directors believe that Fulham Shore, underpinned by the strength of its popular restaurant businesses and the widespread appeal of our value and quality proposition, is well placed to continue to address the challenges faced by the UK restaurant sector. As a profitable, growing restaurant company, we look forward to the second half of our financial year with confidence.’
• FUL operates two attractive brands and, particularly at Franco Manca, it offers consumers a product that they wish to consume at a price they are willing to pay.
• The group does not disclose LfL numbers but, even without discounting and relying only modestly on delivery, the company would appear to be outperforming the competition
• Property costs are falling and failed units provide an attractive way into some new locations
• Eating out remains an income elastic product. Demand should rise by more than incomes and, in a market where me-too operators have been falling by the wayside, Fulham shore should continue to prosper
PUBS & RESTAURANTS:
• Caffè Nero has announced that LfL sales rose by 3.0% across its outlets in the 12 months ending May 2019. Total group sales rose by 11%. Caffe Nero says ‘the results for the year marks 86 consecutive quarters of positive like for like sales growth for Caffè Nero since the Group was founded by Gerry Ford in 1997.’
• Caffe Nero has also reported that ‘over that same financial year [it] completed the majority purchase of Coffee#1, adding its 92 stores to its UK portfolio and entered into a new territory in Sweden. Additionally, 54 new Caffè Nero stores were opened worldwide, with 18 of those opening in the UK.’
• Nero now has 1,036 stores across 11 territories with almost 800 stores in the UK and 30 stores now located in the USA. Founder & CEO Gerry Ford reports ‘our positive sales performance is testament to our continued belief that investing in the quality of our coffee and our people is key to our success. Despite a challenging environment for hospitality, we will continue to invest in delivering a premium experience for our customers and in growing our estate through creating welcoming and vibrant coffee houses which sit at the heart of the communities and neighbourhoods where they are located.’
• Hydes Brewery has reported full year numbers to 31 March to Companies’ House saying that, whilst revenues rose by 1.1% to £21.4m, PBT fell by 82% to £433k. The group says the problems were ‘as a result of some deeply disappointing performances within the managed house estate’.
• Hydes says costs rose and ‘notwithstanding tireless efforts to turnaround the results, four of our managed houses were seriously underperforming’ and subsequently three of them were exited or moved to tenancies.
• Hydes says ‘the casual dining market has become somewhat saturated and many mid-tier restaurants have failed in the past year so it is perhaps not surprising that business has been tough in our pub dining sites.’ The company says ‘more and more venues have opened creating local market competition.’
• Regarding the future, Hydes says it will continue to drive sales and it is looking to acquire a small number of sites. The company says ‘trading in the first 8 weks of FY20 has been encouraging although we are mindful of the many challenges that lie ahead, not least of which is the uncertainty of the outcome of Brexit.’
• Hospitality investment vehicle Imbiba has created a Junior Advisory Board made up of a group of millennials & has reported back some of its comments. The panel says whilst ‘the UK casual dining market has been in like-for-like decline over the last few years…there has been increasing demand for experience-led venues.’
• It says ‘consumers are drinking less and can easily have restaurant food delivered home, so operators need to offer some sort of experience above the basic food and beverage offering to capture consumer’s attention. This trend has been supported by social media, with youngsters wanting to broadcast interesting and engaging contact for their followers.’
• Imbiba’s panel suggests music ‘can draw in a lot of customers’ but says that ‘Millennials are generally drinking much less and it is rare for many to drink at all during the week.’ This is driven by ‘health awareness, social media and career ambitions.’ Eating less meat has become a goal for many younger consumers.
• Scarborough based bakery chain Coupland & Son has reported full year numbers to end-March 2019 to Companies’ House saying that revenues rose by 5.7% to £50.2m. The company says ‘during the year, we continued to pursue organic growth through additional outlets, expanding into both new geographical areas as well as our more traditional customer base.’
• Coupland says ‘going forward, price uncertainty continues, with Brexit concerns leading to caution in both suppliers & customers and apparently upsetting the normal cycles of supply and demand’. The company says ‘we are, however, optimistic that once political and economic certainty is restored, prices will be more predictable.’
• Coupland reports profit before tax down by 42.5% at £919k. It says ‘we continue to maintain a good pipeline of new outlets and plan to expand further out retail shop, cate and mobile business, whilst maintaining and improving the range and quality of the products for which we have become known.’
• The Food & Drink Federation has commented on the result of Thursday’s General Election saying the food & drink industry is critical to the UK’s success and the FDF says ‘we want to work in partnership with the Government to reach our full potential as the most dynamic, sustainable, resilient and competitive industry, by boosting exports, developing talent and encouraging innovation.’
• Commenting on the General Election result, UKHospitality Chief Executive Kate Nicholls stated: ‘A majority means that we begin to draw a line under the uncertainty we have felt over the last few years. The priority for this Government will be to secure the best Brexit possible, and the sooner it does that the sooner it needs to fulfil its election promises to business’.
• The German delivery group, Delivery Hero has acquired South Korea’s top delivery app operator Woowa Brothers for $4bn.
• McDonald’s has announced it will launch its first vegan meal from next month. A spokesperson for the group commented: ‘In the last 12 months we’ve seen an 80% uplift in customers ordering vegetarian options at McDonald’s, so it is time for the brand famous for the dippable McNugget to launch a dippable option for our vegetarian, vegan and flexitarian customers’.
• MCA’s Eating Out Panel has found that during October the frequency of meals eaten out increased across all day parts, with Breakfast occasions up 13%.
• The Telegraph has reported that NewRiver plans to open dozens of dark kitchens to meet growing demand from the likes of Deliveroo and McDonald’s.
• PizzaExpress has stated that it will close its its spin-off concept Za on the 20th December after nine months of trading.
• Chilango has confirmed that it will enter into a CVA in order to remain in operation. Chilango co-founders Eric Partaker and Dan Houghton said: ‘Chilango remains profitable at the restaurant-level, however in recent years the market in which we operate has changed significantly. This proposal allows us to make important changes so we can support our stakeholders and continue serving our loyal guests. We are proud of the strong brand and passionate following our teams have created and look forward to the future’.
• Two-strong kebab chain Bababoom has thus far raised £651k on Seedrs against a target of £400k. The group has a pre-new money valuation of £3m.
• Constellation brands has agreed to revise the terms of a wine and spirits deal with E & J Gallo Winery to address competitive concerns raised by the US Federal Trade Commission (FTC). As a result, three Constellation-owned brands – Cook’s California Champagne, J Roget American Champagne and Paul Masson Grande Amber Brandy – will be excluded from the deal, resulting in an adjusted transaction price of approximately $1.1bn.
• Camm & Hooper has secured the events facilities at Battersea Power Station, due to open to the public in 2021. The events will take place in the Generator Hall, Control Room A and a further three spaces including a terrace with expansive riverside views.
• Vagabond opens a site in Canary Wharf, bringing the wine bar, merchant and kitchen chain to 7 sites.
• Trade union Verdi has called for workers to go on strike at an Amazon logistics centre in Germany. The strike would be held over the days before Christmas and Verdi will demand better pay and conditions for workers.
• US department stores and clothing retailers are resorting to some of the biggest discounts since the 2008 crisis, with special offers lasting long beyond the traditional Black Friday promotional period.
HOLIDAYS & LEISURE TRAVEL:
• The travel industry is anxiously waiting the impact from a new Conservative government with Abta pledging to work with the new government “to build confidence in travel further” while UKinbound urged continued dialogue with UK tourism industry.
• Clia’s latest state of the cruise industry outlook report expects as many as 32 million passengers to take a cruise in 2020. In 2018, cruising supported 1,177,000 jobs equaling $50.24 billion in wages and $150 billion total output worldwide. Nineteen new ocean ships are due to enter service next year, bringing the total number of ships operated by members of cruise line body Clia to 278 by the end of 2020.
• Uber has submitted an appeal against a decision by London’s transport regulator to strip the taxi app of its right to operate in the city.
• Cineworld has announce a proposed Canadian dollar 2.8bn takeover of Cineplex Inc. Chairman Anthony Bloom says ‘the Board of Cineworld believes that the acquisition of Cineplex is in the interests of its shareholders as it fits squarely within our strategic acquisition objectives and is expected to be strongly earnings and cash flow accretive.’ Mr Bloom says ‘going forward our immediate post-acquisition objectives will be to combine Cineplex with our US business to create a leading North American cinema operator; maximise the synergistic combination benefits of the Cineplex acquisition; continue the currently successful refurbishment of the Regal chain in the US; and focus strongly on a structured debt reduction program targeting leverage towards 3x net debt / EBITDA by the end of 2021.’
• Escape Hunt has announced that Graham Bird has been appointed as Chief Financial Officer of the Company with effect from 6 January 2020.
• Pure Gym will acquire the Danish Fitness World Group for £350m. Fitness World Group runs 240 gyms across Denmark, Switzerland and Poland with a total of 600,000 members and the acquisition will bring the combined business to 1.7 million members and almost 500 gyms with revenues of £426 million.
FINANCE & ECONOMICS:
• The US & China have announced a preliminary trade agreement that will see billions of dollars in tariffs removed or delayed. President Trump tweeted ‘we will begin negotiations on the phase two deal immediately.’ China has agreed to buy $200 billion worth of additional U.S. goods and services over the next two years.
• China says it is planning for economic growth of around 6% in 2020 from this year’s 6-6.5%.
• World markets higher on Friday with Far East lower today. Sterling down at $1.3386 and €1.202. Oil higher at $65.07. UK 10yr gilt yield down 3bps at 0.79%.
• Brexit & politics:
o Business groups have called upon PM Boris Johnson to begin work on a future trade agreement with the EU immediately. The CBI’s Carolyn Fairbairn says ‘the real work… starts now.’
o The Institute of Directors have urged the PM to resist ‘arbitrary negotiating deadlines.’ This may be a call to extend the December 2020 standstill deadline in order to prevent the creation of another cliff edge.
o PM says he will spend money in the north & repay the trust put in him.
o Labour’s performance ‘broke new records for failure.’
o Second Scottish Indie-Ref ruled out by Michael Gove. Scotland’s Nicola Sturgeon says that a new referendum on the break up of the UK is the ‘will of the Scottish people’.
o FT says UK will have to ‘find a new place on the international stage outside the EU.’ It says ‘the Conservatives will struggle to heal the social, cultural and geographical cleavages in England itself.’
o FT suggests the Conservative Party ‘leans strongly towards English nationalism.’
o A shake up of the UK civil service is possible in the wake of the Tory’s election victory. Advisor Dominic Cummings has long believed that the Whitehall machine needed to be changed.
START THE DAY WITH A SONG:
Last Friday’s song was Something To Talk About by Badly Drawn Boy. Today, who sang:
“It’s 8:15, that’s the time that it’s always been,
We got your message on the radio, conditions normal and you’re coming home”
RETAIL WITH NICK BUBB:
• Sports Direct: Today’s interims from Sports Direct (for the 26 weeks to Oct 27th) are confused by acquisitions and the big profit on the sale and leaseback of the Shirebrook warehouse, but underlying EBITDA is said to be up by 15%, due to improved results in the Premium Lifestyle and European Retail divisions, so there is nothing obvious to worry about. We can’t immediately see a figure for the losses at House of Fraser, but the group seems confident enough about the short-term outlook for HoF to forecast continued overall progress in second half profits. And, as flagged in the weekend press, the Belgian tax bill issue has been played down. The main interest otherwise is in the bizarre rant from #MadMike on such subjects as Debenhams, HoF and Jeremy Corbyn…and we look forward to reading through this at greater leisure. The EGM to approve the bizarre name change to Frasers Group takes
• Saturday’s Press and News (1): The Business pages of the Saturday papers were dominated by upbeat headlines about the surge in the stockmarket on Friday (aka the “Boris bounce”), led by the housebuilders, on hopes of a re-rating for the UK post-Brexit and an infrastructure boom post-Election. The stockmarket report in the Daily Mail, however, led with the news that the activist US investor Tosca has rapidly built up a near 12% stake in Ted Baker (“Rottweiler sinks teeth into feeble Ted Baker”) and there was a similarly headlined article in the Times. The Daily Mail also highlighted the plea from the BRC that the Government urgently fulfils its manifesto pledge to review the Business Rates system. The other big story was the news, as noted in all the papers, that the embattled Philip Green has agreed a last-minute refinancing of the £310m loan on the flagship Top Shop store at Oxford
• Saturday’s Press and News (2): Sports Direct was also in the spotlight, with the Daily Mail featuring the company in its “Popular Shares” column (ahead of today’s interims) and the Business editorial in the Telegraph mocking the planned name change to Frasers Group (“perhaps Mike Ashley confused ”elevate” with “relegate””), whilst the FT had a big feature on the background to the name change(“Sports Direct seeks to elevate the tone with rebrand”), noting that there is still a lot of uncertainty amongst suppliers about the plans of Michael Murray for House of Fraser and Flannels. The Daily Mail and Telegraph had snippets about the news that Mothercare will live on in the UK next year via a product supply deal with Boots, whilst the “Punt of the Week” in the Daily Mail was Watches of Switzerland. Finally, the Guardian had a feature on Hamleys in Regent Street, following its recent
• Sunday’s Press and News (1): The embattled Ted Baker remained in the spotlight in the Sunday papers with the Sunday Times highlighting that Martin Hughes, the aggressive boss of the activist fund Tosca, thinks that Ted Baker is in similar position to Redrow, the struggling housebuilder that he bought into in 2009 and turned around. The Sunday Times also had a background feature on the problems of Ted Baker (“Will disgraced boss return to save Ted?”), quoting a source close to the founder Ray Kelvin as saying that he believes the former Chairman David Bernstein was to blame for many of the chain’s woes and that Ray is “not champing at the bit trying to take it back”, despite being unhappy about the lowly share price. The Observer also had an interesting double-page feature article about Ted Baker (“Departing directors and aggressive investor investors leave “Ted” short of
• Sunday’s Press and News (2): In other news, the Mail on Sunday noted the poor Springboard footfall figures and weak pre-Christmas trading vibes (“High Streets alarm as shoppers shun the Christmas rush”) and also flagged that Marks & Spencer has poached Sainsbury’s Logistics Director Chris Marrow and that Waheed Ali netted millions by selling his TV production company Silvergate on the same day that his other venture, the Online business Koovs, went bust…The Sunday Times flagged that Asda is looking for a heavyweight new CFO ahead of a possible IPO and also noted that Sports Direct will play down fears about the shock Belgian tax demand when it announces the interims today. Finally, the Questor investment column in the Sunday Telegraph looked in detail at Burberry and said the shares are a Buy (“Burberry has refashioned its business model and merits a premium valuation”).