Langton Capital – 2020-02-05 – PREMIUM – Crowdfunding, Domino’s Pizza, coffee, Red’s, RCL etc.:
Crowdfunding, Domino’s Pizza, coffee, Red’s, RCL etc.:
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A DAY IN THE LIFE:
IT glitches this morning. On to the news:
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CROWDFUNDING – IS IT A SOLUTION LOOKING FOR A PROBLEM? Here we ask who, if anyone, will make money out of crowdfunding? 5 Feb 2020:
Setting the scene:
• Technological changes have provided solutions to many problems.
• Some would suggest that they have also provided some solutions where there were no problems.
• It’s likely that the pointy heads could put a watch on the head of a pin or make a mobile phone as small as a pea – but where’s the demand?
• We say this not to denigrate technology but merely to point out then not every breakthrough need add real value
• Crowdfunding may be meant to disintermediate the process of fund-raising and address the funding gap.
• But what does that mean?
• Putting a positive spin on it, it means disaggregating the process by excluding FCA regulated stockbrokers and the like whilst aiming for a gap in the market not addressed by banks, most shareholders or the entrepreneurs themselves
• Sounds sensible when you say it fast
• But FCA-regulated bodies, like Langton Capital, work to certain rules and gaps in the market arguably exist for a reason as they may be financially risky places to be.
• The FCA’s ‘know-your-client’ rules are arguably meant for instances just such as this and misunderstandings (let’s not call them misrepresentations) do occur
So how big is this pot of gold?
• Given the level of risk that’s being taken on, there should be supernormal profits being made by somebody in this space
• But that wouldn’t appear to be the case.
• As far as shareholders are concerned, there have been one or two exits but investors are mostly either stuck in illiquid investments or are looking at losses, down-rounds etc.
• And the funding platforms themselves are losing money. For the year to end-December 2018 (the latest year for which accounts are available) Seedrs lost £4.0m (on revenues of £3.2m) and it has accumulated losses of £15.2m.
• Crowdcube (year to Sept-2018) lost £3.0m (on revenues of £5.3m) and has lost a cumulative £20.5m since incorporation.
• Smaller player Venture Funders lost £589k to Dec-2018 and has lost an accumulated £3.8m since incorporation
• That’s £40m dropped by funding platform shareholders to around a year ago with perhaps another £7m or £8m dropped since
• Perhaps the companies selling the shovels to these miners (web-designers, accountants, advisors etc.) have made money
The near and medium term outlook:
• Maybe there will be profits ‘in the end’
• Segment watcher Alt Fi said that fund-raising slowed after the Referendum, but it may have picked up since
• The Chilango bondholder’s experience won’t have helped and which is likely to come first, profitability or a mis-selling scandal?
• Alt Fi ran with the headline in April 2019 – ‘Chilango raises ?£3,7m from oversubscribed mini-bond…’
• The 8% yield arguably offered a bond return on an equity risk
• Both profitability and a scandal are possible but one, arguably, may be more likely than the other
PUBS & RESTAURANTS:
• Domino’s Pizza Group PLC has updated on Q4 trading saying that it has turned in a ‘solid UK performance driven by online growth’. It says the UK & ROI 2019 result will be ‘within the range of market expectations’ but it will lose in the region of £20m in its international markets and make non-cash write-downs of assets of £20m to £40m.
• DOM says group system sales in Q3 were up by 3.7% (as reported) with UK & ROI system sales up 4.4% on the same basis. International sales are down by 5.0%. DOM reports that there were 12 stores opened in UK & ROI in Q4 (last year UK: 12; ROI: 0) with 32 stores opened in UK & ROI during the whole of 2019. UK online sales were up 8.3% and ROI online sales up 11.0%. UK & ROI online now accounts for 91.3% of delivery sales.
• DOM reports that its ‘international disposal process [is] progressing, with the focus on Norway as a priority.’ It says its ‘Chair recruitment process is progressing’ and says that ‘the search for an interim CFO is at an advanced stage.’ The company says ‘at the end of the period we announced the tragic passing of our CFO, David Bauernfeind. David will be deeply missed by all who knew him and worked with him.’ MR Bauernfeind died in a snorkelling accident in December.
• DOM CEO David Wild says ‘I am pleased with the performance of our core UK and Ireland markets, with system sales up 4.4% and UK like-for-likes up 3.9%, against a strong comparative and a competitive backdrop. This performance was driven by the power of our brand, our strong digital capabilities and the operational expertise of our franchisee partners.’
• Mr Wild adds ‘we look forward to announcing our preliminary results next month and updating the market on strategic progress made over the last few months.’ The company says ‘the Board expects UK & ROI operating profit to be within the range of market expectations. The range of analyst forecasts, of which the company is aware, is £102.1m to £104.1m, with an average of £103.1m.’ There will be an operating loss of around £20m in the international business with ‘significant non-cash non-underlying charges in the region of £20m relating to impairment charges for corporate stores and £20m-£40m relating to impairment charges for our international businesses.’
• Carlsberg has announced that it does not plan to change its forecast or strategy for China due to the coronavirus outbreak, despite Chinese bars being emptied out. Carlsberg Chief executive Cees ‘t Hart commented: ‘Short term we might have a bit of an issue or at least an impact on the business, but longer term we don’t see any issue’.
• FRP Advisory has updated on the administration of Red’s True BBQ. Unsecured creditors to lose all of their money. The administrators, who are dealing with the affairs of the operator’s BBQ, craft brewery and home cooking businesses, says that sale some proceeds have been received.
• FRP says that it has sole Red’s sauces business for £65k. It says £14k in book debts has been recovered.
• FRP adds that ‘part of the Administrators’ duties include carrying out proportionate investigations into what assets the Companies have, including any potential claims against directors or other parties, and what recoveries could be made. The Administrators have reviewed the Companies’ books and records and accounting information, requested further information from the directors, and invited creditors to provide information on any concerns they have regarding the way in which the Companies’ business had been conducted.’ This is normal practise.
• As regards the estimated Outcome for the creditors, FRP says unsecured creditors total around £1.9m. It says secured creditors, including bank Santander, are owed around £6.5m and adds that its debt is secured against the assets of the company. Santander hold a fixed and floating charge debenture over the assets and leaseholds of the Group. FRP says ‘there are insufficient funds available to enable a distribution to be made to the unsecured creditors.’ FRP says that Santander has received some cash & it will receive more but ‘it will suffer a significant shortfall.’
• Allegra’s World Coffee Portal has announced that Costa has taken the title as ‘The Nation’s Favourite’ Coffee Shop’ for the tenth year in succession.
• Allegra says ‘the UK coffee shop market has undergone a remarkable decade of development. Since 2010, coffee shop culture has become firmly ingrained in British lifestyles, with the total market swelling to over 25,000 outlets and more than doubling in value to £10.5bn today’. Allegra says ‘today Costa Coffee is looking ahead to another decade of coffee shop excellence. In 2020, the coffee chain continues to respond to a growing demand for credible choices across its food menu, introducing partnerships with BOL and Deliciously Ella, and adding 25 vegan lines across its menu.’
• Chipotle Mexican Grill (the US parent company) has reported Q!4 numbers saying that like for like sales rose by 13.4%. This is its third consecutive quarter of double digit growth for the brand. Chipotle says ‘we had a strong ending to 2019 as Q4 marks the eighth-consecutive quarter of accelerating comparable sales, which highlights that running great restaurants with the right leaders and the right culture is delivering outstanding financial performance.’
• Chipotle adds ‘for the full year, Chipotle’s average unit volumes exceeded $2.2 million and digital sales surpassed a billion dollars, showing that our key strategies are working, and the Chipotle brand is thriving as we build a sustainable model that helps cultivate a better world.’
• The Telegraph reports that Gaucho Grill is to work towards making its 400 tonnes of steak that it sells every year carbon neutral. Gaucho was rescued from administration in October 2018
• The catering company, Searcy has reported that revenues increased 17.5% from 2018, with LfL sales up 6.7%. Last year, the hospitality group hosted over 15,000 commercial events across its portfolio and accommodated over 380,000 guests across its restaurants.
• The Jersey-based pub group, the Liberation Group has seen LfL sales increase 3.6% during 2019. The company also reported a strong Christmas, with LfL sales up 6%, including an accomodation sales boost of 35%.
• In a deal brokered by Fleurets, Young’s has acquired The Constitution in Camden. Acquisition Manager of Young’s & Co Brewery commented: ‘We are delighted to acquire this property, which has canal frontage, large external trading area and is located in the heart of an area which continues to see significant urban regeneration’.
• Hospitality businesses in London’s Soho have been reopened following the discovery of a suspected unexploded WWII bomb yesterday.
• Pubs and bars are increasingly turning to alternative financing options such as merchant cash advances in order to build kitchens and support expansion. A merchant cash advance is designed as a quick way for any business that accepts credit and/or debit cards to raise capital.
• Research from The Morning Advertiser has found that the sales value of sugar-free soft drinks Coca-Cola Zero Sugar and Pepsi Max increased 75% to £168m year-on-year.
• Just Drinks has identified tea as an ideal candidate for premiumisation in the next decade, due to the drink’s plant-based nature and health and wellness associations.
• The FD of M&S food division has left his position, after having occupied the role for little more than a year.
• The Drinks Business reports Oddbins and Wine Cellar Trading’s retail stores will be bought by an unnamed purchaser – thought to be its former owner.
• Ikea will shut its Coventry city centre site, impacting 352 workers.
HOLIDAYS & LEISURE TRAVEL:
• Data from STR has found that occupancy in Mainland China hotels fell 75% during 14-26 January 2020. Jesper Palmqvist, STR’s Area Director – Asia Pacific commented: ‘What our preliminary analysis shows this year is that performance changes were even greater as coverage of the coronavirus outbreak has intensified’.
• A Princess Cruises ship with 2,666 guests and 1,045 crew has been quarantined in Japan after it emerged a passenger who had sailed on Diamond Princess last month was later diagnosed with coronavirus.
• Royal Caribbean Cruises has reported 2019 US GAAP earnings of $8.95 per share and adjusted earnings of $9.54 per share. It says ‘given the fluidity of the circumstances related to the Wuhan Coronavirus and the actions being taken to contain its spread, the 2020 adjusted guidance provided herein does not include any financial impact related to this subject.’
• The company says US GAAP Net Income for 2019 was $1.9 billion versus $1.8 billion in 2018. The company says ‘gross yields were up 8.2% in Constant-Currency (up 7.0% as-reported).’ The group adds that costs per available passenger cruise day rose by 8.7% over the year inclusive of fuel.
• Re 2020, RCL says the ‘Wave season has started on a very robust basis with strong demand especially in the US and European markets.’ It says ‘the Wuhan Coronavirus and the efforts to contain it are expected to negatively affect our results. While we expect this to be temporary, the situation is highly fluid and the overall impact cannot reasonably be estimated at this time.’
• Direct trains will run by Eurostar between London and the Netherlands by 30 April.
• Hong Kong has reported its first coronavirus death, the second outside mainland China. So far, the outbreak has killed 427 people.
• Alphabet reported revenue of $46.1bn in 2019, up from $39.3bn a year earlier, with net income up to $10.7bn from $8.9bn in 2018. Alphabet beat analyst estimates on profit, but missed on revenue.
• Walt Disney has reported quarterly earnings of $1.53 per share, an increase of 6.99%. The group posted revenues of $20.86bn for the quarter ended December 2019, up from last year’s $15.30bn.
• The government is holding a public consultation on whether failure to pay the TV licence fee should no longer be a criminal offence.
FINANCE & ECONOMICS:
• The January IHS Markit UK Construction PMI came in at 48.4, up from 44.4 in December suggesting that there has been ‘a boost to client demand from receding political uncertainty.’
• Markit says ‘looking ahead, construction companies are now the most optimistic about their growth prospects since April 2018. A number of firms noted that clients’ willingness to spend had picked up after the general election, which should translate into rising workloads over the course of 2020.’
• Sterling little changed at $1.3014 and €1.1788. Oil lower at $54.48. UK 10yr gilt yield up 3bps at 0.55%. World markets higher.
START THE DAY WITH A SONG:
Yesterday’s song was Dear Mama by Tupac. Today who sang:
All alone I have cried,
Silent tears full of pride
In a world made of steel
Made of stone
RETAIL WITH NICK BUBB:
• Lookers: Scheduled company news flow has dried up this week, but the Manchester-based car dealer Lookers has stepped into the breach and issued a year-end trading update, even though its finals are not far away on March 11th. After a challenging year, however, the news is reassuring, to the extent that Q4 trading was in line with expectations, despite the weakness in new car sales, and underlying PBT for 2019 is expected to be in line with the Board’s expectations. And the company has appointed a new CEO at last, in the form of Mark Raban, who only joined Lookers in July 2019 as Chief Financial Officer.
• Poundland Watch: The discount store group Pepco, which is owned by the embattled South African group Steinhoff, is gearing up for a private equity sale or float and it has announced its Q1 trading today, for the period to end December. Overall LFL sales growth of 3.9% is fine, but this is driven by 6.6% LFL growth in the Eastern/Central European business, with Poundland in the UK only up 1.3% LFL.
• Grocery Market Share Watch: The latest monthly Kantar/Nielsen grocery market share figures (for the 4/12 weeks to Jan 25th/Jan 26th) came out at c8am yesterday morning and the Kantar survey was headlined “A month of moderation for the grocery sector”, flagging, inter alia, that Ocado is the fastest growing Grocer and that the food price inflation rate has edged up to 1.0%. And the rival Nielsen survey was headlined “UK supermarkets experience disappointing sales growth in January”, highlighting that Grocery sales rose by just +0.7% in the last four weeks, with supermarket volumes down 1%.
• John Lewis Partnership Trading Watch: We would normally be reviewing last week’s JLP sales figures on a Wednesday, but, alas, management have decided to stop publishing them…Yet it’s easy enough to look back at the figures from a year ago and make an educated guess as to what the outcome was this year…And having flagged yesterday that there was a bit of snow disruption around at the end of January a year ago, we think John Lewis should have bounced back in w/e Feb 1st, against a week where they were c6.5% down LFL last year, with a modest 1%-2% gain. But Waitrose did quite well a year ago, on the back of the cold weather and earlier fall of Chinese New Year and against a comp of c+4% LFL in w/e Feb 1st we think LFL sales will have fallen back by 2%-3% last week (note that Chinese New Year was even earlier this year, ie on Jan 25th vs Feb 5th in 2019).