Leisure Wrap & Other:

So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following. As always, contact us if you’d like further details:

Casual Dining Group:

• Group suggests that, despite City suggestions that it was currently soliciting offers of help in issuing a £150m bond, it is not an IPO candidate.

• CEO Steve Richards told the Sunday Times ‘we are constantly evaluating options for our business in terms of the best way to grow it. However, we have not been exploring the option of a sale and have no plans to go to the public markets.’

• Apollo and York Capital took control of the group (from Blackstone) in Q1 last year and, though it may be a little early for them to be looking for an exit, this will be appropriate for them & their fund-holders in due course.

• CDG sold Strada last year and recently bought Las Iguanas and La Tasca. The group therefore offers pasta, French bistro, Spanish tapas and South American sharing platters but it has no chicken, burger or pizza offer.

• We are of the view that further restructuring and organic growth (and potentially acquisitive growth) is likely in the private arena before the group’s shareholders explore both resale opportunities (to other PE houses) and/or an IPO in tandem.

Restaurant capacity sharply higher:

• AlixPartners / Peach report that some 1,770 new restaurants opened in the last 12 months; this amounts to some 6.9% growth

• Saturation will be (and maybe already is in some markets) an issue.

• The 1,770 equates to 4x new Pizza Express-size chains having opened in the last year but 1) there will have been some closures, 2) wet-led pub numbers are down by 4.4% (so there is some evolution) and 3) new entrants will be causing more trouble for incumbents than they are for themselves.

• There has been an increase in the number of wine bars, café bars and food-led pubs – the latter increasing by 1.1% over the last 12 months.

• The survey suggests ‘branded food pubs saw a 9% growth in numbers – and the bulk of the overall growth in restaurants came from the, largely branded, chain restaurant market.’

• The evolution towards food (for the on-trade) and to take-home (for drinkers) looks to be continuing apace

• There may be issues upcoming for the market – any change is likely to generate losers as well as winners – but it’s difficult here to disaggregate what is good for an individual company (at the micro-level) from what is good for the industry (at the macro-level)

• Interestingly the survey places York in the top 10 growth towns. We can vouch for that.

Interest rates in the UK:

• Interesting to see Andy Haldane say that rates may go down.

• So it’s one thing to keep the markets guessing. It enhances your fire-power but what happened to ‘forward guidance’?

• Did it expire when Mr Carney said he would put rates up when unemployment fell below 7% only to see it fall below that figure almost immediately?

Random information, hopefully not all of it useless (re most leisure operators etc.):

• Interesting to see US west coast operator MOD pizza, which has 70 units in its home market, say that it could have ‘hundreds’ in the UK. We would suggest that this demonstrates admirable ambition & it may be true. But 1) MOD will not be expanding into a vacuum and 2) it will not be expanding alone.

• Interesting to see Bath Ales introduce pizzas into a number of its pubs. Pizza Hut operated in a number of Whitbread pubs in the 80s and 90s but times change, perhaps it’s right to give it another go?

• Domino’s Pizza Poland: Looks as though all of the indicators are pointing in the right direction. And the macro-background looks OK so, if the co can continue ticking off its various targets over a series of short terms, then it’s going to be a good long term investment.

• C-stores: Morrison’s no longer a buyer but a seller. MRW removes itself as an asset-acquirer & at least partly sates the appetite of the co buying its sites. And BHS now entering the C-store market. Will be interesting to see which diametrically opposed view (MRW get out or SBRY/TSCO expand rapidly) ends up making most money (or losing the least) for shareholders.

• And what does the above mean for secondary & tertiary pub values? MARS, PUB, GNK & others have already made major disposals to Hawthorn Leisure, New River and others. Perhaps not such a bad move.

• Apparently there’s 1m square feet less supermarket space out there than there was a year ago (per Mail on Sunday).

• John Lewis, traditionally a liberal, staff-friendly outfit, has said that the National Living Wage will lead to job losses.

• World markets: Friday reaction to Fed interest rate decision somewhat churlish. Decision postponed, uncertainty remains. A case of it being scarier to travel than to arrive?

• UK markets: Was a risk-off day on Friday. Utilities, food retailers etc. performed better than miners, oils, financial companies etc.

• Markets hoping for more bids? Maybe but, when companies have to start buying each other in order to engineer growth, it may be a sign that the cycle – or at least this stage in the cycle – is maturing somewhat.

We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):

1. DP Poland H1 results: Group achieves ‘11 consecutive quarters of double digit like-for-like system sales growth’

a. DPP H1: Says group EBITDA losses reduced. Sales 11.4m PLN v 9.3m PLN last year, LfL system sales +16%, LfL gross profit +27%

b. DPP H1: Group EBITDA losses down 40% H1 2015 to £0.8m. Co opened 4th Krakow store last month + will open in 3rd city next month

c. DPP H1: One sub-franchisee, RHPP, now operates 5 stores. New commissary (central function) has capacity to service up to 100 stores

2. Casual Dining Group is soliciting advice re £150m bond deal. Sunday Times suggests choice of an IPO has been rejected

a. CDG to trial new concept under its Café Rouge brand at an existing site outside Euston station to be called Rapide

3. AlixPartners + Peach Market Growth Monitor points to 6.9% growth in restaurant sites in year to June but 4.4% fall in wet-led pub numbers

a. AlixPartners, Peach monitor suggests ‘there are now more restaurants with licences in Great Britain than drink-led ‘community locals’’.

4. S Tel. reports enlarged ABInBev/SABMiller could move to UK in order to minimise tax bill. May be needed to secure SAB shareholder support

5. MOD Pizza co-founder Scott Svenson has told the M+C that he sees an opportunity for ‘hundreds’ of MODs across UK.

6. ONS Aug 2015, 41p per retail pound spent in food stores, 41p non-food stores, 7p non-store retailing + 10p in petrol stations

7. Soho House launches £200m senior secured notes. It will redeem £145m in existing notes + provide cash for corporate purposes

8. M+C reports Millennials now a major market. Frequency of eating out rising but spend per meal down a little

9. Luke Johnson tells Sunday Times he believes nightclub market, he has invested in Eclectic Bars, offers opportunities for consolidation

10. E.ON research suggests British restaurateurs consume more than £1.3bn in energy each year, £325m of which could be cut out

11. Ryanair has not been ‘complying fully with European customer law over flight disruption,’ according to the Civil Aviation Authority

12. BoE chief economist Andy Haldane has said the central bank may have to cut, rather than raise, rates to combat low inflation

a. George Osborne expressed his confidence in the slowing Chinese economy on Sunday, saying it is still a key driver of global growth

b. ONS figures show UK was much less productive than the rest of the G7 in 2014, with output per hour some 20% below G7 average