Fulham Shore, Ten Entertainment, DPP, ESC, labour, WFH & other:

A DAY IN THE LIFE:

Langton is a very, very small firm and, in the same way that a mouse loses more heat through its skin (by weight) than does an elephant, we’re disproportionately impacted by red tape.

Which is great, of course.

All good fun but, this week alone, we’ve had to calculate our Q3 VAT (and pay to update the specialist software now required to submit it) and then deal with the interminable IT problems that need dealing with in order to lodge our October ‘interactions’ with a number of clients.

Thank you, MIFID II.

The monthly bank rec goes without saying (as does the October wages calc) and thankfully we aren’t being badgered for more rent yet. But then we had a Modern Slavery questionnaire remitted by a client (we can fit our staff into a phone box – even if there’s a small horse already in it) and then reminders that our GDPR license (anti-spamming guff) needed renewing.

And that can’t be done without the expenditure of time and the remittance of hard cash. We then got an LEI reminder (a kind of birth certificate for Ltd companies – more time, more money) and then a letter from some local church that it was after cash under a 1956 statute that was a continuation of some episcopal gouging that had been going on since the 1600s.

The note includes the intriguing line that ‘the word ‘voluntary’ is there to protect conscientious objectors…but the church is entitled by statute to request the voluntary church rate from all non-resident ratepayers in the parish’ so thanks for that, get in line & let’s move on to the news:

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FULHAM SHORE – TRADING UPDATE, CASH AT HAND, INCREASED DEBT FACILITY, EXPANSION PLANS & SIGNING OF FIRST INTERNATIONAL FRANCHISE AGREEMENT:

Fulham Shore, the owner of the Franco Manca and The Real Greek chains of restaurants, has this morning updated on trading, an increased banking facility, its store opening programme and its international expansion.

Strong trading:

• FUL says that its ‘restaurants continue to trade strongly, as previously reported, and ahead of the comparative period in 2019.’ It adds that ‘since the Group’s AGM, revenues in our group of 17 restaurants in the West End of London and city centre office locations have performed particularly well and are now +3% ahead of the same weeks in 2019.’ These had previously been lagging the performance of the group’s units as a whole. FUL says ‘over this period, they have gradually been increasing from the figure of minus 3% reported 5 weeks ago as office worker and tourist footfall improve.’

• It says sales of delivery meals remain higher than 2019 levels ‘implying that the Group’s delivery customers continue to choose our quality food and value pricing.’ It says ‘this strong revenue growth post September 2021 continues to be ahead of management’s expectations.’

Use of funds – accelerated expansion.

• FUL says it has opened a further Franco Manca in Blackheath Village since its AGM and ‘this takes the total number of restaurants operated by the Group to 76 (56 Franco Manca and 20 The Real Greek).’ It is on site at three other sites and will be at 79 units by Christmas. FUL says ‘the Group’s pipeline continues to grow with 20 more potential sites in solicitors’ hands for both new Franco Manca and The Real Greek restaurants.’

Cash at hand and increased banking facility.

• Re banking, the company says it has fully repaid the £8.5m remaining balance of its UK Government backed £10.7m Coronavirus Large Business Interruption Loan and has ‘entered into an extension of its revolving credit facility with HSBC from March 2022 to November 2024 and an increase of this facility from £14.25m to £17.0m.’ It says ‘there are no material changes to the terms of the RCF, other than a small increase in the interest margin’ and adds that ‘the increased RCF will both aid increased expansion plans and support further investment in central team resource as Fulham Shore accelerates its opening programme.’

• FUL says that as of 3 November 2021 it ‘had net cash, excluding lease liabilities recognised under IFRS16, of approximately £4.3m, showing net cash generation of almost £8m since the beginning of the financial year, despite opening four restaurants during this period and currently building three more.’ It adds ‘this net cash position, combined with the extended RCF and our existing £0.75m overdraft facility, give the Group financial headroom today of over £20m.’

International franchising (Greece signed, others being considered):

• FUL has also announced that it has signed a franchise agreement for Franco Manca in Greece with ‘Franco Manca EE Limited, a company founded by a group of experienced local operators and investors.’ It says ‘David Page and Nabil Mankarious, both directors of the Company, each will have a beneficial interest of 5% of the issued share capital of Franco Manca EE Limited. The Greek franchisee gained encouragement from the investment by two of Fulham Shore’s Directors.’

• FUL says ‘the franchisee has plans for a minimum of 6 restaurants to be opened over the next three years. The first opening will be in the Athens metropolitan area and two sites are being secured in Nea Filadelfia and Peristeri.’ It says ‘the Group continues to explore a number of additional international territories where franchised restaurants could be opened, and is currently in discussions on territories in Europe, Middle East, and Africa.’

Company comment:

• David Page, Chairman, says ‘Fulham Shore continues to experience growing sales across both our businesses. Many of our restaurants throughout the UK continue to break trading records on a regular basis.’

• He says ‘this is due to our customers returning to us in great numbers since trading restrictions were lifted and our loyal teams who have stuck with us during a difficult 18 months’ and adds ‘we are maintaining margins in both our businesses as the rise in our restaurant sales is enabling the Group to deal with the well flagged inflation of utility costs and the wage increases that have been instigated.’

• He says the debt extension and cash generation are ‘reinforcing the Group’s strong platform for continued expansion’ and adds ‘we are accelerating our growth in the UK and abroad. We continue to trade ahead of our own expectations and have a strong pipeline of exciting new locations.’

Langton comment:

• Hospitality has been around for millennia. It has survived fires, floods, famine, wars and pestilence before and we have little doubt that it will do so this time.

• There will, therefore, be relative and absolute winners and we believe that Fulham Shore is one of them. It is taking share, it has the confidence of its banks, has begun to expand internationally and it is stepping up its expansion programme in the UK.

• There are also losers. And site availability has improved markedly. Competition for sites is reduced, rents are coming down, inducements from landlords can be had and the market, for successful restaurant operators, is likely to remain positive for some considerable time to come.

• This is not a closely guarded secret and many seem to be able to talk the talk. Fulham Shore is showing that it can walk the walk.

PUBS & RESTAURANTS:

Trading:

Markit has released its Services PMI numbers for October showing that the pace of recovery across the UK’s service sector (including hospitality) picked up pace. It says ‘UK service providers indicated a sharp and accelerated rise in business activity during October. This was driven by the strongest increase in new work since June. The reopening of the economy and looser international travel restrictions helped to boost demand, with new export sales rising at the fastest pace for just over three years.’

Markit goes on to say that this expansion was not without its issues as ‘stronger demand, staff shortages and stretched supply chains all contributed to a spike in inflationary pressures during October.’ Markit says ‘both operating expenses and prices charged by service providers increased at the steepest rates since the survey began in July 1996.’ The figure for October was 59.1, up from 55.4 in September.

Labour:

Markit says ‘around 30% of the survey panel [providing the data behind October’s PMI number] reported an increase in employment numbers during October, while only 13% signalled a reduction. The resulting index pointed to the second-fastest rise in workforce levels since June 2014. Service providers commented on exceptionally strong demand in the hospitality, leisure and transportation sectors.’ Below, implications of strong demand, employment issues & inflation.

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Brinker International Inc in the US has reported that it continues to see labour-shortage issues. It says it should be OK for Christmas. Brinker says ‘there are markets that are still not fully staffed, which is limiting their capacity.’

Supply:

Next has suggested that supply issues could abate in the run up to Christmas. It did warn of a sales slowdown, however, and the shares fell 3.3%. Next may have stocked up already as Maersk says that shipping problems are ongoing. Micro-analysis runs the risk of affirmation bias (that is, you see what you expect to see) but the BBC reports that the British Meat Processors’ Association is sending carcasses to the EU for butchery and is then having to reimport the meat. This will add cost.

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The consumer:

We will know later today if interest rates in the UK are going up before or after Christmas as the Bank of England’s MPC will report at noon. In advance, however, The Telegraph reports that ‘the end of ultra-low mortgage rates is here.’ It says ‘lenders have wasted no time in ditching the their best deals.’

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HGEM has found that climate awareness is impacting consumers’ spending habits. It says ‘47% of consumers have reconsidered their perception of luxury because of climate awareness.’ It says that ‘almost 4 in 5 respondents experience an element of guilt that comes with buying luxury goods, due to excessive packaging, which may be the reason why most customers (83%) now prefer to spend their earnings on experiences, rather than goods.’

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Working from home.

Real Estate advisor Avison Young has concluded that ‘slowly but surely, workers in London are returning to the office, kickstarting the great experiment in hybrid working.’ It has looked at data on mass and says the ‘steady drift back to work has been underway for some months now in office districts in London, which gained momentum during September and October.’

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COMPANY & OTHER NEWS:

DPP has updated on its fund raise saying that it has completed a placing and subscription of £3m worth of new equity at 8p per share. The company reports that the group’s largest shareholder, Malaccan Holdings Limited, is committing £1.35 million via the Placing. It says ‘as a result of Malaccan’s participation in the Fundraise, their total interest in the company remains unchanged at 45.0% of the Company’s issued share capital on Admission.’

Shares in Hostmore, which owns restaurant chain Fridays, has been admitted to trading on the stock exchange. The shares fell by 18.5p or 14% yesterday. CEO Robert Cook says ‘for Hostmore, this is a significant milestone for our two brands and provides us with a solid platform to develop our business through a combination of both the organic addition of individual sites and the acquisition of appropriate smaller brands.’

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City Pub Group has reported that Tarquin Williams, who has been the Chief Financial Officer since 2015, will ‘stand down as Chief Financial Officer on 29 November to have a career break and then seek new challenges.’ It says ‘the Board wishes to place on record its gratitude and appreciation to Tarquin for the significant role he has played in the Company’s growth and development and wishes him all the best for the future’ and adds it is ‘pleased to announce the appointment of Holly Elliott to the Board as Chief Financial Officer of the Company, with effect from 29 November 2021.’ Holly joins from Honest Burgers where she was interim CFO.

The MA reports that Brakspear, which yesterday announced that it is to rebrand its managed house unit, is looking to expand managed arm by ‘at least 2 a year.’ It says the company is actively searching for new sites that are larger venues in rural locations and market towns in the south east and Cotswolds. The units should have a strong food trade, event space and preferably have accommodation.

Burger & Lobster is reported set to accelerate its expansion in the UK and internationally. The nine-strong, London-based restaurant group says it has a ‘strong pipeline of sites in place.’ A 10th restaurant in London is to be announced early next year. Founder Misha Zelman says it has ‘been an incredibly challenging 18-months for hospitality.’ He adds ‘the business has shown resilience and adaptability, giving us the confidence to open more sites both here in the UK and overseas.’

Moody’s reports that The Coca-Cola Company’s purchase of the remaining 85% of BODYARMOR that it does not already own, largely to be funded with cash, is ‘credit positive for Coke despite the high purchase price because it adds full control of the fast-growing sports drink to the company and does not materially affect gross leverage since it will be largely funded with cash on hand.’

Corbin & King’s has delayed the opening its Manzi’s restaurant in London’s Soho until next year.

Community pub company Hawthorn has announced that Matt Ward will step down as Chief Financial Officer on 31st January 2022. It says ‘Matt played a key role in the sale of Hawthorn Leisure to NewRiver in May 2018 and subsequently the decision to explore an IPO, which culminated in Hawthorn being sold to Admiral Taverns in August 2021.’

LEISURE TRAVEL & HOTELS:

Airline connectivity to Malta is reported to back pre-Covid levels. Connectivity isn’t the same as passenger numbers but it is a positive development nonetheless. Travel Weekly quotes the island’s Minister of Tourism, Clayton Bartolo, as saying ‘Malta was the fifth least country affected within the EU with regards to connectivity issues. And I believe that now we are back to pre-pandemic levels, where connectivity is concerned.’

Travel Weekly reports that liquidators have been appointed to close down Teletext Holidays parent Truly Travel.

Marriott has reported Q3 numbers saying that REVPAR in the quarter was up 118.4% worldwide on last year. The US & Canada was up 134.7% with the group’s international markets up by 76.3%.

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OTHER LEISURE:

Ten Entertainment Group has updated on trading saying that ‘the Group has continued to perform very well since the half-year results in September 2021.’ It says ‘demand has exceeded expectations, and like-for-like sales growth has remained above 30% through September and October, with half-term setting a record for the Group. We are now looking forward to a successful Christmas trading period to end the year.’

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Escape Hunt yesterday announced that it has acquired Boom Battle Bars for a total consideration of £17.38 million to be satisfied by the initial payment of £9.88 million in cash and deferred consideration through the issue of up to 25,000,000 Consideration Shares payable subject to an earn-out. The company also announced a Placing, Subscription and Open Offer at 30p a share to raise £14.775m and a name change to XP Factory Plc. Of the £14.775m raised, some £9.88 million will be used to satisfy the cash element of the consideration payable for the proposed acquisition of Boom Battle Bars.

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MGM reported Q3 numbers yesterday that beat analysts’ profit and revenue forecasts. The company announced earnings per share of $0.03 on revenue of $2.71bn. The company is also reported to be putting its Mirage in Las Vegas up for sale. The sale will help the company to reduce its exposure to the Las Vegas Strip.

The Times reports that Bruce Springsteen is in talks to sell the rights to his recorded music to Sony Music, along with his publishing catalogue.

FINANCE & MARKETS:

The US Federal Reserve yesterday said it would begin scaling back its $120bn monthly bond-buying programme this month in order to dampen surging inflation. The FT points out that ‘the decision is the culmination of months of debate among Fed officials about the level of support the world’s largest economy needs as price pressures begin to extend beyond the sectors most sensitive to the post-pandemic reopening.’ The Bank of England’s MPC reports this lunchtime.

For Markit’s October Services PMI see pubs & restaurants above.

The Nationwide yesterday reported that house price growth for the year to October was some 9.9% on an annualised basis, down only slightly on September’s 10.0%. The Nationwide says demand has remained strong despite the stamp duty holiday finishing. It says, however, that the outlook is ‘extremely uncertain’.

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Sterling a little better at $1.3656 and €1.1587. Oil price lower t $81.51. UK 10yr gilt yield up 4bps at 1.07%. World market broadly better yesterday although London was down. UK market set to open up around 29pts as at 6.30am.

RETAIL WITH NICK BUBB:

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