Langton Capital – 2016-03-23 – Daily Wrap: TCG, JDW, Premier Foods & other:
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:
THOMAS COOK UPDATES ON Q2 TRADING:
• Bad day for a travel stock to update on numbers yesterday.
• But shares recovering some of their poise in Wednesday trading. Up around 3% at time of writing.
• And Fosun, holder of 5.8% of TCG equity and stated buyer of 4.2% more was active in London yesterday as it looked set to close a £300m deal to buy the Thomas More Square Complex in what would be its largest real estate deal in Europe.
JD WETHERSPOON’S SHARE BUY BACK:
• Feeling of déjà vu here but JDW has once again been buying back shares.
• Yesterday bought back 70k at 699p per share.
• Takes the total since 20 Jan to 2.03m shares.
• Group spent £13.6m (at 668p per share) buying shares back in the year to date.
PREMIER FOODS ATTRACTS BID:
Group rejects all-cash bids at 52p and 60p as they ‘materially undervalue…etc.’
• McCormick & Co. (US:MKC, $12bn mkt cap, c130yrs old) approached PFD with 52p all-cash offer on 12 Feb. This was rejected.
• It came back at 60p cash on 14 March. Also rejected.
• McCormick now subject to Put-Up-Or-Shut-Up deadline of 5pm 20 April.
Rationale for Bid:
• Guess we’d have to ask McCormick but new markets (for MKC) beckon & brand overlap looks obvious
Rationale for Rejection:
• Chairman David Beever (corporate finance veteran, vice-chairman of SG Warburg etc.) says bid ‘represents an attempt to capture the upside value embedded in Premier’s business that rightfully belongs to Premier’s shareholders’
• Says it ‘does not fairly reflect the benefit to McCormick of gaining control of Premier’.
• Says PFD’s capital structure (debt & pension deficit heavy, equity light) means that we should focus on premium to EV
• The premium here is clearly much less significant
• Co sees ‘strong future for an independent Premier’ driven by product innovation, exports etc.
• Recent innovations have ‘delivered gains in volume, value [and] market share’
• Co is ‘at an inflection point in terms of its longer-term prospects’
• Is upping sales guidance from 1-2% p.a. to 2-4% p.a.
• Expectations for FY to Mar 16 unchanged, some asset carrying values to be written down
• Tie up with Nissin (Japanese noodle co, turnover c£2.5bn):
• Perhaps fair to say ‘co-op agreement’ comment has been rushed out
• No flesh on bones, may lead to strategic shareholding, seat on board (of PFD) etc.
• We’ve gone out on a limb with this one – see earlier comments/notes on sugar legislation, milk (and other input) price, pension ‘deficit’ etc.
• We believe the company’s ‘inflection point’ comment. Not only because trading is improving but also because the group has become a bid target.
• Trading: Re marketing spend, quality hires, capex, product development, exports, debt stability etc. the group is much-improved
• Other: Directors bought shares in material amounts in 2014 and 2015
• The pension fund ‘deficit’ could be a surplus. Who in their right minds would fund 40yr pension liabilities using temporarily-low 10yr bond yields? In which case why define the ‘liability’ that way?
• Actions speak louder than words & McCormick seems willing to put its money where its mouth is.
Bid Approach: A Defining Point between Eras?
• The future for an independent Premier has brightened -but independence is no longer a given
• The bid approach marks the defining point between eras
• PFD was a stale cake, a financial basket case – only now, it would appear, it isn’t
• The group is attractive to its competitors & we have some evidence (admittedly the approaches were only ‘indicative’) that the pension ‘deficit’ is not a poison pill
• And the co is cheap. It is trading (including bid spec., debt & pension deficit) at around 1.5x EV. Unilever, for example, is trading at 2.9x.
• Hence if (and it’s a big if) a bidder could reduce costs & open up new markets for PFD products, why wouldn’t it be prepared to pay quite a lot more than the above?
• Here PFD’s geared nature favours equity. Some 2.2x EV, for example, equates to 110p for shareholders
• Shares are trading below the approach & even below 12mth highs. Yet the co is 1) much improved and 2) may be ‘in play’. Go figure:
COMMODITY & INPUT PRICES:
• Oil price up a little overnight. Off the top but trading at around $41.40 per barrel.
• Gold price sharply down over last two days. Now trading at around $1,225.50 per ounce.
• Gold oil ratio (number of barrels it takes to buy an ounce of gold) sharply lower at 29.6 versus 30.2 yesterday and 31.9 as recently as last Tuesday. Suggests the markets are becoming a little more risk-tolerant.
• Lumber prices (think Mondi) up 12% on the last 12mths.
• Sugar price picking up sharply. Now some 26% higher over the last 12mths.
RANDOM INFORMATION, HOPEFULLY NOT ALL OF IT USELESS:
• Sterling down against both the US$ and the Euro.
• Betting companies have their ‘worst Cheltenham in living memory’.
THIS MORNING’S TWEETS:
1. Premier Foods receives bid approach at 52p. Rejects it. Gets another at 60p. Rejects that too as it ‘represents an insufficient premium’
2. Premier Foods announces co-op agreement with Nissin Foods to ‘create longer term value’.
3. Greene King Feb Spend Tracker suggests confidence fragile, more consumers feeling worse (34%) about their position than better (29%)
a. GNK Tracker: Cold weather also held back leisure spending in Feb. Both London & provinces saw lower spend
b. GNK Tracker: Says spend down most noticeably in London & South East, down 9% year on year. Rest of UK down 6%.
c. GNK Tracker: Spend on eating out down 4% in Feb, drinking out spend down 7% y-o-y. Drinking down 7% in London, up 3% elsewhere
4. Horizons’ annual briefing hears food service spend rose by 2.8% last year or by around 2.0% in real terms
a. Horizons’. Briefing hears new openings been a feature of last few years with a number of commentators mentioning S-word (saturation)
b. Horizons’ briefing hears from property investor that scheme planners getting greedy, and ‘putting in too much A3’.
c. Horizons’ briefing hears ‘many’ restaurants in new-build developments disappointing on numbers as capacity risen sharply
d. Horizons’ briefing hears overall outlook for 2016 likely to see expansion but at a slower rate. Says market is ‘drifting down’
5. Young & Co announces managed house boss Patrick Dardis is to succeed Stephen Goodyear as CEO of group on 5 July
6. Eclectic has released results for its ‘in line’ H1, with sales down from £12.12m to £10.72m & diluted EPS swinging from a 4p loss to 1.8p a share
7. Bookings to Turkey have slumped some 58% year-on-year, according to Barrhead Travel, which has seen Spain bookings rise by a similar amount
a. Shares in European airline groups slid on Tuesday as bombings in Brussels brought back terrorism concerns across Europe
8. William Hill warns on trading saying ‘in y-t-d two main factors have combined to deliver a weaker than expected Online performance.’
a. William Hill says adversely impacted ‘by the worst Cheltenham results in recent history.’
9. UK CPI inflation unchanged at 0.3% in Feb, with food prices & particularly veg seeing the biggest rise according to ONS.
10. A top official at the Fed has said raising short-term interest rates will not necessarily lead to higher interest rates in the long term
11. House prices have risen significantly in England in the past year, outperforming the rest of the UK by some margin.