Punch Taverns bid(s), Peach Tracker Just Eat & other:

A DAY IN THE LIFE:

Believe it or not, still too busy. On to the news:

PUNCH TAVERNS BIDDING CONTEST:

Where we are now (2 potential bids):

• Yesterday, Punch Taverns said it ‘notes the recent speculation’ and confirmed that it had received a proposal from Patron Capital

• This is at 174p. Punch says the offer is cash and would see Heineken take the Punch A securitisation with Punch B going to Patron. It adds ‘the Patron Proposal is conditional on, amongst other things, the recommendation of the Board.’

• Punch adds ‘the Board is in advanced discussions with Patron and Heineken regarding the Patron Proposal.’

• Punch added ‘the Board also confirms that it has also received an approach from Emerald Investment Partners’ at 185p

• Punch adds ‘the Board is in discussions with Emerald regarding the Emerald Proposal.’

• The group adds ‘there can be no certainty that any firm offer will be made by either Patron or Emerald.’ It says ‘a further announcement will be made in due course.’

• Later Emerald confirmed its cash offer. It says it ‘reserves the right to reduce the Proposed Offer Price by the amount of any dividend (or other distribution) which is paid or becomes payable by Punch to its shareholders prior to any offer being made or prior to such offer being completed.’

• Emerald controls 2.2% of Punch’s equity. Its founder, Alan McIntosh, is the former Punch finance director who helped to build the company

• Heineken’s offer values Punch’s equity at about 386 million pounds while Emerald’s offer

Considerations (undervalued on paper but a bird in the hand):

• Vertical integration makes perfect sense. So Punch is ‘worth’ more to Heineken than it is to Emerald.

• Punch’s NAV is 285p. It would take a bidder 20yrs (and 285p per share) to build an estate of this quality.

• The group is back in growth. It’s debt is fixed and, if inflation were to return, this is potentially very valuable

• The shares may be worth more, perhaps considerably more, than the amounts now on offer.

• That said, a bird in the hand (and it is not yet in the hand) is worth more than one in the bush

• The FT reports Langton as saying ‘Punch’s shares are still trading at a totally unjustified discount to net asset value. The group has 3,500 pubs and is back in growth. The securitisations represent [a] very large and valuable parcels of pubs and, for Heineken, the integrated business model of brewer, pubs and consumer makes perfect sense.’

• Bidders now have until 11 Jan to make a formal offer or walk away. Both parties want/need board approval

• The MCA says ‘Mark Brumby, of Langton Capital – who has repeatedly argued that Punch is undervalued – says the price still looks cheap to him. The Heineken/Patron bid potentially works out at £620k per Punch pub but Brumby told MCA: “The property valuers tell us the Net Asset Value of Punch is 285p per share – so essentially if you wanted to build an estate of Punch’s quality that’s what it would cost you – plus the 20 odd years it would require. If that’s the case, why should anyone be able to walk away with it for under 200p?”’

• The MCA continues ‘’what Heineken’s approach shows is that the vertically integrated model is back in fashion. It makes sense to brewers again after the damage done to it by the Beer Orders. The big global brewers are clearly in an acquisitive mood at the moment and constantly seeking to get the edge on their competitors. In my view it would make sense for all of them to own sizeable pub estates. I don’t necessarily see this as a catalyst but it could prompt other big brewers to take another look at the UK pub scene and whether there are deals to be done.’

COFFER PEACH TRACKER FOR NOVEMBER:

• Coffer Peach Tracker has Nov LfL sales +1.1%. Says ‘London sees upswing after last year’s post-Paris nervousness’

• Tracker says ‘managed pub and restaurant groups saw collective like-for-like sales grow 1.1% in November against the same month last year, according to latest figures from the Coffer Peach Business Tracker – with London providing the biggest increase.’

• Tracker: London LfLs +3.5% in Nov vs a terrorism-worried November last year. Outside London just 0.3%

• Tracker: Small increase outside London could be negative if low-margin delivery growth is stripped out

• Tracker: CGA’s Peter Martin reports ‘London saw like-for-likes fall 1.5% last November and that had a knock-on effect on national figures which were down 0.2% on 2014.’ He continues ‘so although this November’s overall trading increase is to be welcomed, it has to be put in context. Outside of London, groups recorded collective like-for-likes up just 0.3%, which might be a more accurate reflection of the essentially flat nature of the eating and drinking out market post Brexit vote.’

• Tracker: Pubs +1.7% last month with drink-led pubs and bars performing better than food-led. Branded restaurant chains just +0.2%

• Tracker: Poor restaurant growth may be reflecting impact of new openings. CGA reports ‘these latest numbers come on the back of three consecutive months of sales growth in the sector in July, August and September following the EU-referendum, but a 1.0% decline in October, so operators need to remain cautious with plenty of volatility, uncertainty and competition ahead.’ It says ‘confidence in the market is slowly returning after the Brexit vote, although as our latest CGA poll of senior executives shows, longer term optimism for the coming 12 months, at 36%, is lower than confidence for the immediate six months ahead, at 50%.’

• Tracker: Total sales in Nov +4.1% showing impact of new openings.

• Tracker: Underlying 12mth LfLs now +0.7%. Hence considerably below inflation & showing impact of new openings etc.

• Coffer Corporate Leisure reports these were ‘generally positive results for November from across the UK, albeit compared to a relative low base month, will have provided hard-pressed operators with some respite in the run up to the all-important festive trading season. With consumer confidence predicted to falter going into the New Year, it will be interesting to see which operators break ranks to hike menu prices as the sector begins to see the full impact of the much-heralded cost headwinds.’

PUB, RESTAURANT & DRINKS PRODUCERS:

• Punch Taverns in the context of the wider economy.

o The UK has a $161bn deficit with the rest of the world.

o It therefore has to sell/give c£10bn of UK assets to foreigners every month.

o This may be in gilts, physical assets (think Kensington properties) or stock.

o ARM Holdings was a month’s worth.

o Punch, even with all of its debt attached, will hold off our creditors for only a week.

• Just Eat has acquired rival hungryhouse from Delivery Hero in a deal worth up to £240m, with £40m dependent on performance, paid via cash and credit. The acquisition will be subject to approval by the Competition and Markets Authority and follows Just Eat’s strategy to bolster growth via acquisitions that drive ‘generate compelling economic benefits of scale, with high operating leverage driving material synergies’.

• On a 2017 pro forma basis, assuming ownership and integration for the full reporting year, Just Eat would expect hungryhouse to generate EBITDA of between £12-15m, excluding one-off exceptional transaction and integration costs of around £1m. The Acquisition is expected to be EPS accretive in the first full year of Just Eat’s ownership, although hungryhouse incurred losses before tax for the year ending 31 December 2015 of £13.1m.

• David Buttress, Chief Executive Officer of Just Eat plc commented: ‘The UK has long been an engine of growth for Just Eat. While we have significantly expanded internationally in recent years, we have remained focused on building a high growth, sustainably profitable business domestically. Through this transaction, we would extend our market presence in the UK and sustain high levels of growth given the considerable opportunity in this market.’

• Just Eat has also announced that it has agreed the acquisition of SkipTheDishes for Canadian $110m. It reports ‘with expected revenue of CAD$23.5 million for the current year ending December 2016, SkipTheDishes is one of Canada’s largest online food delivery marketplaces and has developed a technologically-advanced delivery platform focused on lower density metropolitan and suburban areas, which are key features of the Canadian market. It has a selection of more than 2,900 unique restaurants and 350,000 active customers. SkipTheDishes is currently experiencing strong top line growth, with orders for the 10 months to October 2016 of 1.6 million, representing year on year growth of 186%.’

• Just Eat CEO David Buttress comments ‘the acquisition of SkipTheDishes will materially strengthen Just Eat’s number one position in Canada. Canada is a phenomenally exciting country for online food delivery, with significant runway for growth and a clear opportunity to drive channel shift. SkipTheDishes’ outstanding team, technological know-how and operational excellence has enabled it to develop a business model well-suited to Canada’s unique market conditions. It will complement our existing operations so that Just Eat is best-placed to address this fast-growing market.’

• Around 43% of workers in restaurants, QSR, hotel and pub sectors are foreign nationals, according to figures from Fourth Analytics. The report, based on a sample 25,000 employees, finds that some 57% of restaurant workers come from outside of the UK.

• Mitchells & Butlers has found 20 ‘smaller footprint’ sites suitable for its Chicken Society format, which is also suitable for first floor and basement spaces, writes MCA.

• Comptoir Group has acquired the assets of Yalla Yalla operator Agushia Limited from administration for £400,000.

• Love Coffee has been saved from administration after creditors voted in favour of a company voluntary arrangement (CVA). 

• Brigid Simmonds of the BBPA has credited education and awareness as the key drivers of a decline in the misuse of alcohol, as found by NHS Digital. Simmonds commented: ‘It is work that extends from national campaigns, such as from Drinkaware and national drinks’ producers, right down to the grassroots, with local pubs working with industry-led schemes such as Business Improvement Districts, Best Bar None, Purple Flag, Pubwatch and Community Alcohol Partnerships to encourage responsible drinking. This is work that must continue.’

• Fleurets has announced the sale of Casa Matta in Weaverham, Cheshire, as per Goldfinch Pension Scheme instruction. 

• Amazon has made its first delivery by drone, in the UK, with a package that arrived in Cambridge 13 minutes after being ordered.

• The Q3 Benchmarking Update for US restaurants by BDO shows weak same-store sales in America, while rising wages ate into profitability. Average same-store sales fell 0.1% in the quarter and increasing wage rates, thanks to competition for labour and rising minimum wages, led to inflated labour costs. Labour costs were 30.1% of sales, up from 29.3% in the same period last year. Leading the industry was the pizza segment, where same-store sales averaged 4.7% in the quarter, led by the 13-% same-store sales increase at Domino’s Pizza Inc.

• CBRE reports opportunities for growth in the area of smaller, managed & unbranded pubs.

• CBRE: For tenanted pubs, agent says there is room for cautious optimism

• NHS reports says children are drinking and smoking less than ever. U16 cigarette consumption is said to be down 2/3 since 2003

• NHS says children drinking less, says obesity is the growing problem

LEISURE TRAVEL & HOTELS:

• ‘Overtourism’ is a growing concern says Canadean, a consumer insight firm, as worldwide outbound trips increased by over 4.1% in 2016. Canadean finds that, while tourism has great potential to improve the lives of millions of people through increased employment, it poses serious challenges for countries or cities which lack the infrastructure to support the increases in population. Canadean Analyst, Gillian Kennedy, stated ‘the negative consequences of increased tourism numbers have already been felt with government authorities struggling to curtail the problem while retaining their profitability.’

• Gatwick handled 2.8 million passengers in November, a rise of 7.3%, putting the airport ‘14 years ahead of industry predictions.’

• Travelzoo claims that in 2017 British holidaymakers could face paying at least 10% more for their holidays. Contributing factors include: Brexit related uncertainty, sterling depreciation, the cost of oil and current geopolitical events. The study also shows that price increases are expected by four out of five UK travel companies.

• UK managing director Joel Brandon-Bravo said: ‘Until now British travel companies have been absorbing some price increases on costs such as hotel rates set in euros and many have been selling holidays at prices set before the June referendum. Businesses cannot do this indefinitely, however, and we expect pricing for next year’s holidays to increase by at least 10%. For almost one fifth (17%) of those we spoke to the increase could be as high as 15-20%.’

• Airports are said to be making £100m more from foreign exchange since Sterling dropped against the Euro

OTHER LEISURE:

• 888 updates on FY performance, says ‘the Group has continued to perform well and the Board anticipates that adjusted EBITDA for the Period will be in line with its expectations.’ CEO Itai Frieberger says ‘we have continued to make strong progress against our growth strategy by developing 888’s offering across regulated markets, investing in our proprietary platform and driving further growth in our core B2C business, led by Casino and Sport.’ He continues ‘the strength of the Group’s performance during 2016 continues to be underpinned by 888’s core expertise in CRM, marketing and business analytics which is further supported by the effort and passion of our highly skilled team. These qualities mean that 888 remains well positioned for continued future growth.’

• 21st Century Fox is expected to make a formal bid for Sky as soon as today

FINANCE & MARKETS:

• As widely expected, the US Fed yesterday put rates up by 0.25% to between 0.50% and 0.75%.

• Fed chair Yellen says Trump has brought forth a “cloud of uncertainty”. She added ‘all the [FED] participants recognise that there is considerable uncertainty about how economic policies may change and what effect they may have on the economy.’ She said ‘I am not going to offer the incoming president advice about how to conduct himself.’

• US long bond rates largely unchanged on the expected news

• Peers have warned that financial services firms could quit the City unless a transitional Brexit deal is secured

• FT reports Lloyds of London (at least Lloyds currently of London) is to set up a European base in the new year. It says ‘the 328-year-old insurance market is in the throes of choosing a destination from a short list of five and is likely to put a proposal to its members by February next year.’

• David Davis has said that Border Controls are not up for discussion

• UK unemployment fell slightly to 1.62m in the quarter to end-Oct. Unemployment rate steady at 4.8%

• UK number of people in work “slightly down on the record set recently” at 31.8m. ONS says ‘the labour market appears to have flattened off in recent months’.

• BBC reports trade negotiator Sir Ivan Rogers as saying a post-Brexit EU trade deal could take 10yrs to finalise

• Eurozone lenders have suspended their only recently agreed debt-relief plan for Greece.

• World markets: UK, Europe & US down yesterday. Far East mostly down in Thursday trading

• Oil down at around $54

• Sterling down at $1.2544

• US long rates unchanged on rate rise with 30yrs yielding 3.14%

YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:

• AlixPartners & CGA Peach’s Market Growth Report suggests food pubs & restaurant brands are pushing new openings in a cautious market.

• Tim Martin counters Brigid Simmonds’ suggestion Brexit to dominate 2017 for pubs by stating UK legislation will still have biggest impact

• JDW still buying back shares. Buys 81,410 for cancellation Monday & another 30k yesterday, both at around 818p

• There will be a rise in travellers booking hotels direct next year, per a study of European hoteliers

• Manchester airport estimates passenger numbers to be +22% over the Christmas period to c640k between 23 Dec & 2 Jan

• Shares in some of the world’s largest casino operators rallied yesterday after pro-gaming legislation in Japan came a step closer.

• UK CPI moves to 2yr high in November after sharpest rise in clothing prices for 6yrs. CPI at 1.2% vs 0.9% in October

• Inflation. Good news? Deflation isn’t a thing any more. Bad news? Inflation perhaps is. CPI at 1.2%.

• House price growth slowed in October says ONS. Prices up 6.9% in year to that date from 7.0% in September

• Later tweets: Cocoa price down 20% over the last year, down 25% or more in last 6mths. Coffee off the top but still +15% on 12mths

• Input price inflation 12.9% y-o-y. Will feed through during 2017. Final impact of CPI will be mitigated if pay rises not granted

• Later tweets: Cocoa price down 20% over the last year, down 25% or more in last 6mths. Coffee off the top but still +15% on 12mths

• Input price inflation 12.9% y-o-y. Will feed through during 2017. Final impact of CPI will be mitigated if pay rises not granted

RETAIL NEWS WITH NICK BUBB:

• JD Sports: The Channel 4 News criticism of the working practices at the JD Sports distribution centre, Kingsway in Rochdale, certainly had a big effect on the high-flying JD Sports share price yesterday, so it is good to see that the company is handling the PR crisis in a better way than Sports Direct did with its Shirebrook problems and that JD has issued a detailed RNS response this morning, which begins with this statement: “We are deeply disappointed and concerned by the footage broadcast by Channel 4, which we have seen for the first time in full this evening.  Whilst we do not believe it to be an accurate reflection of our culture, the vast majority of our people or our standards of practice and procedures, we will be launching an investigation into the implementation of our policies at our Kingsway facility”.

• Planet ONS Watch: In the real world, November (the 4 weeks to Nov 26th) was a reasonable month on the High Street, despite the distortions caused by ”Black Friday”, as per the BRC-KPMG Retail Sales survey last week (which reported overall LFL sales growth of 0.6%). But we will find out at 9.30am this morning how life was like last month on that strange parallel world, the Planet ONS, via the Office of National Statistics Retail Sales figures for November (and whether it has revised down its bullish estimates for Small Retailers in October). For what it’s worth, our friends at Capital Economics think that the strength in sales is unlikely to last and that November’s Retail Sales figures should show the start of a slowdown in spending and have pencilled in flat “seasonally adjusted sales volume” month-on-month (reducing the year-on-year growth to 5.7%), including petrol. The City
consensus is for a 0.2% rise in volumes month-on-month, although we will, as usual, be focusing on the year-on-year movement in non-seasonally adjusted sales value (and the Big versus Small Retailer split…).

• Dixons Carphone: The veteran City Editor of the Daily Mail thunders today “why is Seb James so miserable”, but the truth may be mundane and that is that he has simply been getting over a heavy cold: he apologised at the start of the analysts conference call for sounding like a scuba-diver and he was heard spluttering and coughing in the background when FD Humphrey Singer was talking on the Q&A!