Langton Capital – 2016-12-16 – More on Punch, Fulham Shore, interest rates & other:
More on Punch, Fulham Shore, interest rates & other:
A DAY IN THE LIFE:
More meetings yesterday. On to the news:
PUNCH TAVERNS – CO AGREES TO LOWEST BID:
• Patron & Punch announce agree to ‘recommended final cash offer’ for company of 180p per share
• The initial approach (at least the first that was made public) was at 174p
• PUB bid has agreement of 52.3% of shareholders. It says this is irrevocable (but only in the absence of a bid >200p). Q important, that.
• Punch has the agreement of the directors, Glenview, Avenue Capital and Warwick Capital. But only if there is not a materially better offer
• Punch. Bid is not necessarily final and irrevocable agreements are not necessarily irrevocable. Over to you, Mr McIntosh
• Punch bid. Lots of surplus words. Including ‘irrevocable’, perhaps. Also, premia to recent equity share price levels arguably meaningless
• Punch offer c40% premium to 3dys ago but c20% discount to price at which refinancing backed by supportive shareholders in 2014
• Punch. Rival potential bidder Emerald was last seen willing to pay 185p. It would have to top 200p to stay in the game
• Punch. Various premia are mentioned in offer RNS but they mean little in the context of a company in Punch’s position
• Punch is (arguably) extremely valuable in the eyes of a brewer such as Heineken. Punch’s NAV is 285p
• Punch has argued its NAV is fair at 285p. It would take a buyer c20yrs or more to construct such an estate. But bird in hand etc.
• Punch. Bidco says it would have to use some disposal proceeds to fund the aggregate Offer Consideration
• Punch. Patron says re its break-up proposal ‘our offer creates an exciting opportunity for Punch as a more focused business.’ It continues ‘under private ownership, with strong financial backing, and a commitment to continued investment, pubs and publicans will have our full support to deal with changing market dynamics and provide their customers with the best possible offer. These are high quality pubs with excellent future potential.’
• Punch bid. Heineken says ‘this transaction is a significant step forward in our strategy to unlock value in the UK pub market.’ Not sure what solace that is to Punch’s shareholders. It adds ‘the performance of our Star Pubs & Bars business clearly shows that well invested pubs, in the hands of skilled and ambitious independent operators can outperform.’ Ditto.
• Punch. Chairman Stephen Billingham says ‘Punch Board and management team have positioned Punch to drive long term value for shareholders and our recent performance has demonstrated the successful execution of this strategy reflecting the hard work and quality of the whole Punch team. While the Board did not solicit this offer for the company, we believe this is a good outcome for shareholders as the offer provides cash certainty at a significant premium.’ Hum.
• Punch, external comment.
o PMA has industry figures expressing ‘serious concern’ over Heineken’s planned bid as it could disadvantage tenants
o British Pub Federation writes to Competition Commission asking it to scrutinise the takeover
o Greg Mulholland MP warns that the emergence of a giant integrated brewer could be ‘very worrying’. He is reported by the PMA as saying ‘it would not be in the interests of consumers or licensees to have Heineken buying Punch. To have a giant brewing pubco taking on one of the two giant pub-owning property companies would be a huge step backwards and could restrict choice for both licensee and customer alike and this must be referred to the Competition Commission. There is also the danger with Heineken wanting pubs to stock their own products that they would be looking to ‘churn’ existing Punch licensees to be able to do so, which would be completely unacceptable’.
o Heineken already owns 1,049 pubs through its Star Pubs & Bars division. Adding Punch A would take it through 3,000
o Telegraph says ‘shares in Punch surged 7.9pc to 191p yesterday, suggesting traders expect a counterbid to emerge.’
o Punch chairman Stephen Billingham reports Heineken discussions been ongoing for ‘more than a year’
o Billingham says ‘the Heineken-Patron offer has maturity which is available to the shareholders to accept, whereas the Emerald offer does not have that degree of maturity and there is uncertainty over the source of the funding.’ He adds ‘the fact that over 50pc of the register has already signed up is an indication that this deal offers good value to shareholders.’
o Telegraph points out deal will need 75% approval.
FULHAM SHORE H1 NUMBERS:
• Fulham Shore has reported H1 numbers (to 25 Sept) saying that ‘it has been a busy and successful 6mths for the group’.
• FUL H1: Group says ‘we have increased turnover, profits and the number of restaurants we operate.’ FUL adds ‘our restaurants are popular and busy with customers who want to eat great food at affordable prices.’
• FUL H1: Stresses value for money is at the centre of the offer. Entry level pizza & glass of water for <£5. And this in central London. Costs twice that at some competitors.
• FUL H1: Says ‘we expect to end the current financial year in March 2017 with around 43 restaurants, dependent on how quickly our builders work in the spring. We are planning more Franco Manca and The Real Greek restaurants for 2017/2018.’
• FUL H1: Revenues of £19.9m vs £13.9m in H1 last year. Headline EBITDA £3.7m vs £2.6m last year. Operating profit £2.4m vs £1.7m.
• FUL H1: Group opened 7 Franco Manca pizzeria in London, Brighton & Guildford in the first 6mths of the year. Says ‘this took Fulham Shore’s restaurant portfolio as at 25 September 2016 to 36 restaurants made up of 9 The Real Greek, 26 Franco Manca pizzeria and 1 Bukowski Grill.’
• FUL H1: Group generated £6.4m of net cash, spent £5.7m on capital projects. Net debt £3m vs £0.3m last year.
• FUL H1: No dividend but group reiterates they ‘will be paid to shareholders when the Directors believe it is appropriate and prudent to do so.’
• FUL H1: Current trading. Six new restaurants opened since H1 end. Co now has 42 & should have 43 by year end. New Franco to open in February.
• FUL: New openings. Says ‘contracts have recently been exchanged on three sites in very different locations in and around London: Putney (near Putney Bridge), Russell Square and Richmond, Surrey, all expected to open in the Spring of 2017.’ Re the future ‘great sites continue to be offered to us as we continue to open in London and now around the UK.’ FUL adds ‘however, we are determined that our customers and shareholders should be the beneficiaries of our expansion, not property owners or agents. Therefore, we will continue to take space that is just about big enough for us so that we are not paying for space we don’t use and the rent roll is that much lower. This helps us to keep our menu prices below our competitors for the benefit of our customers.’
• FUL: Innovation in site selection. Says ‘Franco Manca is now occupying some spare window space at Debenhams in Westfield London.’ It adds ‘this has proved successful and we are now looking at building more relationships with retailers and licensed premises owners who have surplus space facing the high street which could be utilised by the Group.’
• FUL: Says current positioning ‘puts us in a sound position for our future expansion of the Group’s excellent restaurant businesses.’
• FUL to accelerate openings. Says ‘we have slowly increased the number of openings per year we can manage.’ It added 9 in the year to March 2016 and 13 so far this year. Fulham Shore says ‘we expect to increase this number in London and across the country in the next financial year.’ It says ‘sites are available, our restaurants are busy and popular, our prices are good value and our staff are well motivated.’
• FUL: Says ‘we…look forward with confidence to the further expansion of our Franco Manca and The Real Greek businesses.’
PUB, RESTAURANT & DRINKS PRODUCERS:
• The ALMR says it has been working on a Brexit deal that best serves its sector in what has proven to be a ‘turbulent year’.
• Research from the ALMR/CGA Peach Future Shock series suggests bars, pubs, and restaurants along the Piccadilly Line will benefit materially from the night tube.
• Industry groups claim that the number of adults drinking at high levels has fallen despite men drinking more than the recommended weekly amount.
• Be At One saw turnover rise 32% to £29.8m and store EBITDA grow 30% to £1.8m in the year to 27 March 2016, during which it opened six new bars.
• Deliveroo is teaming up with Diageo to launch The Bar – an alcohol delivery service which is available across London.
• Prosecco sales in Europe continue to outstrip Champagne sales in both volume and value, appreciating by 24% versus 0.9% in terms of value, per IRI.
• Retail sales volumes rose by 5.9% year-on-year in November thanks in part to Black Friday discounts and rising fuel costs. Paul Sirani, chief market analyst at Xtrade, said: ‘The forecast for rising inflation next year is a big worry for consumers. Prices look set to soar in 2017 and households could be put under huge strain.’
• The Lancet Public Health journal claims that the UK’s sugar tax could reduce the number of obese children by 7%. The journal also states that the tax that is expected in April 2018 would also lead to fewer people with tooth decay and type 2 diabetes.
LEISURE TRAVEL & HOTELS:
• The US hotel industry has posted positive movements in its three key performance metrics for the week 4-10 of December, reports the STR. Occupancy was up 1.7% to 59.2%; average daily rate increased 3.9% to $120.12 and RevPAR rose 5.7% to $71.08.
• Elegant Hotels announces Jeffrey Singleton has been appointed as Chief Financial Officer on an interim basis with immediate effect. It says ‘Jeffrey joins the Group having until recently been Group Financial Controller and Corporate Finance Director of Rocco Forte Hotels’
• Elegant Hotels ‘reiterates that it expects the Group’s full year results for FY16 to be in line with market expectations.’ As previously announced, the full year results will be released on Tuesday 17 January 2017.
• Ongoing holders of On the Beach to place 9.6% of company on the market. Says this was achieved at 240p
• British Airways cabin crew have voted in favour of strike action over pay, with 79% of ballot voters opting to strike on a turnout of 60%
• Agents face ‘embarrassing and difficult’ conversations with clients following Mark Warner’s surprise move to levy a surcharge on ski breaks.
• A study of 178 travel buyers from The Business Travel Show finds more than 28% of travel managers are using services such as Uber and Airbnb, compared to 8% in 2015.
• Southern Rail strikes show no sign of resolution, prolonging Britain’s worst rail disruption for two decades.
• Rupert Murdoch’s Twenty-First Century Fox has agreed a $14.6bn deal to buy Sky that will help the resulting entity take on new competitors such as Netflix. People familiar with the matter told Reuters the American media corporation pounced after Britain’s vote to leave the European Union in June sent the pound down about 15% against the U.S. dollar and Sky’s share price tumbling.
FINANCE & MARKETS:
• The Bank of England has voted unanimously to maintain interest rates at a record low 0.25% and is predicting that inflation will overshoot its 2% target next year. The Bank also voted to continue to buy and hold £435bn of UK government bonds and £10bn of corporate debt.
• Bank of England says growth has been “remarkably steady” since 23 June.
• Bank suggests growth could falter in 2017. Says that inflation may set in but more slowly than some fear
• Eurozone manufacturing turns up in Dec. Measure of 54.9 vs 53.7 in Nov. Any number >50.0 implies growth
• Greek parliament approves €617m pay-out to pensioners over Xmas in defiance of creditors. PM Alexis Tsipras has said that Greece would not be blackmailed.
• World markets: UK & Europe up yesterday & US also higher. Far East mostly up in Friday trade
• Brent around $54.30
• Sterling lower at $1.242 and 119c vs Euro
• UK 10yr gilt yield up to 1.49%. Rates higher at the long end in the US with 30yr money now at 3.16% vs 3.14% day earlier
• The mortgage market is likely ‘to plateau’ over the next two years, according to the Council of Mortgage Lenders (CML), which has downgraded 2017 forecasts.
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Punch Taverns. Two bid approaches (174p & 185p). Both need board approval. NAV 285p and co back in growth.
• Punch Taverns. Why sell cheap? Well a bird in the hand. But would take a bidder 20yrs & 285p per share to build this estate
• Punch is back in growth. It’s debt is fixed and, if inflation were to return, this is potentially very valuable
• Coffer Peach Tracker has Nov LfL sales +1.1%. Says ‘London sees upswing after last year’s post-Paris nervousness’
• 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: 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. Total sales in Nov +4.1% showing impact of new openings.
• Punch in context of wider economy. UK has $161bn deficit w. rest of world. Must transfer £10bn/month. Punch, incl. debt, is a week’s worth
• Just Eat has acquired rival hungryhouse from Delivery Hero in a deal worth up to £240m, with £40m dependent on performance
• Just Eat has also announced that it has agreed the acquisition of SkipTheDishes for Canadian $110m
• Around 43% of workers in restaurants, QSR, hotel and pub sectors are foreign nationals, according to figures from Fourth Analytics
• NHS reports says children are drinking and smoking less than ever. U16 cigarette consumption is said to be down 2/3 since 2003
• Airports are said to be making £100m more from foreign exchange since Sterling dropped against the Euro
• As widely expected, the US Fed yesterday put rates up by 0.25% to between 0.50% and 0.75%. US long bonds no change
• UK unemployment fell slightly to 1.62m in the quarter to end-Oct. Unemployment rate steady at 4.8%
RETAIL NEWS WITH NICK BUBB:
• Trade Press: The front cover of Retail Week magazine today is a photo montage of the 8 Headline makers of 2016, with the usual suspects (ie Philip Green, Mike Ashley, Dave Lewis, Mike Coupe, Steve Rowe and Jeff Bezos), plus Paula Nickolds and a surprise, Jill McDonald of Halfords. Drapers magazine goes with its “Top 100” list of the most influential peole in Fashion, noting that two names dominated 2016: Mike Ashley (at number 14, down from number 3) and Philip Green (number 18, down from number 5) and that, “while still influential, their business practices have been called into question this year”. Meanwhile, new entries and high risers have shaken up the list. At the top the estimable Simon Wolfson of Next has reclaimed the Number One position from Paul Marchant of Primark (who falls to 4th), with the lugubrious Peter Cowgill of JD Sports jumping to 2nd and Christopher Bailey of
• News Flow Next Week: Next week is very quiet on the company news flow front, with every retailer preoccupied with planning for the last-minute shopping rush on Christmas Eve (next Saturday) and then the Boxing Day Sales (next Monday), but with the end of the month (and the year!) approaching rapidly now, the CBI Distributive Trades survey for “December” is out on Monday morning and the monthly GFK Consumer Confidence survey is out on Friday.