Langton Capital – 2017-04-24 – More on RTN, Five Guys, Goals, spending & other:
More on RTN, Five Guys, Goals, spending & other:
A DAY IN THE LIFE:
So just as I was getting used to four-day weekends, we’re back to two.
Still, whilst this one is a full week, we’ve got another three-day weekend to look forward to and, in the perhaps unlikely event that Mr Corbyn finds himself in no10 Downing Street in early June, we’ll have plenty more long weekends in the future.
Not sure quite who’s going to pay for it though. But we’d better keep the politics to a minimum, there’s plenty of it about elsewhere. On to the news:
• Restaurant Group. We did a ring-around Friday. It you’d like details, drop us a line. Briefly we asked:
o Are there parallels with M&B? Revolving Board Room door, brands an issue, ditto locations & pricing. Unfortunately for M&B shareholders, the latter’s shares are still less than half the price they were 10yrs ago.
o How easy will it be to recruit a quality FD given recent track record on hires (and more importantly fires)? Beware yes-men and bag-carriers. Caution in the board room may be underrated.
o The long road back. Cut prices? LfLs fall. Drive volume? LfLs fall etc. etc. More capex, costs go up. Better service, costs go up. Doing the maths on margin is directionally rather straightforward.
o How, with the above in mind, does the market believe that earnings will actually rise in 2018?
o Dividend. Why? M&B, Enterprise, Punch passed their dividends. So did JDW (briefly) and most other companies cut theirs when they ran into problems in 2008/09.
o Is the skill set right? It’s not possible to run many consumer-facing companies from behind a computer screen. It’s a very hands-on business.
o What about competitor reaction? It’s tough enough to walk a tight-rope; it’s harder still if more nimble, relevant & better-located competitors are shaking both ends of the rope.
o Can the group actually exit all (or even many) of the leases that it has put on the market?
o PE interest. Yes, these operators are the masters of the declining cash flow. They’re less good, arguably, at building businesses.
• Overall, rather cautious. Arguably the best outcome is a pared-down, lower margin company & a 3yr plus recovery in a crowded market. That may not be odds-on. Less good outcomes are possible.
PUB, RESTAURANT & DRINK PRODUCERS:
• The burger restaurant chain Five Guys has held talks with its US parent company with regards to expanding beyond the five countries it currently operates. Five Guys’ UK has sites in the UK, France, Germany, Spain and Portugal; with the chief executive, John Eckbert stating ‘we think Scandinavia, Austria, Switzerland and Italy would be logical places to go.’
• England’s biggest winemaker, Chapel Down Group, has reported sales at twice the anticipated level since launching in America last October to ‘both critical and public acclaim’. Chapel Down also makes cider and beer under the Curious brand and saw earnings jump by 72% to £750,000 on the back of a 25% increase in revenues to £10.2m last year.
• Figures taken from a report for the Department for Environment, Food & Rural Affairs suggests that, although Briton’s household energy intake has fallen by 14% from an average of 2,534 calories a day in 1974 to 2,173 in 2015, the country is experiencing record levels of obesity. The findings appear to show the sedentary nature of our workplaces and lifestyles are also a factor.
• The upcoming General Election could lead to the Government scrapping its £300m business rate relief fund for small businesses. Communities Secretary Sajid Javid told MPs on Wednesday that a review of rates was not a ‘high priority’.
• Casual Dining Group reports full year results to 29 May 2016. The Café Rouge, Bella Italia, Las Iguanas & La Tasca chain reported a headline loss before tax of £69.4m on revenues of £299.1m. CDG purchased Las Iguanas & La Tasca during the period under review and it provided for £20m of exceptional costs during the year. The group also made £35m of interest payments during the year, largely on intercompany loans, which carry rates of between 8% and 15%.
• CDG reports underlying EBITDA of £33.4m for year to 29 May. The group reports that it invested £21.1m during the year under review but says that all sites within the group have now been refurbished and ‘ongoing refurbishment activity is anticipated to reduce to more normal levels in the coming year.’
• Heineken’s planned acquisitions of Punch has seen its investigation by the CMA extended for the second time. The CMA now has until 29 May to make its recommendation. A Phase II investigation will either be announced or discounted by that date.
• Whitbread reports FY numbers tomorrow. The co is expected to report solid FY17 numbers but it may caution on the economic environment & therefore on current trading.
• The Grocer reports that Coke in the UK could face a £200m sugar tax on its Classic drink alone
• Ernst & Young has reported that the number of profit warnings across UK listed companies has risen in Q1 this year vs Q4 last. It is still marginally down on a year ago. EY reports ‘improving global growth and the positive impact of a weaker pound on exports, combined with falling expectations in stressed areas, should limit the number of profit warnings in the near-term.’ It continues ‘however, increased overheads, political and regulatory change, and digital disruption are piling pressure on sectors with long-standing structural issues, especially in consumer and business services. Periods of rapid change often leave companies behind and the next few years are unlikely to prove an exception.’
• Mortgage rates have hit record lows with Yorkshire Building society offering rates as low as 0.89%.
• Jeremy Corbyn is to promise the UK four extra Bank Holidays. The UK has more paid holiday than most other developed countries but it has fewer Bank Holidays
• Rosa’s Thai Cafe has relaunched its Westfield Stratford unit as Rosa’s Thai Market Kitchen, which will emphasise ‘customisable, market-style dining’.
• Wagamama has opened its first site in Spain, in the Salamanca district of Madrid, as part of its agreement with Spanish franchise operator Grupo Vips signed last year. Grupo Vips will operate the brand exclusively in Spain and Portugal, and plans to open 20 sites in the next five years.
• UK retail sales fell quarter-on-quarter for the first time in more than three years as inflation arising from a weak pound showed signs of dragging on economic growth. Data from the Office for National Statistics on Friday show shoppers bought 1.5% less in March in volume terms than the previous month, excluding petrol. Analysts had expected a fall of 0.5%. The Telegraph reports ‘such a big fall in retail sales volumes is very unusual’. It says the surge in spending ‘has come to an abrupt end’. The paper says ‘there are more significant forces putting a brake on our willingness to spend in shops and online’.
• Temperatures fell to -6° in Champagne last week as Spring frosts wiped out entire crops of young buds, with Burgundy and the Loire Valley also affected.
• Rabobank’s 2017 Q2 Wine Quarterly Report shows exports of New Zealand wines to the US have overtaken those of Australia in terms of value for the first time. In 2016, the value of New Zealand imports into the US totaled US$400million, having steadily increase over the past five years, as US imports shift toward more premium offerings.
• The number of consumers choosing to eat breakfast outside the home on a daily basis has dropped by 11% since 2015, per purchasing company Beacon. Despite the average consumer spend at breakfast has increased from £7.31 to £10.09 (+31%), the net effect is a fall in consumer spend at breakfast of £56m. Its latest research revealed that only 4% of consumers said they would eat breakfast out of the home on a daily basis compared to 15% in 2015.
HOLIDAYS, LEISURE TRAVEL & HOTEL
• A strong late bookings surge fuelled by demand for luxury accommodation with hot tubs helped boost Easter business for UK self-catering sister brands Hoseasons and cottages.com.
• British campsites have benefitted from increased visitor numbers as holidaymakers avoid more expensive trips abroad.
• Strong foreign currency sales in the first quarter of 2017 points to a continuing appetite for overseas holidays, according to Post Office Travel Money, suggesting that the country is recovering from depressed holiday demand last year as currency purchases are now close to January-March 2015 levels.
• Spanish hoteliers could increase all-inclusive prices for British holidaymakers or pull out of the sector for the UK market because of the volume of ‘fraudulent’ sickness claims, say insurance industry lawyers in Madrid.
• Hotelbeds Group is taking over GTA, a B2B business travel distributor, for an undisclosed sum. The deal will include Swiss travel group Kuoni retaining a ‘significant minority stake’ in the combined business.
• AccorHotels’ Q1 revenue was boosted by its newly acquired brands such as Raffles, Fairmont, Swissotel and onefinestay. The acquisitions contributed €82m to a total Q1 revenue of €425m, a 7.4% like-for-like rise on last years figures for the same period. The French hotel group said its UK business was ‘very brisk’ with a ‘marked recovery’ in London, leading to a 9.2% increase in revenue.
• Ofo, a Chinese bike-share company with an estimated 3 million daily users, makes its first move into the UK by launching in Cambridge.
• Rutland Partners invests in Omar Group, a park home and luxury lodge manufacturer with operations in Suffolk and Hull.
• Goals Soccer reports that it ‘notes the recent press speculation concerning discussions with Powerleague and the possibility of combining the two businesses.’ The co says ‘the preliminary discussions with Powerleague are but one of the strategic opportunities currently being assessed by the Goals Board. Furthermore, at this stage, no commercial or financial terms have been agreed and no decision on any course of action has been made by the Board. There is therefore no certainty that any transaction will proceed.’
• Goals reports ‘notwithstanding the above, the Board and the Executive are highly focused on delivering the plan announced in June 2016.’ It concludes ‘the Company will provide a further update in due course when appropriate.’
FINANCE & MARKETS:
• Rightmove reports that UK house prices rose by an annual rate of 2.2% in the year to April
• Oil down 75c or so at $52.24
• Sterling little changed vs US$ at 1.2798
• Sterling down sharply vs stronger Euro at 1.1782
• UK 10yr gilt yields down 3bps at 1.04%
• World markets: UK market down on Friday but Europe higher. US down but Far East mostly up in Monday trade
YESTERDAY’S LATER TWEETS:
• Later tweets: Restaurant Group parts company with CFO after 9mths. Group to shut sites, re-engineer menus, cut prices etc. Busy, busy…
• Restaurant Group implies trading is in line. Will update market on 26 May. Period of flux re board room looks to be continuing
• When is enough, enough? Subway shutting stores in US. A sandwich shop too far? When could you last not find one when you wanted one?
• Derby Brewing cuts val. on Crowdcube by 42% to £7.2m from £12.5m. Both figures can’t be right. Too greedy in past or are too generous now?
RETAIL NEWS WITH NICK BUBB:
• Saturday Press: There was a surprising amount of coverage in Saturday’s papers of Sports Direct’s acquisition of the bankrupt US sports retailer Eastern Outfitters, but there were a couple of interesting front page headlines on other news: the FT ran with “Fears of Hammond tax bombshell” (after the hapless Chancellor hinted to the BBC that he wanted to do away with the Tory promise not to raise taxes), whilst the Daily Mail went with “Mortgage rates hit record low” (highlighting that Santander is about to slash its rates). But Sports Direct’s strange move into US sports retailing was also front page news in the FT and the FT had a follow-up analysis piece headlined “Ashley’s push to conquer US leaves analysts unmoved”, whilst Lex column in the FT noted that the US is the graveyard of UK retailers and thundered that “owning Sports Direct shares is a straight bet on Mike Ashley’s
• Sunday Press: It was nice change to see Boohoo.com feature prominently in the Sunday papers, ahead of its finals next week, with the Mail on Sunday highlighting that with sales touching £300m its market cap is now bigger than Sports Direct’s and the Sunday Telegraph flagging the Online fashion retailer will report a doubling in its profits, as “Boohoo continues to upset the High Street”. The other focus was more backward looking, on BHS, with the Observer running a double-page spread about the anniversary of its collapse (“BHS crash sets trend for a chain of closures on UK High Street”), including a look at what’s happened since to the key players in the drama. The Mail on Sunday also had a BHS article, headlined “BHS bombshell”, noting that landlords of empty BHS stores are about to be hit with a £100m bill for business rates and that the disgraced Dominic Chappell is fighting to
• Jimmy Choo Watch: The big news today is that, following a strategic review, the luxury footwear and accessories company Jimmy Choo has put itself up for sale, with the support of JAB Luxury (its majority shareholder). This seems a bit out of the blue, but, truth be told, the shares have not been a licence to print money since the IPO in Oct 2014, with the share price at 172p not that much ahead of the IPO price of 140p…
• News Flow This Week: The Carpetright pre-close update is out tomorrow and the Boohoo finals are on Wednesday. Thursday then brings the N Brown finals, the Travis Perkins update and the Howden trading update, as well as the McColl’s and Pendragon AGM’s. And with the end of the month coming up quickly now, we also get the CBI Distributive Trades survey for “April” on Thursday and the monthly GFK Consumer Confidence survey first thing on Friday.