Langton Capital – 2019-01-24 – CAKE, Restaurant Group, more on MARS & JDW, discounting & other:
CAKE, Restaurant Group, more on MARS & JDW, discounting & other:
A DAY IN THE LIFE:
Still a lot going on. On to the news:
PATISSERIE HOLDINGS – ADMINISTRATORS APPOINTED:
• No new news from the company other than details of closures. 71 sites along with the company’s bakery have now closed along with the group’s concessions in Debenhams, Next and motorway and service areas. There have been 920 redundancies.
• The group’s large, Spitalfields site on Brushfield St, is amongst those listed for immediate closure.
• Administrators KPMG says ‘since our appointment less than 24 hours ago, we have been pleased with the level of interest we have received in the business, and so remain hopeful of achieving a positive outcome.’
• Telegraph reports former Druckers boss David Scott is to attempt to save “at least half” of Patisserie Valerie’s sites. Mr Scott told the Telegraph ‘nobody else knows this business as well as me.I know the whole thing backwards.’
Winners, losers & old questions:
• FT reports ‘Luke Johnson has made at least £20m during the past 12 years from Patisserie Valerie.’ It says he also owned ‘38.6m shares, worth £165m when trading in the stock was suspended in October after the discovery of accounting irregularities at the company.’
• Mr Johnson has also made a net £13m of loans to the company in recent weeks. Depending on the level of funds left after the administration, these may not be fully-recoverable. The FT concludes ‘based on publicly available information, he [Mr Johnson] has put roughly £26m into the company and taken about £46m out, before taxes and professional fees. There is no suggestion of wrongdoing in either the loans or the share sales, but one investor said the numbers were nevertheless “pretty galling” given what has happened to the company.’
• The BBC has suggested that CAKE ‘could be facing legal action from investors over the collapse of the cafe chain.’ It quotes shareholders as saying that they are ‘flabbergasted’ by the way that things have turned out and staff as shocked and unable to sleep.
Remaining focus of attention:
• Who knew what, and when? More pertinently, who should have known what, and when should they have known it?
• Specifically, did the fraud extend prior to the IPO in 2014, should the directors have known about it and was the information on which investors at that time made their decisions misrepresented?
• The question as to whether this was fraudulent, negligent or incompetent can wait for the moment.
• Auditors, advisors and, above all the directors, will likely have answers to the above questions by now.
RESTAURANT GROUP FULL YEAR TRADING UPDATE:
• The Restaurant Group has updated on trading for the 52 weeks ended 30 December 2018 saying LfL sales fell over the year by 2.0%. At H1, they had been down 3.7%, suggesting a less negative performance in H2.
• Sales have thus begun to level off. They were down by 3.0% in FY17 and by 3.9% in FY16.
• RTN says total sales were +1.0%.
• RTN is able to say it has ‘delivered like-for-like sales growth since the World Cup, with our Pubs business continuing to consistently trade ahead of the pub restaurant sector and our Concessions business trading strongly.’
• Retail and Leisure businesses must therefore have performed poorly although the co does says ‘our Leisure business exhibited improved like-for-like sales momentum through 2018, but was impacted by weaker cinema admissions in December.’
• The group concludes ‘we expect to deliver an adjusted PBT outcome for the 2018 full year in line with current market expectations.’
Capital issues & Wagamama:
• RTN says ‘we opened a record 21 new pubs (inclusive of acquisitions) and a record 21 new concessions units during the year.’
• The purchase of Wagamama formally completed on 24 December. RTN says ‘ Wagamama has continued to trade well over the festive period and we look forward to delivering the benefits of the acquisition as outlined in the “2018 Prospectus” and creating significant long-term value for our shareholders.’
• CEO Andy McCue comments ‘2018 has been a pivotal year for the Group in which we have opened a record number of new sites in both our Pubs and Concessions businesses as well as acquiring an extremely high quality business in Wagamama.’
• Mr McCue reports ‘the enlarged business is now orientated strongly towards growth with a number of exciting opportunities ahead. We are focused on executing on our multi-pronged growth strategy and plans for the site conversions and cost synergies are progressing well.’
• There is no word here as to margin but, in a trading update, this is not unusual.
• Also, RTN’s historic figures may not have much bearing on its future as the group moves to integrate Wagamama.
• That said, the momentum of decline in sales terms looks to have slowed (after nearly 10% of cumulative decline over the last 3yrs) and that has to be a good thing.
• The company’s pubs and concessions continue to trade well.
MARSTON’S Q1 CONFERENCE CALL:
Marston’s hosted a conference call following its update on trading to 19 January 2019 and our comments are set out below:
• Says sales were ‘satisfactory’. This because margins are being held. Top line LfL sales are not up as much as some competitors.
• Cost mitigation targets are unchanged. MARS is in a slightly better position here as it has fewer units in London and certain city-centres than do some of its competitors.
• Will lower maintenance capex impact LfL sales? Understood but the new build pubs will need less attention & many of the disposals have been of units that require(d) more upkeep.
Balance Sheet & Debt:
• Why do this now? Uncertainty. This is worse than it was a year ago. Also, asked investors. The market has not been rewarding the previous policies over a sustained period of time.
• Group should enhance equity value by reducing debt. It will be clear that the co is not paying dividend out of debt.
• It is ‘prudent for debt reduction’ to take a greater precedence. Debt will be down £200m over the next four years with a held dividend.
• Debt should be ‘below 5x’ within the 5yrs under review.
• Sale & leaseback? Not likely to be any this FY.
• There will be reductions in the level of maintenance capex. The £25m reduction in new build means say 5 fewer new-build pubs and 3-4 pubs with lodges. There is still room for selective corporate activity.
• There are c100 pubs on the books at any one time that MARS is likely to be looking to sell.
• Pension benefits should be in the region of £5m p.a. post the group’s next triennial review
• The group is ‘looking at’ securitisation issues but, as the mark to market hit would be significant at present, this may only occur over time. Will move when the NPV is right.
• What EBITDA will be lost on the pubs to be sold? Perhaps £5m – but this will be mitigated by interest savings.
• Marston’s has updated further on its plans to cut debt by £200m over the next four years. The group confirms that it will hold its dividend at current levels.
• Trading is not easy, but Marston’s has a estate of well-managed and well-maintained, largely freehold properties. It is selling product that the consumer would like to buy at a price they are prepared to pay. Lodges, craft brewing and food (in the longer term) remain growth areas. Marston’s is a major brewer and has a large wet-led element to its estate and is well-placed to grow and to create further value for its shareholders.
JD WETHERSPOON CONFERENCE CALL:
JD Wetherspoon hosted a conference call following its Q2 update and our comments thereon are set out below:
• JDW confirms H1 numbers will be below those of last year
• Impact of Living Wage etc. Wages went up in November & the next impact will be in April. The co is currently a little ahead of the curve.
• Rent savings? Units are being bought in on a 6% yield or so and the cost of finance is lower
• Interest charges will be up by around £6m.
• Company’s margins are still declining despite LfL sales rising at 7% plus
• Putting through price increases? No changed since the last update. LfL increase is mostly via volume
• Their sales have not been as spiky over Xmas as some other operators
• Will you build up any stocks ahead of Brexit? No. Most products comes from the UK. Some of their suppliers may be stockpiling.
• Staff turnover has fallen slightly year on year.
• Bar costs? Most are on longer term contracts linked to inflation.
• Utilities are hedged where possible.
Balance sheet, debt etc.:
• Group is putting more money into freeholds were these have been available. Debt will be higher as a result.
• Overall capex spend? This could drop a little on last year’s level. Last year was somewhat higher than usual.
• JD Wetherspoon has reiterated its RNS comments. Profits in H1 will be down, but the company remains in a good position etc.
• JDW remains a good company but it is not currently cheap. It looks as though forecasts are going to come down.
PUBS & RESTAURANTS:
• Whole host of 50% off & other offers in the run up to the first payday of this year. Two-for-one or 50% off at Café Rouge & Bella Italia (CDG), Pizza Express and Frankie & Benny’s (Restaurant Group – click & collect).
• Carluccio 2nd main for a pound (about 45% off), Pizza Hut 41% off, Prezzo 40% off and Harvester & Toby (M&B Brands) both one-third off. Jamies’ 30% off. Why would you rush to pay full price?
• Fever-Tree has reported FY 2018 revenue up 39% to £236m, driven by strong sales in the UK and significant operational progress in the US. Co-founder and CEO of Fever-Tree, Tim Warrillow said: ‘We have seen very strong momentum across the business during 2018. The UK delivered an exceptional performance while Europe has seen positive performance resulting in growth accelerating in the second half. We are particularly encouraged by the progress to date in the USA and the strong platform for further growth this provides’.
• The NPD Group has found that visits to the eat-out foodservice market declined 0.5% to 11.29bn in 2018, with a further drop 0.5% expected in 2019.
• JD Wetherspoon has announced it is to hire a further 600 people in Ireland as it is set to open three new bars in the next 12 months.
• Pernod Ricard has named appointed Patricia Barbizet to the newly created post of lead independent director on its board.
• Stonegate Pub Company has acquired the 32 strong Bar Fever group and six sites from Novus Leisure. Stonegate chief executive Simon Longbottom commented: ‘Fever Bars is a business we have watched with interest – and admired – for some time. It is a great cultural fit with our existing portfolio, complementing Stonegate’s businesses, as well as giving us a presence in some new locations. The additional portfolio of Nouvs sites being acquired comprise another tranche of high-quality assets which will further establish our leading credentials in London’.
• The French spirit group, Rémy Cointreau has recorded better than expected Q3 results with LfL sales up 8.7% and total sales reaching €348m. Cognac sales were up as much as 15.6% like-for-like in the quarter, beating market expectations of 13.3%.
• Bleecker St Burger Ltd has lodged accounts to end-April 2018 with Companies’ House showing that retained profits rose by £68k in the year under review. The company has positive shareholders’ funds of £163k.
• UKHospitality has welcomed the EU Committee on Internal Market and Consumer Protection’s approval of measures to ensure transparency and fairness in online marketplaces and comparison services. UKHospitality Chief Executive Kate Nicholls said: ‘It is helpful to see the EU Parliament moving forward positively to safeguard consumers and businesses. Action to provide transparency around online booking platforms will ensure there is a level and fair playing field. Both businesses and customers will be protected, and this is something UKHospitality has been working hard with partners such as HOTREC to secure’.
• Japanese beer shipments have decreased 2.5% in 2018, a fourteenth year of consecutive decline.
HOLIDAYS & LEISURE TRAVEL:
• Over 25% of consumers will spend more on their holidays this year than last, according to data from Abta. Victoria Bacon (pictured), Abta’s director of brand and business development, said: ‘The Brits are firmly committed to their holidays and many people see taking a break, either abroad or at home, as an essential spending priority. Despite political and economic uncertainty, people are continuing to book their summer holiday’.
• RSM reports younger holidaymakers are more likely to skip travelling to Europe this year due to Brexit. The survey also showed only 26% of 18-24 year olds said Brexit would make no difference to travel plans, compared to 57% of over 55s.
• The Foreign and Commonwealth Office warns UK travellers going to Europe that passports may not be valid even if they have 15 months validity left and that travellers may also need an International Driving Permit in a no-deal scenario.
• Bourne Leisure reports trade business up 5.3% in 2018, attributing the growth to growing popularity of domestic breaks. January 2019 has already seen sales up 3.2% with Butlin’s, Haven and Warner Leisure Hotels all seeing an increase in guests.
• Hotel Indigo hits the 100-hotel milestone with the opening of Hotel Indigo Berlin East Side Gallery. The company, owned by IHG, has a pipeline of another 100 sites to be opened in the next 3-5 years.
• Cyprus reports overall arrivals to the island up 7.8% yoy to nearly four million, with numbers from the UK up 5.9% yoy to 1.3m (33.7% of arrivals). The second top source market was Russia with 19.9% of arrivals.
• Blackstone has agreed agreed to new long-term leases with the operators of Center Parcs Europe holiday resorts. The US-based Blackstone will invest €200m in upgrading the sites in the Netherlands, Belgium and Germany.
• Real Madrid have overtaken Manchester United as the world’s wealthiest club, according to research from Deloitte Football Money League. Man Utd has moved to third place after generating £590m, a fall of 2% on last year.
FINANCE & ECONOMICS:
• The BRC has said that UK shops & retailers employ 70k fewer people than they did a year ago.
• Sterling up at $1.3075 and €1.1482. Oil down at $60.88. UK 10yr gilt yield up 1bp at 1.33%. World markets mixed.
• Brexit etc.:
o Amendments proposed including moved to stop the UK leaving the EU without a deal.
o OECD boss Angel Gurria tells Sky News he is ‘deeply concerned’ about the economic risks of a “no-deal” Brexit
PRIOR DAY LATER TWEETS:
• Later tweets: Sense of disbelief as Pat Val collapses. Just a hole left where there used to be c£500m of equity value. Stewards inquiry is ongoing…
• Thousands of Pat Val staff, shareholders, creditors etc. pay price of fraud & directors’ / auditors’ failure to spot it. Real cost high
• Marston’s confirms it will hold dividend & focus on debt reduction as level of uncertainty is ‘greater than it was a year ago’
• JDW says LfL sales +7.2% in Q2 but profits falling. Margins must be well down. Co goes on another Brexit rant.
• Escape Hunt says has been trading slightly ahead of board expectations to end-Dec. Christmas was good. Dr Who driving bookings
• Brexit-backing billionaire James Dyson to move co HQ to Singapore. Thanks for your support, James…
START THE DAY WITH A SONG:
Yesterday’s song was Sweet Child of Mine by Guns & Roses, today who sang:
I hear her voice, in the morning hour she calls me,
The radio reminds me of my home far away
And driving down the road I get a feeling
That I should have been home yesterday, yesterday
RETAIL NEWS WITH NICK BUBB:
• Capital & Regional: The shopping centre Capital & Regional as announced a trading update and we note a couple of interesting points: “We are in ongoing dialogue with Debenhams and are advancing plans for the right sizing of some stores. Debenhams pays an average rent of £8.65 per sq ft on units in three of the Group’s seven wholly owned assets, a total of circa 340,000 sq ft, representing 5.8% of total income….M&S has announced the closure of the Luton store, the only full line store remaining in our portfolio. We have demonstrated our ability in remerchandising former department store space with BHS and are advancing plans for the unit. M&S has 8 years remaining on its lease”.
• Today’s Press: We again haven’t had much time to read many of today’s papers, as we are rushing to get to the BDO/Retail Economics Annual Retail Trading presentation, but Burberry and Tesco feature prominently in the FT. On Burberry, the FT article about yesterday’s Q3 update is headlined “Burberry issues no-deal Brexit warning”, whilst Lex column looks at the investment case for Burberry (“tartanic struggle”) and thunders “Look for stronger growth, higher margins and lower risk elsewhere”. On Tesco, the FT flags that the last of three former Tesco executives was cleared of wrongdoing over the chain’s £250m accounting scandal by a criminal court yesterday, ex-UK FD Carl Rogberg, “raising serious questions about why the company agreed a £129m plea bargain with the Serious Fraud Office when nobody has been convicted”. Elsewhere there looks to be good coverage of
• News Flow This Week: Tomorrow brings the Bonmarche trading update and the CBI Distributive Trades survey for “January”.
• Deloitte Watch: We flagged yesterday that the Annual UK Retail presentation by Deloittewas bound to feature some of the key New York stores visited by delegates to the big NRF Retail trade show/conference in New York last week…and we were not surprised to hear Ian Geddes from Deloitte and the Store Design expert John Ryan enthuse about shops like the latest Starbucks Reserve Roastery, RH (Restoration Hardware) and Nordstrom Men’s. The other big theme, however, was the growing power and influence of Chinese ecommerce companies, with the boss of Alibaba UK on the panel of speakers.