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Morning Briefing Strap Line
Tue 12th Mar 2013 - Enterprise Inns, Harris + Hoole and Punch

Story of the day:

Punch – we still believe we can restructure in the first half of 2013: Punch Taverns has reported that discussions over its restructure proposals with stakeholders suggest “that a consensual restructuring will be launched in the first half of 2013”. Meanwhile, trading in the 12 weeks to 2 March has been in line with expectations despite January trading being adversely impacted by weather. Like-for-like net income showed improvement in the second quarter, being down 3.5% in the core estate compared to a decrease of 5.2% for the first quarter. Executive chairman Stephen Billingham said: “Our profit performance for the first half of the year has been in line with management expectations, with improving trends in the underlying business. We have strong plans in place to return the core estate to growth in the medium-term. We expect to make further progress in the second half of the financial year and are on track to meet our full year profit expectations. We are encouraged by the progress we are making in our discussions with stakeholders on our capital restructuring proposal and believe a consensual restructuring can be launched in the first half of 2013.” Punch reported that the percentage of core pubs on substantive agreements remains strong at 94% and is in line with its target of having between 93% and 95% of the core estate on substantive agreements. The launch of a new licensee recruitment website has been ‘extremely well received’ having attracted circa 1,200 enquiries in the last 3 months, helping support a further 10% growth in applicant numbers. The company added: “The increased level of activity in pub investment seen in the final quarter of 2012 has continued into the first half of this year and we have invested in 270 core pubs at an average spend of circa £100,000 per pub. This investment is transforming the customer offer in these pubs and the associated trading uplift is expected in the second half of the year. We also benefited from a shift towards food, which is now estimated to make up 25% of partner revenue across the core estate, up 2.4% points from March 2012.”

Industry news:

Seasonal focus on menus key to profitability: A stronger focus on seasonal dishes is needed if operators hope to maintain margins over the coming months, buying specialist Lynx Purchasing has warned. With food inflation volatile and British meat prices rising in the wake of the horsemeat scandal, “chefs will have to do more than pay lip service to seasonality”, argues Lynx Purchasing managing director John Pinder. “Phrases such as ‘in season’ and ‘locally sourced’ are increasingly used on menus,” said Pinder, “but the reality is that the dishes themselves don’t change very much from season to season, and so pubs, hotels and restaurants aren’t getting the benefits of featuring products when they’re at their cheapest.” The comments come as Lynx Purchasing publishes the Spring 2013 edition of its Market Forecast. An overview of market and pricing trends for hospitality operators, the Market Forecast combines analysis of headline ONS inflation figures with exclusive insight from Lynx suppliers. Pinder said: “The price being paid for British beef cattle at auction has increased as people seek assurances about provenance in the wake of the horsemeat scandal, and that can be expected to work its way through the supply chain. As well as prime cuts, quality beef trim for dishes such as burgers and pies is likely to cost more.” In contrast, Lynx expects lamb to offer caterers a good option for meat dishes across the spring. “Lamb is the best value it has been for two years, and should definitely be revisited for menu options.”

Menu innovation winners named: A host of companies have been recognised at the fifth Menu Innovation and Development awards held last week at the Cumberland Hotel. Winners were: Mitchells & Butlers for Ember Pub and Dining in the Branded Pub Restaurant category and Browns in the Casual Dining category; Stonegate Pub Company for Slug and Lettuce in the City Bar Dining section; Marston’s Inns and Taverns in the Dessert and the Neighbourhood Pub sections; The Restaurant Group for Frankie and Benny’s in the Children’s Meal category; Tragus for Strada in the Mediterranean Casual Dining category; Whitbread for Beefeater in the new Pub and Restaurant concept category; Greene King for Premium Rural Inns in the Premium Pub Dining section and JD Wetherspoon in the Town and City Pub category. Organiser Simon Peat said: “It has been fantastic to see how the operator, in partnership with his suppliers, identifies the latest trends and then adapts those trends to fit their individual customers demographic profile. This year the level of innovation on the menus and the presentation of the dishes has been outstanding. The category expertise of the suppliers continues to be key in helping the food development managers and chefs deliver this.”

Cheap beef passed off as lamb in Indian dishes across Scotland: A leaked report by the Scottish Food Enforcement Liaison Committee found 46 out of 129 premises tested were selling cheap beef in their lamb curries. But restaurants involved have not been named after it was suggested that suppliers could be at fault. Scottish Labour’s rural affairs and environment spokeswoman Claire Baker said: “Consumers deserve a right to know what they are eating and this is another devastating blow for consumer confidence.”

People First wins recognition: Sector skills council People 1st has been named a Top 100 Best Not-for-Profit Organisation to Work For in 2013 by Best Companies and The Sunday Times. People 1st was also shortlisted for Best Companies’ special award category ‘Innovation in Engagement Practice’, which it credits to empowering employees and creating a supportive working environment.

Plymouth plans new high street: A new “high street” could be built in the north of Plymouth by 2016. The city council is planning a new shopping centre will be at the heart of a new community of 3,000 homes, GP surgeries, a school, library, pub and restaurants. Members of the city Cabinet, meeting today, are expected to order council officers to begin the process of finding a developer.

New York super-sized sugary drink ban blocked: The proposed ban on super-sized sugar drinks, due to come into force today, was blocked by a judge yesterday. New York Mayor Michael Bloomberg said he would appeal against the ruling. His initiative, to ban sugary drink in excess of 16 ounces, had won praise from public health officials but attracted opposition from elsewhere. The New York state judge said that the city was “permanently restrained from implementing or enforcing” the regulation because its board of health had overstepped its authority by proposing it.

CGA – Valentine’s Day was disappointing: Insights firm CGA has reported Valentine’s Day this year saw takings down by 10% on 2012. The consultancy noted additional pressures for on-trade retailers with the strong presence of advertisements for off-trade meal deals: Waitrose, Sainsbury’s, Marks & Spencer and the Co-op all ran TV advertisements in the run up to Valentine’s Day this year. However, even with inclement weather and stronger marketing from supermarkets the average food pub still saw uplift in revenue of £983 on Valentine’s Day, CGA reported. CGA added that it would typically hope to see a bigger uplift in Valentine’s week than we saw this year. In 2012, an average uplift of £5,500 was achieved throughout an unusually mild February highlighting the importance of weather regardless of the time of year or event. CGA’s director of retailer services Scott Elliott added: “Given that the purse strings may still be frayed following an overzealous festive period, consumers need to be compelled to ignore the well-conceived supermarket premium meal deals in order to leave the house and enter the trade. Bad weather clearly does little to top the scales in our favour, but the fact we still see significant uplifts versus the average week shows it is a key consumer event.”

Company news:

Harris + Hoole launches first London site: Harris + Hoole, the coffee chain that is 49% owned by Tesco, has launched its first London site, located within a Tesco Metro on London Bridge. The company has appointed agents to find further sites within London. A Brecker Grossmith spokesman told Propel last week: “We are seeking Central London - West End, City and City Fringe ground floor sites - ideally with excellent footfall, white collar locations, near to other coffee chains, and also ideally located next to underground or train station exits. Sizes can be from 750 – 2,500 square foot ideally with return frontages.” Meanwhile, Morgan Williams has been instructed to find six sites in the City of London. Harris + Hoole, which currently has 13 outlets, hopes to open an additional 15 in central London before the end of this year. These will be a mix of outlets co-located with Tesco and standalone shops, including a flagship store by Cannon Street station in the summer.

Stonegate abandons Goose brand in favour of original pub name: Stonegate Pub Company has decided to remove The Goose name of its pub in Leigh in favour of its original name, the Spinning Jenny. Goose was Mitchells & Butlers high street answer to JD Wetherspoon and was part of the package of 333 pubs it acquired from the company in 2010. The Spinning Jenny re-opens this Thursday (14 March). Liz Hardman, general manager of the Spinning Jenny, said: “The return of the pub’s original name was as a result of the feedback from our customers. I’ve been manager at the pub for six months now and everyone refers to it as the Spinning Jenny. So for us, it made sense to go back to the pub’s original name, commemorating the history and heritage of Leigh.”

SSP to launch Manchester bar with self-service beer stations: Transport hub food and drink company SSP is to open a pub called The Grain Loft inside Manchester Airport’s Terminal 1. The venue will serve food and drink from the north west. The venue offers a thirteen minute time-guarantee on many items on the menu and self-service beer stations, where customers can set up a tab, choose a beer and pour their pint themselves, speeding-up service times. There will also be ‘sound pods’ to allow visitors to choose their own music and create their own atmosphere. Mark Rainbow, SSP UK chief operating officer, said: ‘The Grain Loft will give Manchester’s passengers a comfortable place to enjoy a drink or a meal, with all the familiarity and quality of their local contemporary pub.” 

Douglas Jack – we are ‘Hold’ on JD Wetherspoon shares: Numis Securities analyst Douglas Jack has issued a Hold note on JD Wetherspoon’s shares, with a Target Price of 525p, ahead of half-year results due this Friday. He said: “We are forecasting profit before tax to be down 4% to £34.5m. The 8.0% like-for-like sales increase in Q2 won some headlines, but, more importantly, a margin decline in excess of 150bps (to 7.8%) during the same period contributed to like-for-like profits being down an estimated circa 5% in H1. In H2, we expect like-for-like sales to soften and cost pressure to increase, bringing risk of more downgrades. Company guidance is for an 8.0-8.6% EBIT margin in H2. This could be vulnerable if like-for-like sales slow, given that costs should increase in H2 due to: Gaming Machine Duty (costing £2m per annum extra from February); pension enrolment (costing up to £3m per annum extra from February); and gas (costing £2.5-3.0m per annum extra; from September 2012); partially offset by slightly lower insurance costs. Only five outlets opened during the first 24 weeks, but ten outlets should now have opened, versus a full year target of 25. The combination of 60% of this year’s new sites being freeholds and neutral working capital should result in net debt increasing (we forecast by £26m) this year, resulting in net debt/EBITDA remaining pegged at 3.0x. JDW’s 7.0x EV/EBITDA valuation is slightly below its 7.2x ten-year historic average, reflecting higher forecast risk and an expectation that earnings fall and debt rises this year. We believe Wetherspoon should be a long-term winner, subject to having margins. Ongoing cost pressures and tax increases are likely to keep margin management challenging for the foreseeable future.”

Leisure Ninety Nine to open eighth site: East Midlands bar operator Leisure Ninety Nine is to open its eighth site later this month. The company has acquired the former After Dark nightclub in Cleethorpes’ Sea Road, and will reopen it as The Litehouse, following a major refurbishment. The club, which closed last year, will open on Saturday, 23 March. The Wakefield-based firm operates seven bars in the region.

St Austell launches stout based on rediscovered 100 year-old recipe: A recipe for a stout last brewed in 1913 has been extracted from ancient journals at a Cornish brewery and relaunched to celebrate Ireland’s national holiday. In a nod to the strong bonds of Cornish Celtic heritage, St Austell Brewery’s 1913 Cornish Stout will first be available this St Patrick’s Day (17 March). The new brew will be previewed on Saturday 16 March at the Beer and Mussel Festival being held at Rick Stein’s Cornish Arms in St Merryn. A revival in stouts has recently swept the brewing industry and the award-winning Cornish brewer looked both west across the Irish Sea and to their own fascinating journals for inspiration. A 100-year-old recipe that had been lying dormant in St Austell Brewery’s extensive – and dusty – records was carefully adapted to produce an intense 5.2% brew. Sophie Atherton, who was the first woman in the UK to be accredited as a Beer Sommelier, describes 1913 Cornish Stout as “a full bodied beer with a balanced sweetness and delicate toffee flavours.”

Carluccio’s announces Lincoln opening date: Italian restaurant Carluccio’s will open a new site on Lincoln’s High Street on Friday, 22 March. The restaurant, which will include a food shop and deli, will be open throughout the day, serving breakfast, lunch, coffee and evening meals. Simon Kossoff, chief executive of the chain, said: “We have been keen to open in Lincoln for a number of years now and are delighted to have finally found the right site for us.” The restaurant is opening in the former The Lamb and Flag pub. Meanwhile, plans to open in Aberdeen have stepped up a gear, with the chain hoping to open a site in Union Square “soon”. It will located in the upper mall of Union Square and the company has already begun advertising staff vacancies on its website, including head chef and managerial positions. It’s Carluccio’s second site in Scotland.

Carlsberg plans to increase UK market share: Carlsberg has reported that it intends to increase UK market share as it opened a new bottling line at its Northampton brewery. The Copenhagen-based company raised its market share in the country by 0.3% to 15.3% last year, it said in annual results in February. Carlsberg’s results in 2012 were hurt by bad weather, UK head Benet Slay said, and the effect of longer-term government tax increases on beer. Even so, the brewer’s volumes fell less than the market. The company’s UK volumes declined 3% as Carlsberg won share in pubs and bars while suffering a slight decline in drinks to take home as the overall UK beer and cider market fell 5% last year, Carlsberg said. Carlsberg has spent 20 million pounds adding a bottling line in Northampton that can produce 60,000 bottles of beer an hour.

Former Living Room executive to open steak restaurant: Former Living Room executive Martin Bridge is to open a steak restaurant in York with business partner Andrew Whitney. The former Yorkshire Hussar will re-open later this month as The Whippet Inn with a menu predominantly based on steak. Bridge, who oversaw eight Living Rooms around the country, said: “The core element of the menu will be steak from around Yorkshire, and there will be a smaller a la carte menu with daily specials. We will also be looking to serve ales, lagers and champagne from British suppliers.”

Dermot O’Leary reports Brighton restaurant trading well: TV host Dermot O’Leary has dismissed rumours about the future of his Brighton fish restaurant after its sister venue closed due to poor sales. The Radio Two host shut the 130-seat Fishy Fishy restaurant in Poole, Dorset, after two-and-a-half years with the loss of 13 jobs. However, he told a national newspaper that the Brighton branch, in East Street, was “doing fine”. He added: “Sadly we decided that Fishy Fishy Poole should cease trading owing to the current financial climate. Fishy Fishy Brighton continues to trade as normal.”

KFC rolls out apprenticeships to 3,000 staff: KFC has unveiled plans to roll out its intermediate apprenticeship scheme to its entire 3,000 staff. The move means employees in entry level positions at the group will have the chance to study for the City & Guilds-accredited qualification - the equivalent of five GCSEs. KFC is marking National Apprenticeship Week with a graduation day for 25 staff members that have completed the Advanced Apprenticeship scheme, taking the total to do so to more than 100 with a further 600 people currently taking part in the training.

Sugar Hut owner bans filming at venue: The owner of Brentwood nightclub The Sugar Hut, Mick Norcross, has banned reality show The Only Way is Essex from filming at his site. He said: “My club is an upmarket venue where people come to drink champagne and feel spoiled. All these rows they keep filming don’t show the club in a good light and I’m worried it’s putting people off coming, which is the last thing I want.” Norcross bought the freehold of The Sugar Hut from Enterprise Inns at an Allsop auction last year.

Monocle to open café in Marylebone: Monocle, the global affairs magazine and media brand founded by Tyler Brûlé, will open its first London café at 18 Chiltern Street, Marylebone in early April. The 15-seater café follows the success of the Monocle café in Tokyo, which opened in October 2011 in the Hankyu Men’s department stores. The Monocle Café will serve a selection of snacks, with an emphasis on freshly roasted coffee. Dishes will include Swiss-inspired bircher muesli, a hearty Monocle toasty and a Midori salad - available to eat in and takeaway.

Novus co-owner LGV Capital placed into run-off; management could buy it out: Insurance company Legal & General has moved its 26-year-old private equity arm LGV Capital into run-off mode. Financial News reported that LGV Capital, set up in 1986, was informed of the decision after a strategy review in which Legal & General concluded the operation was “non-core”, according to a spokesman for the firm. It still has about 50% of its latest fund – a £170m investment fund made up of money from its parent company – remaining but will not now make any new investments. Financial News also reported that the firm is expected to sell, in the fullness of time, its six investment assets, which include UK bar operators Novus Leisure, acquired only last year, Amber Taverns and Liberation Group. A spokesman said the strategy for the portfolio companies would not change and that there was funding available to support them. The LGV management team is considering its options and may look to buy out the business from L&G, according to sources quoted in the Financial News. LGV’s has invested more than £1.6bn in 90 companies and has generated returns of more than three times money invested for each of its last two realised funds. Its previous investments have included Unique and Tragus restaurants. LGV Capital focuses principally on transactions with an enterprise value in excess of £25 million. Its website states: “We cover all industry sectors, but have a particular emphasis on consumer, healthcare, leisure and services. Our team has a strong track record of investing in quality businesses, which are looking for an investment partner to help them grow and evolve. LGV Capital was established in 1986 as the private equity arm of Legal & General Group, a FTSE-100 quoted insurance company. It is a subsidiary of Legal & General Investment Management, which manages over £380bn. Since formation, LGV Capital has developed into one of the leading UK mid-market private equity firms with an enviable track record across multiple funds, having successfully invested over £1.6bn in more than 85 companies.”

Douglas Jack – Enterprise Inns shares could double in value: Numis Securities analyst Douglas Jack has issued an Add notice on Enterprise Inns shares with a price target of 125p. He said: “We are raising our target price to 125p from 110p. The shares have re-rated to reflect a material reduction in financial risk. High gearing (with debt at fixed rates and mostly long-term) is still in place, but our view is that there is a good chance it will now start working in the company’s favour if like-for-like net income turns positive, driven by operational improvements, as targeted by management. Gearing works both ways. In the 12 years to 2007, gearing helped Enterprise to grow organic EPS at a CAGR of 17% (29% including acquisitions); but in the four years to 2012, EPS declined at a CAGR of 15%. If the business can return to like-for-like net income growth, as management expects, the positive gearing impact could be significant. In our view, if Enterprise can return to sustainable, positive like-for-like net income growth, the rating should rise to the historical average of 10.5x EV/EBITDA. This scenario could result in the share price doubling over the next three years. There are still downside risks from regulation and economic change, but our 125p price target, equating to 9.9x EV/EBITDA (or 13% equity FCF yield) reflects our expectation that positive like-for-like net income growth should trigger another re-rating in the shares.”

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