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Morning Briefing for pub, restaurant and food wervice operators

Wed 18th Mar 2015 - Peel Hunt issues 'Buy' note on Patisserie Valerie
Nick Batram issues ‘Buy’ note on Patisserie Valerie: Peel Hunt leisure analyst Nick Batram has initiated coverage of Patisserie Valerie with a ‘Buy’ note, arguing the company has untapped upside. He said: “Patisserie Holdings, with circa 150 stores in the UK, is a highly cash-generative, low execution risk, mainly organic roll-out story focused on the coffee and casual dining market. The company aims to add 100 stores in five years; this should drive EPS CAGR of circa 20%. There is untapped upside from the existing estate, while acquisitions could add further spice. The shares have performed well since IPO but, in a sector where dynamic growth demands a premium, we believe there is more to come. Patisserie Valerie is the largest patisserie chain in the UK, operating within a segment of the highly fragmented £23bn branded coffee, casual dining and restaurant market. The brand has proven itself nationally across a wide range of local markets. Financial returns are impressive, with a mature store ROI averaging 52% and with a payback period of just 23 months. The largest brand within the group, Patisserie Valerie, currently operates just over 100 stores. Based on market research, management sees an opportunity for at least 250 additional stores and has a targeted opening programme of 20 new sites per annum. While organic expansion has been the key driver of growth, this has been supplemented by acquisitions and we believe this dynamic will continue. As with most rapid roll-out stories, we believe the greater focus has been on expansion, as opposed to driving returns from the existing estate. While like-for-like data is not disclosed, we believe this has been relatively flat over the short term. National pricing, no material price increases over the past three years, limited marketing spend, limited social media interaction and menu development are all areas of opportunity for the group. An experienced management team has grown the business through recession and executed a disciplined roll-out. Luke Johnson (executive chairman) is one of the industry’s most experienced operators and investors. Our base case DCF model gives a fair value of 309p. We believe the business’s growth profile deserves a premium rating, which could evolve as the Group builds up history as a quoted company. Our bull case (+3% like-for-like) derives a 351p target, and acknowledges like-for-like growth as being the next positive catalyst.”

British Land to invest £50m in Meadowhall refurbishment: British Land is to invest £50m in a refurbishment of Meadowhall, Sheffield, celebrating its 25th birthday this year. The refurbishment is set to start in autumn 2015 and will be completed by the end of 2017. The extensive works will create distinct districts within the centre, each with a different finish including wood and punctured metal. The works will also enable a number of retailers to install double height shop fronts. The works will largely be completed out of hours to enable all retail and leisure operators to trade throughout the period. Claire Barber, head of shopping centre asset management for British Land, said: “Across the retail portfolio, we are investing in our assets to ensure they reflect the way people shop today. The refurbishment of Meadowhall will reposition the centre to appeal to premium and lifestyle retailers as well as a broader range of customers. We are very excited about the future for Meadowhall and the experience this investment will create for both our customers and retailers.” The Park Lane area of Meadowhall has recently undergone a £3 million refresh, following which it has successfully attracted a number of new retailers. Restaurant lettings include: Nando’s upsize to larger unit (5,213 sq ft, ten year lease), Wagamama upsize to larger unit (3,579 sq ft, 20 year lease) and Five Guys (3,162 sq ft, ten year lease).

Shaftesbury cancels interest rate swaps at a cost of £28.1m, renegotiates loan facility: West End property landlord Shaftesbury has arranged a new £130 million fifteen year term loan with Aviva Commercial Finance Limited. The loan is secured on certain properties held in a subsidiary company and has a fixed interest rate of 3.2% throughout the term. The loan is repayable in full at maturity in March 2030. On drawing the loan from Aviva, the company will cancel a £100 million revolving credit facility with Nationwide Building Society, which was due to expire in September 2016. The Company’s remaining £50 million facility with Nationwide, which is also due to mature in 2016, will be refinanced in due course. Additionally, the company has agreed to terminate £70 million of interest rate swaps at a cost of £28.1 million, equivalent to a reduction in EPRA net asset value per share of around 10p, equivalent to 1.4% of EPRA NAV at 30 September 2014 (£7.13). On a pro-forma basis, these transactions will increase the weighted average maturity of the Group’s debt from 6.7 years to 8.7 years and reduce the weighted average cost of debt by around 25 basis points. Chris Ward, finance director, said: “We are pleased to have secured this financing during a period of extremely low gilt yields, and with a lender of the calibre of Aviva. Long-term funding is a natural fit with our business model and portfolio of good quality assets with secure income streams.”

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