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Morning Briefing for pub, restaurant and food wervice operators

Fri 25th Jan 2019 - Update: Douglas Jack on Fuller's, McDonald's, allergen labelling consultation begins
Douglas Jack – ‘transformative’ £250m beer division sale provides Fuller’s with foundation for many years of strong growth: Peel Hunt leisure analyst Douglas Jack has said Fuller’s “transformative” £250m sale of its beer division provides the foundation for many years of strong growth. Issuing a ‘Buy’ note on the shares with a target price of 1,250p following the disposal to Asahi, Jack said: “From a financial modelling viewpoint the transaction is simple. The brewery division is sold and debt comes down. From an operational viewpoint the transaction is complicated – there will be £45m of taxation, reorganisation, redundancy, separation and transaction costs. The company, as we would expect, will look after its employees through this process. The company was restricted from providing much information in the conference call. However, we think the buying terms of the Fuller’s pub estates (87% of pre-disposal profit) have not changed. Fuller’s supply contract with Asahi is for five years, with a further five-year option. With one fewer division and the company being likely to relocate to a new, modern head office, central costs could fall. However, at just 1.3% of pub turnover they are already low, albeit with much divisional allocation. We are going to assume no change in central cost forecasts. Fuller’s currently has a £260m debt facility at an average cost of 2.8%. After this transaction and the return of capital to shareholders, we forecast net debt falling to £61m (in April 2020) versus £64m of Ebitda 2020E, equivalent to 0.9 times net debt/Ebitda. As the company has a small amount of expensive debentures, lower debt could increase the cost of debt in the short term, but this is not a concern. The company is likely to become more acquisitive but without compromising on its disciplined acquisition criteria. Fuller’s Griffin brewery in Chiswick is a unique property asset in the sector. Even if we apply a nine-figure valuation to its land, that would still leave a disposal multiple of 14 times Ebitda on the brewing operations. If applied to Greene King, net debt/Ebitda would fall from 4.0 times to 3.3 times, by our estimates, moving pro forma EV/Ebitda from 7.8 times to 7.3 times. If applied to Marston’s, net debt/Ebitda would fall from 6.0 times to 4.2 times by our estimates, moving pro forma EV/Ebitda from 8.7 times to 7.5 times. Neither of these 2020E read-throughs reflect complications in relation to securitised debt and operations. For Fuller’s the result is clear – this transformative deal provides the foundation for many years of strong growth, hence we are moving our recommendation from ‘Add’ to ‘Buy’.”

McDonald’s apologises after customers find chicken nuggets in vegetarian meals: McDonald’s has apologised after vegetarian customers across the UK reported finding chicken nuggets in meals that were meant to be meat-free. McDonald’s launched its spicy veggie wrap in early January. Its main ingredient is supposed to be a red pesto vegetarian goujon but customers have been given chicken nuggets instead. Twitter users in Liverpool, Birmingham, Kent, Lincoln, Yorkshire, Elgin, London and Bristol have shared their experiences. McDonald’s told BBC’s Newsbeat: “We have a number of procedures in place to avoid inaccurate orders and after we saw mistakes were being made we introduced a number of measures in our kitchens and communicated with all stores to reduce inaccuracies quickly and effectively. We are disappointed mistakes are still being made. We never want to disappoint customers and any inaccuracy is not good enough.”

Best practice and transparency over allergens key to food safety, says UKHospitality: Promoting best practice and open dialogue between customers and businesses about allergens is the best way to promote transparency and food safety, according to UKHospitality. The government has started consultations on changing food allergen information laws, seeking information on four possible options – they promote best practice (no change in law); add “ask the staff” stickers to packaging with staff providing information orally and in writing if requested; label food with the name of the food and list allergens; and label food with name of food, full ingredients and with allergens emphasised. UKHospitality chief executive Kate Nicholls said: “When it comes to allergen information and food safety, we take our responsibility extremely seriously and we have been working very closely with our members, the government, Food Standards Agency, consumer groups and other stakeholders to promote best practice. As recently as this week, UKHospitality was working with food suppliers and our members to strengthen allergen information and develop consistent industry-wide definitions that go above and beyond legislation. The best way to achieve this is to promote dialogue between customers and staff to ensure messages get through and that people feel comfortable and confident discussing allergens openly. We don’t think mandatory labelling of all ingredients or allergen-only ingredients would be the most effective way to keep people safe. There is too great a risk of incorrect labelling and the system would not safeguard against accidental contamination. Additionally, smaller businesses are likely to be overwhelmed by mandatory requirements to label all their food, increasing the possibility of an error.”

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