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Summary
- As per the industry data, the new car registration in the UK increased by approximately 11 percent year on year in July 2020.
- The UK's composite PMI index increased to 57.0 in July 2020 from 47.7 in June 2020.
- Greggs suspended the final dividend for FY2019 and the interim dividend for FY2020.
- Greggs incurred per week net cash burn of £4.4 million during the lockdown period in 2020.
- Restaurant Group received a financing facility of £50 million under the Government CLBILS scheme.
- Restaurant Group said that 90 percent of the estate would be reopened by the end of September 2020.
We would review two consumer stocks given the above market conditions - Greggs PLC (LON:GRG) & Restaurant Group PLC (LON:RTN). Based on the 1-year performance, GRG and RTN were down by close to 39.67 percent and 67.73 percent, respectively (as on 5 August 2020 before the market close at 9:40 AM GMT+1). It is mindful to note that on the 3 August 2020, the UK government stated that it would pay up to 50 percent of the food bill for diners eating in the cafes, restaurants and pubs. The government's scheme applies to all food and non-alcoholic beverages, and it is a significant step taken to protect the jobs of people working in the outdoor eating business. Let's skim the financial and operational updates of the companies to understand the stock better.
Greggs PLC (LON:GRG) – Issued commercial paper of £150 million in April 2020
Greggs PLC is a UK based company engaged in food and bakery business. The Company makes the food in the bakeries and then supply to its own shops across the UK. The Company has over 2050 shops with close to 25,000 workforces. Greggs is included in the FTSE 250 index.
Financial Overview for 26 weeks ended 27 June 2020
(Source: Company Website)
2020 Interim results for 26 weeks (ended 27 June 2020) as reported on 28 July 2020
The Company reported sales of £300.6 million for the reported period, which were lower than £546.3 million for the same period a year ago. The operating loss and loss before tax and exceptional items were £61.9 million and £64.5 million, respectively. During the 26 weeks in 2020, the Company reported a loss after tax of £53.8 million from a profit after tax of £29.2 million a year ago. Greggs started 2020 on a strong note and witnessed growth in the first quarter of the year; however, lockdown harmed the business performance and the growth mainly in the second quarter of 2020. It incurred impairment charges related to Covid-19 impact and made a provision of £9 million due to the closure of the shops, and £2.5 million was spent on the safety procedures. The Company received positive support from the government's coronavirus job retention scheme and business rates relief that was close to £75 million. The Company had per week net cash burn of £4.4 million during the reported period against per week cash generation of £2.5 million a year ago. Greggs had an operating cash outflow before financing of £118.4 million for the reported period. As on 27 June 2020, Greggs had cash & short term liquidity of £123 million and the net debt was £26.2 million. In April 2020, the Company issued the commercial paper worth £150 million under the government's covid corporate financing facility (CCFF). The Company suspended the final dividend payment for FY19 that would save cash of close to £33 million. It also suspended the interim dividend for FY20.
Share Price Performance Analysis
1-Year Chart as on August-5-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Greggs PLC's shares were trading at GBX 1,288.00, down by about 0.85 percent from the previous closing price (as on 5 August 2020 before the market close at 9:40 AM GMT+1). Stock 52-week High and Low were GBX 2,550.00 and GBX 1,164.00, respectively. The Company had a market capitalization of £1.32 billion.
Business Outlook
Greggs highlights that it would comply with all the safety measures to operate the shops. After reopening of the economy, the Company has seen some pickup in the business activity, and recently it has witnessed average sales close to 72 percent of the total sales in the same period last year. The Company expects to reach the profit breakeven at 80 percent of the 2019 sales in the current situation. The Company is highly dependent on the government's furlough scheme. The capital expenditure budget for FY20 is approximately £55.0 million, of which close to £33.6 million has been spent in H1 FY20. The Company intends to repay the funds raised from CCFF as early as possible.
Restaurant Group PLC (LON:RTN) – raised close to £57 million through the placement of new shares
Restaurant Group PLC is a UK based company engaged in pub and restaurant business. The Company owns brands such as Wagamama, Frankie & Benny's, Chiquito, Fire Jacks and Coast to Coast. The Company had close to 400 restaurant and pubs after a recent corporate restructuring. Restaurant Group is included in the FTSE AIM All-Share index.
Recent Events
- On 10 July 2020, the Company reported access to financing facility of £50 million under the Government CLBILS scheme, which is supported by the Lloyds banking group. Under the agreement, the term of the revolving credit facility has been extended by six months to 30 June 2022 and also received a covenant waiver where the next test would take place in June 2021. The existing financing facility was increased by £10 million from existing £40 million. The Company said that it would open 25 percent and 60 percent of the estate by the end of July and August, respectively, whereas 90 percent of the estate would be reopened by the end of September 2020. The 10 percent of the total estate is not expected to open in 2020, where the Company expects weaker footfall and subdued business activity.
- On 29 June 2020, the Company received creditor's support for the approval of the Company Voluntary Arrangement (CVA) process for the Leisure business of the Company. As per the arrangement, the Company would have about 160 sites trading in the Leisure business of which revised lease terms and rental costs reduction would be applied to approximately 85 sites.
FY2019 Financial Overview
(Source: Company Website)
Covid-19 Update as reported on 8 April 2020
The Company expects the like for like sales to be down by approximately 45 percent in FY20 due to the pandemic. The sales are expected to decline by about 60 percent in the first half of FY20 and 30 percent in the second half of FY20. Meanwhile, the adjusted EBITDA is expected to be in the range of £45 million to £55 million and the net debt to be in between £310 million and £320 million in FY20. The Company secured additional financing facility of £15 million from Santander, and now the entire loan facility stands at £35 million. On 9 April 2020, the Company raised close to £57 million through the placement of 98,199,245 new shares at 58.00 pence per shares.
Share Price Performance Analysis
1-Year Chart as on August-5-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Restaurant Group PLC's shares were trading at GBX 47.70 up by about 5.16 percent from the previous closing price (as on 5 August 2020 before the market close at 9:40 AM GMT+1). Stock 52-week High and Low were GBX 167.70 and GBX 20.26, respectively. The Company had a market capitalization of £267.53 million.
Business Outlook
The Company started the phased reopening of the pubs and restaurant while maintaining the safety measures in line with the government's guidance. Restaurant Group has a diversified portfolio of offerings, and it is confident to take up the new changes and challenges that the business has undergone in the last few months. The Company has slashed capital expenditure, and it would be less than £30 million for FY20.
