Pizza Express call uneventful

All,

The Pizza Express call has been hopelessly uneventful:

- Management gave no information besides the numbers in the presentation. 

- Shareholders remain “engaged” on the capital structure issue, but no further comment. 

- A CVA remains off the agenda - at least publicly. Management did not even chose to say that it may be a possibility, despite admitting to some 5% of UK stores trading unprofitably (surely that is more).

- PE plan to trade cash-neutral this year with only £3m of CapEx in the UK and £7m internationally, amounting to only a mild net-expansion in either geography (12 international closures mostly through expiry / non-renewal of leases, so likely little restructuring cost). We have been assuming as little as another £12m of additional maintenance CapEx this year to achieve the targeted cash neutrality, which would amount to significant “borrowing" from the UK estate to continue to fund international growth. 

- The company continues to adjust its EBITDA by a backlog of EBITDA (relating to immature sites opened up to 18 months ago in the UK and 12 month age internationally) of £10m, down only slightly from £10.5m in Q118 = -5%. This does not reflect the shrinkage in number of new restaurants from LTM 50 in Q118 to LTM 30 in Q119 = -40%. This does not look right to us. At this stage however, all covenant levels have been broken anyhow (note that the RCF only has a draw stop subject to being 25% drawn and that the notes allow for significant baskets despite covenant levels - see our analysis).

Thoughts:

- The company continues to fund its Chinese expansion. This is a little bit of a disappointment to us, as we thought there would be an announcement to fix the format and profitability first, before leaking more CapEx to China.

- The next coupon date is in August, which is also typically the annual low-point in liquidity. The complete lack of questions from HFs would indicate that there is a back-channel of information open now that we weren’t aware of. We understand that very much every advisor in the city has been making the rounds on the name recently, but we have not yet heard of any action being taken / prepared.

We will make some calls to find out if there are more concrete preparations in the works. Meanwhile, the name is just pottering along. 

Wolfgang