Wagamama owner reassures with update, Premier Oil merger to create UK’s largest independent oil play

“The return of Donald Trump to the White House from hospital may have given US stocks a boost overnight but the FTSE 100 started Tuesday with modest losses, down 0.4% to 5,917.75,” says AJ Bell Investment Director Russ Mould.

“Despite the seemingly improved prognosis for Trump, the US is likely to remain a source of considerable uncertainty until election day on 3 November. Gold prices have regained the $1,900 per ounce mantle, indicating the nervousness which still pervades the markets.

“Central bankers will take centre stage later at an event today with investors looking for clues on monetary policy in speeches from the likes of ECB chief Christine Lagarde and her counterpart at the US Federal Reserve, Jerome Powell.”

Restaurant Group

“The Wagamama owner has delivered several bits of positive news, namely that recent trading has been good, and it is paying down debt faster than expected. That’s a major achievement given the fragile backdrop.

“Restaurant Group needs to sustain this momentum as it is still midway through a recovery plan which was in action long before Covid-19 struck. While it still has more sites to exit as part of its streamlining plan, it should benefit from structural changes in the casual dining industry.

“The sector has been suffering in recent years from over-expansion by restaurant businesses, causing many operators to scale back growth plans and begin closing under-performing sites.

“Covid-19 is arguably helping to accelerate the process to right-size the market and operators able to weather the current storm could come out the other side in a much better position as competition will be significantly reduced.

“The fact that takeaway orders account for 24% of Wagamama’s sales shows that the group has a brand which is still in strong demand from consumers even though many of them are staying indoors.

“Many other operators would look at that statistic with envy, particularly if lockdown conditions become tighter and fewer people are able to visit restaurants when they like.

“From a financial perspective, the business seems confident it has enough liquidity to support the business through difficult market conditions for at least another 12 months.”

Premier Oil

“After a long period where it felt like the business was, by necessity, being run in the interests of its creditors rather than its shareholders Premier Oil has effectively been put out of its misery.

“The company’s problems date all back to 2014 and the oil price crash which occurred that year. It simply had taken on too much debt when oil prices were above $100 per barrel and has been running to stand still ever since.

“Against this backdrop the tie-up with private equity-backed operator Chrysaor is more of a rescue mission than a merger of equals.

“With a big chunk of Premier’s debt being paid off on completion it certainly looks more sustainable than the previous plan to load up on more debt, ask for more money from the market and buy assets from BP to generate the cash flow to pay down borrowings.

“The new deal may create the largest independent UK oil company with output of a quarter of a million barrels of oil equivalent per day, but existing Premier shareholders will only own a very modest slice of this enlarged pie.

“Premier serves as a salutary lesson about the risks of becoming overly leveraged when you are exposed to the price of a highly volatile commodity.”

These articles are for information purposes only and are not a personal recommendation or advice.