Pizza Express Memo 020320
- Understand why Hony will almost certainly (in our view) take further transformative action before any potential restructuring of Pizza Express via a UK Scheme, which actions are likely and what impact these actions would have on recovery prospects for Pizza Express Senior Secured Notes (SSNs) and Senior Notes (SNs)
- Understand how Hony could implement either “Up-Tiering” or “Equitization & Refinancing” strategies
- Understand how restructuring via a UK Scheme could be applied to Pizza Express and how we would expect Scheme valuation and voting to work
- Understand what potential opportunity and IRR Hony likely sees for Pizza Express (branded Pizza Marzano) in China
- Understand the potential coronavirus impact on Pizza Express in China and on Group EBITDA in FY 20
- Updated financial projections, valuation and valuation sensitivity analysis in light of 9m 2019 results, monthly UK benchmark restaurant data since Q3 19 and coronavirus
- A likely restructuring pitchbook for Hony, utilising indenture options other than the “J-Crew” strategy
- China pizza restaurant and Western Casual Dining Restaurant market analysis including competitive landscape, market data and restaurant economics to estimate the potential scalability of Pizza Express in China and potential IRR to Hony
- Coronavirus impact assessment
- Why did Hony tender for Pizza Express SNs in Nov/Dec-19 and why for £80m?
- What are Hony’s likely plans having purchased a total of c. £95m SNs, c. 48% of the outstanding amount?
- Which actions do we expect Hony to take before any potential restructuring of Pizza Express via a UK Scheme and what impact would these actions have on negotiations with SSNs and other SNs holders, as well as on recovery prospects for these?
- Why might Hony equitize the SNs it holds and contribute additional equity?
- Why do we see our Up-Tiering scenario as more likely than our Equitization & Refinancing scenario?
- How would Pizza Express be valued in a UK Scheme? Range of DCF outcomes and multiples (transactions-based including distressed transactions and listed)
- Would SNs holders be included in voting on a UK scheme and, if so, would they form a separate class to SSNs holders?
- What strategies are available to non-Hony holders of the SNs?
- What are the investment implications of our various scenarios for Pizza Express SSNs, SNs and CDS?
- What is our estimated impact on Pizza Express’ EBITDA from potential Chinese restaurant closures and LFL sales development in China as a result of coronavirus?
- What do recent UK restaurant data suggest for Pizza Express’ Q4 19 and early part of Q1 20 results?
- What could the potential IRR to Hony look like on an eventual successful scaling up of Pizza Express (branded Pizza Marzano) in China?
- What are the supportive factors of a long-term bullish investment thesis for Hony’s ambitions for Pizza Express in China and what are the challenges it faces / will face?
- Why has Pizza Express’ International EBITDA margin collapsed, driven by China, and what can potentially be done to turn around the Chinese business (coronavirus notwithstanding)?
- View, Variant Perception & Recommendations
- What Is Hony’s Plan?
- Q2 & Q3 2019 Results
- Financial Model, Valuation Update & Coronavirus China Stress Case
- Hony Tender Offer & Other Updates
- Pizza Express China Bull Thesis & Return Potential, Yum China & China Market Data
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