Good morning, it's Paul here.

CVA newsflash

There was an interesting twist in the topical theme of retailer/hospitality companies seeking to restructure their property portfolios using CVAs.

CityAM reported via the Sunday Times, that Next (in which I have a long position) is asking for a "CVA clause" in new leases. This would trigger a rent cut for Next, if any of its neighbours gain a rent reduction through a CVA.

If a landlord is desperate to attract or retain Next as an anchor tenant in a struggling shopping centre, then they might agree to this.

Therefore, if Next is successful in gaining favourable CVA clauses in new leases, then that could result in landlords voting against some future CVAs. My feeling is that landlords may start to dig their heels in, and refuse some future CVA proposals. Otherwise, the flood gates would open, as numerous struggling retailers chanced their luck with a CVA proposal.

Landlords might start refusing CVA proposals, as a deterrent & warning to retailers seeking to exploit the process unreasonably. Perhaps landlords should demand equity (through options or warrants) as part of agreeing CVAs? After all, why should landlords take all the pain, only to see restructured retailers emerge as highly profitable, and shareholders receiving all the benefits from the CVA process?

Let's start with a profit warning:

Produce Investments (LON:PIL)

Share price: 149.5p (down 8.8% today, at 08:49)
No. shares: 27.3m
Market cap: £40.8m

Trading update (profit warning)

Produce Investments plc, (AIM:PIL) ("Produce," "Company" or the "Group"), a leading operator in the fresh potato and daffodil sectors, is today providing an update on current trading...

It's quite a nasty profit warning today;

... the Board now expect the Group's profit for the year ending 30th June 2018 to be substantially below current market expectations.

The reason that the share price is only down about 9% today, seems to be because the weather issue was pretty obvious, and was mentioned in detail with the interim results commentary on 22 Mar 2018, here. Although management seems to have been too optimistic about the full year outcome back in March.

Other points mentioned today;

  • Impairment of intangibles will be incurred this year.
  • lower margins on UK potato crop, in an "oversupplied market"
  • Moving year end…

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