I would like to say how much I enjoy the e-mails from Langton Capital on a daily basis. I use the newsletter as an ideal way of keeping me up to date with what is going on financially in the drinks industry.
Tenanted pub company
Restaurant Group meeting, delivery, labour, C&C, Pret, Safestay etc.:
A DAY IN THE LIFE:
The letters are rubbing off my keyboard and, though I can touch type, I sometimes find myself glancing at the keys and ending up in something of a muddle as my muscle memory is at odds with what I can see with my eyes.
And, as might be expected, the victim keys include the most popular letters, A, S, E (but not R, thankfully) and also the one to the right of S that I can’t see or remember.
Indeed, having a closer look, the key to the right of X has gone as well, all of which seems to suggest that my left hand is either heavier or clumsier than my right or that it occasionally finds itself covered in paint stripper. This would be consistent with the fact that the back space, used to correct errors and heavily pressed by yours truly, looks pristine.
Anyway, it’s Friday, we’d by lying if we said that there’s a lot of news about and the sun’s trying to shine. Have a good weekend and let’s move on to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
CHANGED EMAIL FORMAT:
The Premium Email is unchanged. The Free Email is now largely written the evening before. It may not include breaking stories nor Langton comment. See Twitter for in-day comment. Let us know if you would like an example of the Premium Email.
Prices: £295 for one subscription, £495 for multiple, both plus VAT. Or sign up for easy in, easy out monthly option:
RESTAURANT GROUP – H1 ANALYSTS’ MEETING:
The Restaurant Group hosted a presentation to analysts after releasing its H1 numbers on Wednesday. Our comments thereon are set out below:
• CEO Andy Hornby reiterated that the company was increasing its full year 2021 EBITDA estimates. This is partly, however, as a result of £10.7m of government restart grants.
• He pointed to a number of problems:
o VAT will rise.
o Dine-in covers are down (but spend is up)
o There are labour issues (availability and cost).
o Food, drink & utility prices are rising.
o Airline passenger volumes are running at minus 65%
o There has been a 21% reduction in competitor supply in a number of geographies
o Delivery is up 36% since 2019 – and it will grow further.
• The numbers only include 7 weeks of normal trade. Including grants received, furlough payments & rent free periods, the group made an EBITDA loss in Q1 and profit in Q2, with a profit for H1 as a whole. The group made a loss excluding government assistance
• See below for group’s performance by brand. Care with the period covered as it is not H1.
o Wagamama has been very strong. Delivery has doubled & the brand has outperformed. Delivery was 14% of revenues & it is now 28%.
o Pubs. These have also performed extremely strongly.
o Leisure units have also been strong. Many of the lesser units have been removed but the numbers in the table above are LfL (i.e. good units vs good units)
o Concessions are only reopening selectively. Some 21 units (c50% of the estate) are open. LfL sales are down 53% but passenger volumes are down 74%. Dwell times are up.
o CFO Kirk Davis reiterated that the group has around £235m of financial headroom.
o New openings. Wagamama could get to 180-200 with pubs moving to 140-160 sites. The group could open c6 Wagamama units a year, c6 delivery kitchens and perhaps 4 pubs
Tone and feel:
• Broadly upbeat. Estimates raised, balance sheet good, traded well and beaten the market. But there are labour, cost and VAT benefit one-offs and problems. Mr Hornby says the business is ‘massively stronger’ and higher delivery volumes will persist.
Questions & answers: See premium email.
DELIVERY & TAKE AWAY:
CGA and Slerp have released their latest Tracker looking at delivery and takeaway sales. They conclude these ‘sales ride high for restaurant and pub groups in August.’ The Tracker reports that ‘managed restaurant and pub groups’ delivery and takeaway sales were close to treble their pre-pandemic levels in August’.
‘Sales were 176% higher than in August 2019, and 70% higher than in August 2020, when restaurants and pubs were trading under COVID restrictions.’ It says ‘while year-on-year growth has slowed since the first quarter of 2021, when the sector was completely closed for eating-in, deliveries and takeaways accounted for 27% of managed operators’ total sales in August.’
• Further comment – see premium email.
PUBS & RESTAURANTS:
• Per KAM Media, 3.3m people have already made Christmas reservations, providing a positive look for hospitality with 1-in-3 adults intending to put more effort into celebrating Christmas this year compared with a normal.
• KAM found that footfall on Christmas day itself looks set to return to pre-Covid levels with 1-in-10 intending to visit a pub or restaurant- this matches intention level in 2019. The research predicts a net increase in people visiting restaurants this festive period compared with normal 'Pre-Covid', with 27% intending to go to restaurants more often over the upcoming festive period compared with 20% who say less often.
• Lumina Intelligence’s Operator Data Index reports that technological innovations remain vital to the pub sector. Greene King reported app usage accounted for 70% of orders taken; and Mitchells & Butlers noted trends of higher spend per head, premiumisation, and trading up.
• The MA reports on a survey of 350 companies and finds that 88% believe labour shortages are one of their biggest concerns for the remainder of 2021. Within the 350 (from all sectors), every hospitality company was short of staff. UKH says ‘these findings are incredibly timely as we have seen a record high in vacancies across the economy. Hospitality was amongst the last sectors to emerge from restrictions and we are still playing catch-up. Yet it is clear that these labour shortages are affecting many sectors.’ The organisers of the survey, REC, commented that ‘vacancy numbers are far higher than pre-pandemic, and it is taking much longer to fill them. This is putting the recovery at risk by putting capacity constraints on the economy, as last week’s GDP figures showed.’
• Westminster is reported to be looking into introducing a longer term al fresco option for parts of Soho. The council says it has had ‘hugely positive' responses to consultations from local residents. The council adds ‘Covent Garden has always been one of London's top destinations for hospitality and St. John's Wood offers world-class eateries on a bustling local high street.’ It says ‘we’re really pleased that residents and businesses have voted in favour of keeping al fresco. Thanks to residents and businesses working together, Westminster is proud to be able to support the continuation of outdoor dining in these areas.’
Companies & other news:
• C&C has confirmed that outgoing Marston’s CEO Ralph Findlay is to join as Chair designate in March 2022 and succeed Steward Gilliland in July 2022. It says ‘Mr Findlay’s appointment follows a thorough evaluation and succession process led by the Nomination Committee, in conjunction with independent executive search firm, Spencer Stuart. Mr Findlay brings significant industry and listed company experience to the C&C Board.’
• Pret a Manger USA has introduced its coffee subscription program in New York City and Washington, D.C. The company’s premium plan costs $29.99 a month and the classic plan is $19.99 a month and includes all organic coffees and teas.
• Electra Private Equity has said it is on track to float TGI Fridays and 63rd+1st on the London Stock Exchange. Electra reported that over the 16 week period LfL growth vs 2019 was on average up 11.8%. In the seven weeks since ‘Freedom Day’ LFL growth vs 2019 has averaged +15.2%, VAT-adjusted this was +2.6%.
• Kris Gumbrell, CEO of Brewhouse and Kitchen, reports strong summer trading but warns that there is still some customer hesitancy. For the last 8 weeks of trading the group has seen an average of 16% growth ahead of FY19.
• Red Oak Taverns will acquire nine tenanted pubs from Hall & Woodhouse, a Dorset family brewer. Co-founder and Chief Executive of Red Oak, Mark Grunnell said ‘whilst this will be the third portfolio acquisition we have made this year, we have also added three individual pubs to our estate, taking our total acquisitions this year, so far, to 25 pubs.’
• Virgin Wines has announced that it has entered into a partnership with Moonpig ‘to launch a range of products with the UK's leading online greeting card and gifting platform.’ It says it ‘will launch a range of 32 different wines, some of which are available exclusively via the Moonpig website, as part of the latter's ever expanding gifting proposition.’
• The latest GO Technology report from Zonal and CGA reports that no-shows are costing the hospitality industry £17.6bn a year. Some 14% of consumers have failed to turn up without telling the venue having made a reservation since April this year.
• Diageo has announced the establishment of a new research and development centre in Shanghai. The facility will primarily support the China market and will strengthen Diageo’s ability to rapidly innovate and develop premium products that cater to Chinese consumer tastes.
• The Co-op warns of pressure on profits as it faces supply chain challenges, in its half-year results. The company showed an underlying loss of £15m for the business.
• M&S has announced that it is closing 11 of its French stores, blaming Brexit. The company said Brexit has made it ‘near impossible’ to maintain standards of food supply.
• Black Box data in the US shows that August saw a reversal in the upward momentum the restaurant industry’s sales and traffic. It says sales growth was 6.1% during the month, a drop of 2.1 percentage points compared to July’s figures.
HOTELS & LEISURE TRAVEL NEWS:
• Google reports that travel queries have increased three-fold in the UK since the height of the pandemic. This is a move in the right direction but whether it translates to bookings remains to be seen.
• Safestay plc invites bids. The company reports that the ‘Board has also received a very early stage and highly conditional approach from a party in relation to a possible offer for the issued and to be issued share capital of Safestay plc.’ It says ‘the Board has now determined to undertake a review of the strategic options. These options include, but are not limited to, a sale of the Company which will be conducted under the framework of a "formal sale process" in accordance with the Takeover Code’ and adds that ‘the Board is unanimous in its support for such a strategic review.’
• Further comment – see premium email.
• Eurostar trains will not stop in Kent until 2023 at the earliest, the company has reported. Eurostar says ‘as the business starts its recovery, we need to focus on core destinations where demand is highest. “We will review the decision towards the end of next year.’
• Per Travel Weekly, Adam Stewart, chairman of Sandals Resorts has said UK sales this autumn are more than double 2019 levels as a result of pent-up demand due to the Covid pandemic. Stewart said that customers are ‘saying ‘travel is critically important to me, I haven’t been able to do it for the last 15 months…and we’re going to travel this fall between now and the end of the year’.’
• Gatwick is cutting the cost of ‘fit to fly’ lateral flow tests by £2 to £33, with PCR tests also being reduced by £10 to £59. The additional subsidised rates come as the overall costs of PCR tests continue to act as a barrier for travel for many families.
• Travel Weekly’s Future of Travel conference saw the CEOs of Jet2holidays and easyJet holidays, and Tui’s UK boss appear on a panel together. Tui’s UK and northern Europe managing director Andrew Flintham said ‘Our problems are really well-understood [by government]...And in some ways they have been cynically managed.’
• CWT has agreed a $350 million refinancing deal as the business travel sector recovers from the pandemic. The refi will see $900 million of debt eliminated and aims to strengthen the firm’s financial position.
• China’s crackdown on Macau has sent down shares in the Casinos which operate there, with some of the biggest gaming firms on the Hong Kong market losing about £13bn in value. Companies including Wynn Macau, Sands China and Melco Entertainment saw their stock market valuations plunge by as much as a third on Wednesday.
FINANCE & MARKETS:
• The OECD has reported that the UK grew by 4.8% in Q2 this year to put it at the top of the league table of developed countries. On a longer term view, the UK’s performance is mixed and it is at the bottom of the list over the pandemic as a whole with only Italy performing worse. UK output over the last year and a half is down by 4.4% whilst for the G20 as a whole, it was up by 0.7%. The latter number, however, is skewed by China and Turkey, which grew by 8.2pc and 8.8pc respectively since the end of 2019.
• Sterling $1.3806 and €1.1726. Oil price up at $75.52. UK 10yr gilt yield higher at 0.81%. World markets broadly better yesterday and London set to open up around 39pts as at 7am.
RETAIL WITH NICK BUBB:
• Today’s News: After the plethora of company news yesterday, today has gone quiet, with just the daily Frasers share buyback of any note.
• Planet ONS Watch: In “the real world”, as per the BRC-KPMG figures for August (the 4 weeks to Aug 28th), underlying Retail Sales were a bit sluggish last month, and “seasonally adjusted” life was also a bit disappointing on that strange parallel world, the Planet ONS (aka the Office of National Statistics in Newport), via their official Retail Sales figures released at 7am this morning…City economists (who still treat the ONS figures as the gospel truth) will be unhappy with the 0.9% dip in month-on-month seasonally adjusted sales volumes (including petrol), as a small bounce of 0.5% was generally expected and year-on-year volumes were only flat (down 0.9% ex-petrol). The year-on-year, non-seasonally adjusted sales value growth of 1.4% was held back by weak Small Retailer sales and although overall Non-Food sales were 5.2% up, Food sales were only 0.4% up and Non-Store sales were as much as 6.0% down (with Online sales 4.1% down).
• John Lewis Partnership Watch: Back in March, after the better than feared £131m PBT pre-exceptionals for y/e January, it was a surprise to hear that 2021/22 underlying profits at JLP would be down because of the impact of “investment costs” and that we thought that JLP would nudge up full-year profit expectations with yesterday’s interims. In the end, JLP ducked that, citing uncertainty about the pandemic and a decision to review Business Rates relief at year-end, but, as we suspected, trading has been better than expected so far this year, in both Waitrose and John Lewis, and the overall H1 outcome blew away expectations, with a £55m pre-exceptional loss turned into a £69m profit! Strong Online growth helped Waitrose improve sales by 2%, but operating margins were under pressure and the big profit driver was John Lewis, with sales up by 12% and gross margins much improved (as Fashion took up the running from Technology).
• BDO High Street Sales Tracker: Today’s BDO High Street Sales Tracker for medium-sized Non-Food chains, for w/e Sept 12th, is again reassuring, but we would again flag that the BDO index is skewed to the strong recovery sector of Fashion and so it is over-estimating overall Non-Food sales growth. However, BDO Fashion LFL sales were c28% up on last year (with Store Fashion sales up by c36%), whilst Total BDO LFL sales (including some Homewares and Lifestyle retailers, plus the Fashion retailers) were again up by c20% (up by c27% in Store sales and up by c20% in Online sales).
• Next Week’s News Flow: A quieter week kicks off on Tuesday with the Kingfisher interims, the Dignity interims and the monthly Nielsen grocery figures. Thursday then brings the DFS finals and the Nike Q1 (in the US), whilst first thing on Friday we get the monthly GFK Consumer Confidence index.
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 15 Sept 21 Restaurant Group H1 numbers
• 16 Sept 21 C&C H1 trading update
• 16 Sept 21 Games Workshop trading update
• 16 Sept 21 ONS real time indicators
• 21 Sept 21 Compass Group full year update
• 22 Sept 21 Ten Entertainment H1 numbers
• 23 Sept 21 City Pub Group H1 numbers
• 23 Sept 21 Playtech H1 numbers
• 23 Sept 21 ONS real time indicators
• 25 Sept 21 (est) GfK UK Consumer Confidence numbers
• 29 Sept 21 Fulham Shore AGM
• 30 Sept 21 New River investor day
• 1 Oct 21 JW Wetherspoon
• 4 Oct 21 Rank Group AGM
• 5 Oct 21 Gregg’s Q3 update
• 6 Oct 21 Constellation Brands Q2 numbers
• 8 Oct 21 Hollywood Bowl FY update
• 13 Oct 21 Marston’s FY trading update
• 22 Oct 21 Intercontinental Hotels Q3 numbers
• 25 Oct 21 DP Poland H1 numbers
• 27 Oct 21 Chancellor’s Autumn Budget
• 26 Oct 21 Campari Q3 numbers
• 28 Oct 21 C&C H1 numbers
• 28 Oct 21 YUM Brands Q3 numbers
• 16 Nov 21 Premier Foods H1 numbers
• 18 Nov 21 Jet2 H1 numbers
• 23 Nov 21 Compass Group FY numbers
• 24 Nov 21 Britvic FY numbers
• 30 Nov 21 Marston’s FY numbers
• 6 Dec 21 AB InBev investor seminar
• 8 Dec 21 TUI FY numbers
LANGTON CAPITAL: Made in Hull. Like all the best things. Langton Capital is a financial advisory company providing insightful views on the UK and global leisure industry and the wider consumer sector in general. Subscription to the daily email is free. Unsubscribing is painless. We provide daily off the shelf and bespoke research. We have helped with transactions, fund-raisings, disposals and other corporate issues. We have a good ear, we are impartial, independent and not half bad at what we do. If you think that we could help you or your business, drop us a line.