Langton Capital – 2020-04-01 – PREMIUM – Crowd funded companies, Domino’s, RTN, Carnival, delivery & other:
Crowd funded companies, Domino’s, RTN, Carnival, delivery & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Our dog seems to have an unconscious ‘family location’ sonar built into his head such that he knows at any one time where everyone is.
This enables him to plonk himself down at whatever the average distance is between people – and this seems to work whether there are two, three or more of them – weighted according to how important he thinks any one person is or how likely they are to feed him.
He can then adjust his position according to either 1) perceived changes in the pecking order or 2) access to food.
Hence, when just school-age daughter and I are around, he might position himself two-thirds of the way to me – particularly if he can block a doorway at the same time – but, if daughter gets any food from the fridge, he’ll reverse that – or even go the full 100% if she looks a bit wobbly and there’s any chance of a spillage.
And this is what it is but, if any tall relatives come to visit – in the days when relatives were allowed to visit – he’ll show his full colours and, with what looks like a slightly guilty ‘your time has passed, old man’ backward glance, he’ll abandon me, sit closer to them and, if they have a deep voice and food, then so much the better. Indeed, forget the fact that I’ve fed him every morning for seven years, that’s all in the past.
Anyway, the news flow is visibly slowing. There’s an awful lot of work going on beneath the surface but, as far as trading goes, what are you going to say? Any thoughts during the day, see #brumbymark. On to the news:
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LOVE IN A COLD CLIMATE: Spare a thought, perhaps, for those crowd-funded, usually loss-making companies that at some point will need another cash injection. 1 April 2020.
The enthusiasm, realism, pessimism spectrum:
• Entrepreneurs tend to be an optimistic bunch.
• They are enthusiastic and, at least by the time they get around to raising money from third parties via crowd-funding, they are persuasive
• But that doesn’t mean they are always right and, even if they are, their businesses may not be robust enough to survive a prolonged downturn the likes of the one we are currently seeing
Turning your capital into their income?
• Not always, but perhaps more often than is financially healthy, crowd-funded operations turn their investors’ capital into their own income
• Or rather capital is used to cover start up losses and working capital as well as tangible investments
• And it’s perhaps fair to say that few businesses would get off the ground in the first place if they were not able to cover such losses from somewhere
• And, if it can’t come from income, then it must come from capital but that does put the company in a weak position if trade or the economy turns down
Crowdfunding – A couple of examples.
• As commented earlier, the Internet has allowed some companies to disintermediate the fund-raising process, bypass brokers etc. and go straight to would-be shareholders
• This may be exciting & liberating or highly dangerous, depending on your point of view. It is very likely both.
• Many loss-making companies have become the darling of the crowd-funded scene but they 1) were maybe not at the right stage to be attracting small investors and 2) will now be being tested like they have never been tested before
• Grind, for example, which may well be a good company, is still heavily loss-making, and was valued at £34m at one stage last year
• This equates to c15x balance sheet totals or 3.5x sales. The group has lost £1.35m last year and has lost £4m since incorporation.
• And Notes Music & Coffee has just lodged accounts with Companies’ House showing that accumulated losses rose by £313k in the year to 30 June 2019 and total equity was a negative £166k (albeit ‘better’ than the negative £987k that it had shown the previous year on the back of equity fund raisings
• Notes raised £900k via Crowdcube in August 2015 and a further £1.2m in June 2018, the latter on the back of a £10m pre-new money valuation
• Notes’ confirmation statement (its list of shareholders that it is obliged to lodge with Companies’ House) is 100 pages long
• The valuation attached to crowd-funded companies has been, in our opinion, too high in many instances
• The concepts are unproven. That isn’t to say that they can’t succeed but, we would argue, rather that the risk is mis-priced
• In addition, there is limited disclosure & liquidity & no clear exit route
• Investors, because they are human, focus on the small number of big winners such as BrewDog, Meantime etc. Even these ‘winners’ (unless they have sold out) will now be being sorely tempted.
• This focus on long-odds big winners is a similar mentality to the lottery market, which is heavily regulated.
• Investors have difficulty differentiating between a one in a million shot and a one in a billion chance – though one is 1,000 times more expensive than the other
• Thin regulation is dangerous. It may not cause scams, but it provides fertile ground for them to spring up
• And having a 100 page shareholder disclosure for a loss-making company going into the coronavirus with the potential need to raise more funds is not ideal
• London is the largest crowd-funding market in Europe and, given its B2C nature, we would suggest that legislation and regulation has not yet caught up with technology
• We expect to see failures in this space. Units are likely to be closed with keys returned to already inundated landlords. See also comments from June last year on the few statistics that are available in this industry
PUBS & RESTAURANTS:
• The National Living Wage rises by 6.2% today. Employees that are furloughed, we understand, do not have to have their wages increased. If they are furloughed after today, the situation is less clear. The rise will increase costs for operators who, at present, have no income.
• Domino’s in the US ‘is withdrawing its financial guidance for 2020 and has released preliminary sales results for the first quarter, ended March 22, 2020.’ In Q1, the company reports a reduction in LfL sales of 1.6% for U.S. stores and 1.5% for international stores.
• Dominio’s (US) says ‘the company is not experiencing significant downturns yet as a result of the coronavirus pandemic.’ It says ‘global retail sales growth increased 4.4% systemwide, with 4.9% growth for U.S. stores and 3.9% for international stores.’ CEO Ritch Allison says ‘across the globe, Domino’s will remain focused on execution, service and value as we continue to navigate through the headwinds created by COVID-19.’
• The Restaurant Group reported this morning that CFO Kirk Davis bought 276,797 shares in the company at 28.125p per share on 30 March. This would suggest that the directors were not in possession of any inside information. This could mean that stories of a fund-raising are misplaced.
• Uber Eats is reported to be pushing further into grocery delivery.
• Nielsen has reported that there will be a rise in food wastage as some of the food panic-bought from supermarkets will not be eaten.
• The BBC reports that ‘nearly a fifth of all small and medium-sized businesses in the UK’ will not have the cash resources to last a month without income. The government’s helicopter money and its Job Retention Scheme cash cannot come soon enough for many.
• Anheuser-Busch InBev reports that the Australian Competition & Consumer Commission has cleared its sale of its Australian subsidiary Carlton & United Breweries to Asahi Group Holdings.
• Domino’s yesterday announced that it had appointed Dominic Paul as its CEO effective 6 April 2020. Mr Paul will replace David Wild who has previously announced his intention to retire from the business. Chairman Matt Shattock says ‘we are delighted to have attracted a CEO of Dominic’s calibre, and I’m very much looking forward to working with him. He is a high energy leader with great experience of driving powerful consumer brands to new heights, and of partnering with franchisees.’
• A survey undertaken by the Nationwide Caterers Association has found that around 70% of mobile catering, festival and street food traders believe their businesses will close permanently as a result of the Coronavirus pandemic. The NCA says ‘there’s a lot of confusion and uncertainty out there at the moment.’ They can say that again.
• Many mobile caterers have had to close due to the ban on public gatherings whilst others have closed because footfall has declined sharply.
• New River yesterday said that, as at close of business on 30 March 2020, it ‘had received 60% of quarterly retail rents relating to the first quarter of the financial year ending 31 March 2021. This comprised quarterly rents due on 25 March 2020 for our assets in England, Wales, and most of our tenancies in Scotland, and, for the remainder, quarterly rents due on 28 February 2020. In total, these quarterly rents represented 77% of NewRiver’s retail rent due, with the remainder being monthly rents, for which the next collection date is 1 April 2020.’
• Palmers’ Brewery has given its licensees a 50% rent cut backdated to the beginning of March.
• Just Eat is offering NHS workers 25% off all orders.
• UK consumers made more than 79 million extra trips to food shops in the four weeks to March 21 year-on-year as they undertook serious ‘pantry preparation’ exercises.
• Sales of alcoholic drink through the off-trade grew by 22% in the last month compared with the same month a year ago reports Kantar.
• The MA reports that ‘operators can claim credit for ullage on unsold beer, which could potentially save pubs “a fortune”’. Heineken has told some of its customers that it will collect beer that can no longer be sold & replace it when the current closure mandate is lifted.
• A survey undertaken by accountants Deloitte has found that more than three-quarters of senior hospitality figures in Europe foresee coronavirus disruption lasting from four to six months or more.
• Debenhams is reported to be in urgent talks with landlords that could lead to a further restructuring.
• Poundland is to close 32 shops for a number of reasons. It is legally allowed to remain open but has closed shops where they are a) in retail parks, b) have other stores around the same area or c) they have staff shortages.
HOLIDAYS & LEISURE TRAVEL:
• TUI is to furlough 11,000 staff in the UK, around 99% of its retail employees and a large percentage of its tour operating and airline staff.
• Sky reports that more than 90% of UK planes are now grounded.
• Carnival has confirmed that it is looking to raise $6bn to fund its operations over the current coronavirus crisis. The company said yesterday that wanted to raise c$3bn of three-year bonds secured on part of its fleet of cruise ships alongside $1.75bn of convertible bonds and $1.25bn in newly issued stock.
• Travel Weekly reports that a number of tour operators are ‘extending the suspension of operations around the world, as the coronavirus crisis deepens.’ This will be a moving feast.
• Norwegian Cruise Line Holdings and Viking have joined other cruise operators and extended the suspension of their cruises. It will be a struggle to stay ahead of this. For booking purposes, the operators need some certainty. But there isn’t any.
• UK Hospitality reports that around 200 hotels have made over 20,000 beds available around the UK for NHS staff. UKH says ‘this is an unprecedented crisis and the strain being placed on businesses, key workers and the NHS is visible. At such a time, it is vital that the nation’s resources are best used to support those who need it and help us all get through.’
• Marriott has said that ‘an unexpected amount of guest information may have been accessed using the login credentials of two employees at a franchise property. The company believes that this activity started in mid-January 2020.’
• Flutter yesterday said that it noted that the UK CMA had ‘given unconditional phase one clearance to its proposed combination with The Stars Group Inc’ and said that the proposed transaction ‘remains subject to approval by Flutter shareholders at its extraordinary general meeting on 21 April 2020 and by The Stars Group shareholders on 24 April 2020.’
• Planning permission has been granted for a £30m ski facility, Subzero Snow, which is set to open in Middlesbrough.
FINANCE & ECONOMICS:
• Lloyds Bank reports that business confidence has hit its joint lowest level since the depths of the global financial crisis 11 years ago in the week that started on March 9.
• GfK yesterday said that ‘against the threat of a dramatic slowdown in the UK economy due to the spread of Covid-19, the Consumer Confidence Barometer has weakened by two points this month.’ It adds that ‘this research was carried out during the first two-weeks of March, when the coronavirus was headline news but not impacting day-to-day lives of people across all UK nations to the degree we see today.’
• The new mortgage market is reported to have gone into lockdown. The Bank of England reports that the number of mortgage approvals rose to 73,546 in February, the highest since January 2014. February now feels like an age away.
• Grant Thornton has asked its 4,500 UK employees to volunteer for 40% pay cuts or face a redundancy programme per Sky. Advisors may be busy at the moment but actions speak louder than words.
• The World Bank says that the impact of coronavirus will stop around 24 million people from escaping poverty in East Asia and the Pacific.
• The FTSE100 yesterday finished its worst quarter since 1987. Despite a rally of c15% from its lows, the index has lost a quarter of its value since 1 Jan.
• Sterling stronger at $1.238 and €1.1231. Oil higher at $25.80. UK 10yr gilt yield up 4bps at 0.37%. World markets. UK & Europe higher yesterday but US down and Far East lower in Wednesday trade.
o Donald Trump now says the Covid-19 outbreak could cost a quarter of a million American lives. He says ‘I want every American to be prepared for the hard days that lie ahead. We’re going to go through a very tough two weeks.’
o UK banks will not pay out some £500m in dividends to shareholders in order to bolster capital.
START THE DAY WITH A SONG:
Yesterday’s song was Stay by Shakespeare’s Sister. Today, who sang:
Then you smiled, he got wild,
You didn’t understand that there’s money to be made,
Beauty is a card that must get played
RETAIL WITH NICK BUBB:
• Today’s Market: After another modest rally yesterday, the FTSE 100 index is expected to fall back again this morning (according to the Proactive private investor website), after Wall Street closed 1.8% down on renewed recession/pandemic worries, with Asian markets weak overnight (the Nikkei is down by 4.9%). The spread-betting firms expect the FTSE 100 to open c160 points down at around the 5670 mark and the opening will not be helped by the news that Bank of England pressure has forced the big banks to suspend all their dividends…
• MySale: The Australian-based Online retailer MySale is a shrivelled husk of a business, but it is still backed by the beleaguered Philip Green and it has actually reported some good news with its interim results today, highlighting that “as the pandemic has accelerated, MySale has benefited from additional inventory in the market as retailers and brands have been unable to sell it through their mainly offline existing channels. As a result, revenues in the last two weeks of March have been stronger and we have experienced an increase in the number of brands wanting to sell on our marketplace platform”.
• Grocery Market Share Watch: We highlighted yesterday that the latest Kantar supermarket sales figures for the 4 weeks to March 22nd were up by a heady 20.6% on an overall “Till Roll” basis. However, on a pure “Grocery” basis (excluding Non-Food) overall Kantar sales were as much as 23.8% up, boosted by Aldi/Lidl growth of 26.5% combined. Sainsbury was the best of the “Big 4” on this basis, with gross sales 25.5% up, whilst Tesco was 19.5% up gross, Morrisons was up by 19.8% gross and Asda was up 18.9% gross. And M&S Food was up by 23.0% gross, despite its more limited product range. The rival Nielsen grocery sales figures (for the 4 weeks to March 21st) reported very similar overall supermarket industry sales growth of 20.5%, boosted by amazing 43% growth in w/e March 21st, but, interestingly, Online grocery sales for the 4 weeks were only up 14%, given limited capacity.