Langton Capital – 2020-04-02 – PREMIUM – Consumer trends, Saga, Wm Hill, Gfinity, Gear4Music & other:
Consumer trends, Saga, Wm Hill, Gfinity, Gear4Music & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
A rash of RNS statements this morning ate up the time. See out ongoing thoughts on Twitter #brumbymark. On to the news:
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CGA ON CHANGED CONSUMER ATTITUDES DURINT / POST COVID-19. The market is currently much-changed. Some attitudes will persist. 2 April 2020.
Changing consumer behaviour:
• Health & wellness:
• CGA reports that the public has ‘become increasingly focused on health and wellness as a result of the COVID-19 crisis, with two thirds (66%) of adults saying they are now taking precautions to protect long term health, such as changing what they eat and drink and how frequently they exercise.’
• Money worries:
• CGA says that ‘money worries are also weighing heavily with the public, with half (51%) of those surveyed last weekend saying they were very concerned about the long term financial implications of the COVID-19 virus.’ That does beg the question as to why the other 49% are not so concerned.
• Changed behaviour:
• As a result of the lockdown, CGA reports ‘four in five adults have now stopped eating out-of-home totally, even for a takeaway, with just 13% only doing this when ‘essential’, for example buying a grab ‘n’ go meal.’
Longer term factors:
• CGA suggests that many consumers are reluctant ‘to commit to returning to going back to old patterns of going to pubs, bars and restaurants post-crisis.’ More may order online. CGA says ‘almost a third (32%) of adults said they would eat-out less frequently than pre-COVID-19, with the majority (61%) saying they would eat-out with the same frequency and just 7% saying they would eat-out more.’
• Some 35% of those surveyed planned to cut the frequency of drinking out visits with 59% saying they would maintain current visit rates.
• CGA says ‘the results put into context the task that those pub, restaurant and bar operators that do eventually emerge the other side of the lockdown will face in getting the public back into their establishments. Cash will be tight, but the type of offer may have to change too, if those health-conscious tendencies become engrained.’
• CGA goes on to say that ‘what the survey also showed is that those that go-out most are the ones most likely to return to old habits, and they will be undoubtedly the main focus of renewed marketing efforts.’
• The survey suggests that ‘over half (54%) of those hit hard financially, either by having lost their jobs, being furloughed, or on reduced pay, said they would continue eating out as often as before, with a similar number for drinking-out, which is only slightly less than the public average.’
Resilience of the British pub:
• CGA says ‘the poll also showed eating and drinking out remains a vital part of the British way of life, with only visiting relatives coming above eating out, and then drinking out, as the activity that the public are missing most during the lockdown, and ahead of going to the gym, shopping on the high street and attending small social gatherings.’
• The survey was conducted on March 28-29
Winners and losers:
• The survey asked people which out-of-home brands they would miss most visiting during the lockdown. It says that ‘despite some negative publicity in the media, JD Wetherspoon came out top, followed by Nando’s, Pizza Hut, Toby, Harvester and Five Guys.’
• However, the survey ‘also provided mixed messages for JD Wetherspoon, as the brand that consumers had most changed their opinion about negatively (19%) – although that was balanced by those that had changed their opinion positively.’
• The brand, which commented on staff pay ahead of furlough payments, not paying suppliers etc. would appear to have polarised opinion.
• It’s early, let’s soldier on, attitude raised its profile with both supporters and detractors of the current lockdown
• See also our tweets (below Forthcoming Results and daily on Twitter) re other unforeseen consequences of the business shut-down
PUBS & RESTAURANTS:
• SSP accesses government debt, says is OK.
• SSP Group yesterday updated on its access to the Covid Corporate Financing Facility saying that ‘this facility is designed to provide liquidity for companies which have been impacted by the COVID-19 outbreak, by allowing them to issue commercial paper through the Bank of England’ and says it is ‘pleased to announce that it has secured access to this scheme and has today made a drawdown of funding under the scheme.’
• SSP says ‘access to this scheme, together with the recent equity placing, will be used to strengthen the Group’s balance sheet during this period of unprecedented disruption to the global travel market as a result of the COVID-19 outbreak.’
• The group says ‘based on the scenario planning undertaken by SSP management, and described in its announcements last week, the financing arrangements we have put in place will provide sufficient liquidity to enable SSP to operate throughout even its most pessimistic trading scenario (as set out in the RNS of 25th March), leaving it well positioned to return to growth as markets normalise.’
• Farming Today has reported that that UK is facing a shortage of fruit and vegetable pickers this year. It says around 29,000 will be needed on farms by the end of this month and there are virtually none registered to date.
• Domino’s Pizza Group Plc has announced the appointment of an Interim Chief Financial Officer saying that Neil Smith has been appointed with effect from 15 April 2020. Neil Smith was most recently CFO of Ei Group plc (formerly Enterprise Inns).
• McDonald’s has said it will be screening restaurant employees as a “precautionary” measure to ensure that workers are “feeling their best” at the beginning of each shift. This would appear to be a move to reassure customers that staff handling their food are not carrying the coronavirus. The process will start with a simple questionnaire for employees.
• A number of publications & websites yesterday carried stories suggesting that the sale of alcohol was to be banned. These were presumably April Fool’s jokes. Perhaps not the funniest, under the circumstances.
• Criterion Capital is once again in the news re the harsh letters that it has been sending out to tenants telling them to pay their rent. Tenants in London’s Trocadero Centre have this week received stern warnings that they will be taken to court if they do not pay the rent that was due last Wednesday.
• A new initiative has been launched in order to allow pubs to operate as shops. Powered by StarStock, mypubshop.com will give pubs nationwide the ability to take and process orders online. This is intended to provide them with income whilst they will not be allowed to function in their traditional role.
• The above initiative is being supported by Admiral Taverns and its 1,000 pubs along with Greene King Pub Partners and St Austell. The partnership will work with wholesaler Brakes. StarStock says ‘we are all aware of what is happening around us, and in these exceptional times this is a vital way for pubs to stay connected, offer an essential service and to secure an income stream during a period when they are unable to trade in their normal way.’
• Wishful thinking?
• Davey Co and Colliers International have suggested that the property market for pub sector units will recover sharply once the Covid-19 crisis is over. That does not strike us as likely.
• Paul Davey of Davey Co says that, although the market should be better, ‘from a prospective purchaser’s perspective, many now have far more time on their hands to make enquiries, download particulars of businesses for sale and make further enquiries on the available for sale stock.’
• C&C has launched a delivery and click and collect app to allow on-trade sites stock up if they are able to deliver or sell to takeaway during the coronavirus lockdown.
• EI Group has drawn attention to one of its tenants, the Tia Maria Bar & Restaurant in South Lambeth, London, which is preparing and delivering up to 60 freshly cooked meals to NHS staff for free each day.
• Chapel Down has said it thinks it is ‘very well placed to weather the crisis and thrive in the aftermath.’ Nonetheless, it has temporarily closed its beer and cider arm, Curious Brewery.
• Commercial Kitchen 2020 is now cancelled.
• Actions speak louder than words. JD Sports has stopped paying rent to its landlords.
• In the US, liquor sales are up by 24.9% reports Nielsen as consumers there stock up ahead of any potential lockdown. Sales in the off-trade in the US nearly doubled last week in total with online sales +253%.
• GSK reports that it has completed the sale of Horlicks and other Consumer Healthcare nutrition products in India to Unilever.
• An Amazon worker who led a walkout at a New York City facility earlier in the week in protest against the company’s Covid-19 response, has been fired.
• Administrators to Laura Ashley have made 268 staff redundant and placed 1,669 on furlough.
• Red Robin Gourmet Burgers Inc in the US reports that it has more than doubled its off-premise sales in the past two weeks. The company has drawn down the parts of its $300 million credit facility that it had not previously utilised.
HOLIDAYS & LEISURE TRAVEL:
• Carnival Corporation has increased the size of a rescue bond sale backed by its cruise ships to $4bn after receiving strong demand. The company warned that it still might only have enough cash to stay in business for some eight months. It’s bond issue has been raised from $3bn to $4bn. The coupon is reported to be 11.5%. This compares ‘favourably’ with virtually non-existent rates in the banks – but it also carries a risk as the business may not be viable if the self-imposed bans on cruising are not lifted. CCL shares yesterday fell by 21%.
• Saga has updated on trading saying that underlying Profit Before Tax for the (now very historic) year to end-January is expected to be £110m, in line with the target range of £105m to £120m. It goes on to say that the dividend will be suspended.
• Saga updates on the impact of Covid-19 saying insurance is ‘largely unaffected’ and adds that its ‘travel operations have successfully repatriated almost all customers and are supporting rebooking efforts across Tour Operations and Cruise.’
• The group has ‘taken action to protect its balance sheet and increase near-term liquidity by’ drawing down £50m of agreed debt and reducing costs as well as suspending its payments to shareholders. CEO Euan Sutherland says ‘against the backdrop of COVID-19, the outlook is uncertain, but we remain confident that the Saga brand, and our Insurance and Travel businesses have a successful future ahead.’
• William Hill has announced the appointment of Matt Ashley as William Hill’s Chief Financial Officer designate. It says ‘he will join the Company and be appointed as an Executive Director to the William Hill Board on 6 April 2020.’ The company also announces that Stephen Parry will join William Hill’s Executive Committee as Chief Operating Officer later this year.
• Stock market moves yesterday. Not a good day for the travel & hotel stocks. Carnival off 21%, DART Group down 14%, Hollywood Bowl off 11%, Intercontinental Hotels 10% lower, On the Beach off 9%, Restaurant Group down 12% and Whitbread some 10% lower.
• BA has announced that it is to suspend c36,000 staff this week. No staff, at this stage, are set to be made redundant.
• Commenting on the European hotel market, STR says that ‘Europe is at the epicentre of the COVID-19 outbreak, and the impact of the virus is reflected in its hotel performance, according to sources.’
• It says that ‘in regards to Europe we have hit the bottom.’ Some operators are predicting a sharp bounce back (from almost zero at present) whilst others are forecasting a prolonged recession.
• STR is reporting REVPAR declines of between 85% and 90% in most major European destinations. Daily rates are down sharply and ‘Italy is virtually at 0% occupancy.’ Unless maths has changed since I left school, zero multiplied by anything is zero.
• Travel Weekly reports a ‘significant number of the major insurers in the UK have pulled out of the travel insurance market’ and, at the end of the day, who can blame them. TW highlights Aviva, LV and Direct Line amongst 31 insurers who have vacated the field.
• Irish hotel group Dalata says that it will take until 2022 for hotel bookings to return to normal following the coronavirus outbreak. Delata has temporarily closed 29 of its 44 hotels in the UK & Ireland.
• Hollywood Bowl Group has updated further on Covid-19 saying all its sites are closed (since 20 March) and adding that it welcomes government measures such as the suspension of business rates. Capex has been cut and refurbishment have been ‘paused’. The company says ‘management has always adopted a prudent approach to its cost base and capital expenditure and, with the benefit of its cash generative business model, has maintained a strong financial position.’
• BOWL says there will be no dividend and, regarding the outlook, it says ‘as a result of the uncertainty surrounding the impact of COVID-19, the Board is unable to provide financial guidance for the full year ending 30 September 2020 until the expected duration of centre closures becomes clearer.’
• Gear4music has updated on trading for its year to end-March saying that ‘we now expect profits for the financial year ended 31 March 2020 to be ahead of previous expectations.’ The company says ‘whilst it is impossible to predict what further operational actions may become necessary during the coming weeks and months, we remain committed to operating safely and serving our valued customers for as long as Government guidance allows.’
• Esports company Gfinity PLC is proposing to raise £2.25 million via a placing of new shares. It says the ‘net proceeds will provide capital to support further growth as the Company sharpens its strategic focus on three core areas of existing success and competitive strength.’
• CEO John Clarke says ‘this fundraising marks the final step of our strategic review process. The funds raised further strengthen our financial position following on from the previously announced sharpened strategic focus for the business and the significant reduction of our cost base. We now have a solid cash position to ensure that Gfinity can continue to capitalise on the exciting market opportunities we see ahead.’
• Wimbledon and the Edinburgh Fringe Festival have both been cancelled.
FINANCE & ECONOMICS:
• IHS Markit reports the UK Manufacturing PMI for March fell to 47.8 from 51.7 in February. The outturn is a little worse than the flash estimate of 48.0.
• Markit says ‘the latest survey numbers underscore how the global outbreak of COVID-19 is causing huge disruptions to production, demand and supply chains at UK manufacturers. Output and new orders fell at the fastest rates since mid- 2012, while supplier delivery times lengthened to the greatest extent in the 28-year survey history as shortages grew more widespread.’
• Markit reports the Eurozone Manufacturing PMI fell to 44.5 in March. Italy, Spain and France are ahead of the UK when it comes to Covid-19 disruption.
• A survey undertaken by Bank of America suggests that 11m people in the UK are currently not working. If, and it’s a big if, they were all furloughed, this will be costing the government (i.e. us, the taxpayer) around £25bn a month in pay-outs with perhaps another £10bn per month in lost taxes, NIC etc. A 3mth shutdown could cost over £100bn in increased borrowing.
• Sterling stronger at £1.2383 and €1.1321. Oil higher at $26.33. UK 10yr gilt yield down 6bps at 0.31%. World markets lower yesterday, Far East down today. UK market set to open down around 40pts.
o The BCC says nearly a half of the firms in the UK will furlough at least half of their staff from next week. This could cost the taxpayer between £20bn and £50bn a month in CJRS payments and lost tax receipts.
o Debt charities in the UK have urged that Chancellor to write off £10bn worth of council tax debt owed by the poor to local government.
o The government is facing pressure to test more NHS staff. Only 2,000 out of 1.2m (0.17%) have thus far been tested.
o Only 7,500 people were tested in the UK yesterday. Germany tests 50,000 per day regularly.
o In Germany, the ratio of recovered people to deaths is 20:1. In the UK, only 0.06 of a person has recovered for every death. The ratio is therefore 333 times worse in the UK. This is down to a different attitude towards testing rather than a deadlier strain of the disease.
START THE DAY WITH A SONG:
Yesterday’s song was Ooh La, by The Kooks. Today, perhaps with the Covid-19 crisis in mind, who sang?
I should be crying,
But I just can’t let it show,
I should be hoping,
But I can’t stop thinking
RETAIL WITH NICK BUBB:
Pets at Home: Today’s pre-close update from that “essential retailer” Pets at Home flags that after a strong end to the year to March 26th, PBT will be slightly above the top end of market expectations: “in the closing weeks of the financial year we experienced exceptional levels of demand, both in-store and online, as the COVID-19 crisis developed, and have seen existing customers increase average basket size by pulling forward purchases, as well as new customers access our pet products and healthcare services”.
B&M: Yesterday’s update from B&M came out at the unhelpful time of 12.29pm, to flag that “as a significant retailer of food, drink, cleaning, healthcare, pet food and other essential products our B&M UK fascia and Heron Foods businesses have continued to trade”, but it also noted that 49 UK stores (representing c3% of annual turnover) have been temporarily closed, as they were mostly small units inside shopping centres. The stores in France are closed, however.
Q1 Watch: The new calendar quarter, Q2, got off to a terrible start yesterday (unless you are a hedge fund short), but we still spent some time looking back at the pattern of Retail “winners” and “losers” in Q1. The All-Share index fell 26% in Q1 and even the defensive Food Retail sector was down as well, by 10.5%, with the majors broadly down by about the same amount. There was one winner, which was Naked Wines (+11%) and a couple of significant losers, Greggs (-30%) and Hotel Chocolat (-37%). The embattled General Retail sector was down by 37% overall in Q1 and there were no winners, although investors in Carpetright can count themselves lucky that the 5p takeover from Meditor went through in January…Pets at Home, however, was only 8% down and the likes of Howden and AO.com were “only” c25% down (B&M was 33% down). At the other extreme, investors in N Brown and French Connection