Langton Capital – 2020-05-14 – PREMIUM – Marston’s, Brighton Pier, re-opened delivery units & other:
Marston’s, Brighton Pier, re-opened delivery units & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, here’s a question for you, a) should you read trashy books quickly, the he-fought-off-the-bad-guys-and-saved-the-world-type, or b) should you slog your way through something intimidating like War & Peace or Hard Times or something uplifting like Vassily Grossman’s Stalingrad at 3pgs a day and knock off about one book a year?
Well the answer for public consumption, of course, is b) but, here in the real world, it’s tempting to settle for a) and insist that you were looking for some deeper meaning.
Alternatively, you could do as you do with the ego-bookshelf backdrop to your Zoom conversations and hide a potboiler inside something by a nineteenth century Russian and get the best of both worlds.
Anyway, a bit busier this morning than we had intended to be so let’s move on to the news:
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• More on hidden unemployment. Compare the UK with the US.
• The politicians. What would Malcolm Tucker do? Aim low, win big.
HIDDEN UNEMPLOYMENT: Some 7.7m leisure workers in the US have lost their jobs in the last 6wks. Virtually none in the UK. Who’s got it right? 14 May 2020:
• Some 7.7m hospitality workers in the US have lost their jobs over the current shutdown.
• The US population is perhaps 5x the size of the UK. It’s GDP might be 7x greater (depending on currency) and its propensity to eat in restaurants (or rather to not cook) might be 8-10x higher.
• But even on the lowest numbers, US redundancies might translate to UK job losses around 0.75m to 1m (on a hire ‘em & fire ‘em basis)
• And virtually no UK workers have lost their jobs – yet.
• Only they have lost their jobs, haven’t they? They just haven’t been officially told yet.
• A CGA business leaders’ survey last week suggested that 32% of operators intended to permanently close units and another 31% had yet to decide.
• The late-night sector was particularly prone to planned closures. London was more impacted than the regions.
• It’s just that the UK furlough system, which is cheaper than redundancy – and which kicks the can down the road – is disguising the numbers
• When the tide of government largesse goes out, all will be revealed
• But even then it will take time and, it is likely, academics will be arguing over the ‘true’ job losses for years to come.
But we’ll hazard a guess:
• A number of truly heroic assumptions need to be made before one can make an estimate as to capacity decreases and job losses
• Let’s start off by pointing out that, for 99 out of 100 years, the UK has not been in a pandemic. In the current environment, that might not mean a lot (see Steve Coogan & his swimming pool safety sketch) but, arguably, it should.
• It should mean the that UK government, if it was adult, sensible and considering the longer term, would at least attempt to retain the non-pandemic shape of the UK economy
• This involves helping hospitality. Help needs to be tangible not verbal. That probably means keeping the furlough in some shape or form – perhaps at 50% – into next year.
• We have to assume that LfL sales fall somewhere between the minus 25% hazarded by JD Wetherspoon and the minus 80% feared (in some venues) by Fuller’s CEO Simon Emeny.
• Say LfLs fall by 50% and rise by 5pps per month thereafter.
• We have to hope there will be no secondary shutdowns.
• Our ‘model’ isn’t really worthy of the name but, if sales were down by 50%, even if the furlough still covered a half of employees costs, we’d have to assume labour would be cut by 20% plus – and this could be an underestimate
• In the absence of a furlough, losses could be 30% to 40%. These are, admittedly, purely estimates. Many pubs and restaurants could break even at the EBITDA level with a 30% to 40% drop in LfL sales. However, this would leave the companies with no maintenance capital spending, no debt repayments etc.
BEHAVIOUR OF POLITICIANS ETC. Basically, what would Malcolm Tucker do? Aim low and you might not be disappointed. 14 May 20:
Not the real world, rather Westminster:
• Business leaders might weigh jobs against costs, the short term against the long term etc. Politicians are tempted to weigh soundbites.
• Is it simple, can we sell it and how will it play on the six? What about the ten? Should we go straight to Facebook? What will it cost, who will pay, and will they notice?
• Think how Theresa May would have sold it and do the opposite. Politicians deal in optics. Can we support pubs and sack nurses?
• Or can we support both pubs and nurses, tax somebody who won’t notice, what about the dead? Non-doms or ex-pats? Dot.com companies and what about the pension pots of twenty-somethings etc.?
• The Rishter is having a good pandemic. He knows that, almost whatever he does, he won’t be blamed for it and subsequently, he may even be doing what he considers to be right.
• Smoothing the furlough is an economic no brainer but it could have been a political hard sell.
• Because taxes are going to have to go up, vanity projects will be dropped etc. Promises made to donors, constituents and the like can’t be kept.
• But you need to have an economy to tax an economy. So, first things first, ensure that the economy survives.
• So far, so good.
• The flag up a ghastly recession, deliver one that’s fractionally less bad and start to dream, tuck in on the bend, stay on Johnson’s shoulder and see if you really could leg him up, move next door, occupy no10
MARSTON’S SECURES £70 MILLION BANK FACILITY FOR 180dys. Seeking a short term solution for a hopefully short term problem, Marston’s has increased its debt. 14 May 2020:
Marston’s has this morning updated on its banking facilities and our comments are set out below:
Access to 180dy money:
• Marston’s has this morning announced that it has negotiated a 180dy facility with a number of its existing banks totalling £70m
• The facility runs to the third week of November. There are no guarantees, but facilities of this nature are often extended, if required
• The facility gives the group financial flexibility into its next financial year – even if its pubs were to remain shut
A little more detail:
• Marston’s has access to relatively short term money for what is hoped to be a relatively short term problem
• The group, in common with JDW (and most other companies) is not deemed ‘investment grade’ with regard to any access to some of the £330bn that the government is to guarantee
• This is sending mixed signals to business for the longer term
• But it has not turned to long term money (either sale & leasebacks or equity) as this was not deemed appropriate at this stage
• Marston’s benefits from having a very large beer company and a substantial freehold estate. Companies with more leaseholds will be more likely to have to resort to equity-raising
• The group, unsurprisingly, is confirming that there will be no dividend for the full year
• This seems sensible as, though debt is manageable, it is still going up as a result of the lockdown – and it will need repaying
• Marston’s says ‘we continue to take a highly prudent approach in our management of the business during this period’ and it has carried this approach into its dealings with its banks.
• The group adds ‘all Board members have volunteered significant cuts in pay and fees for the time being and recognise that Marston’s many stakeholders, including employees, tenants and lessees, retailers, customers and communities are facing major challenges.’
• It says ‘the impact of COVID-19 on our financial and trading performance will depend upon how the situation develops and over what timescale, which remains uncertain.’
• This means that ‘in order to ensure that Marston’s is best placed to navigate this period of uncertainty, management has taken additional steps to strengthen its balance sheet to provide additional liquidity headroom and financial flexibility.’
• The group concludes ‘this additional 180 day financing facility, together with ongoing Government support on employment costs, deferred tax payments and rent and rates relief, as well as continued income from beer sales into the off-trade, provide us with sufficient liquidity to meet our obligations beyond the end of the financial year even if pubs were closed until then.’
• That should come as a relief to shareholders.
• Marston’s adds ‘we have reached agreement with our banks to amend the Company’s covenants for September 2020 and March 2021’ and it is to meet with its Bondholders on 29 May ‘to seek a limited number of technical waivers and amendments.’
• Marston’s is here reassuring that it has financial visibility (and more importantly, financial viability) until the end of November – even if its pubs remain shut.
• An extension to the loan (if needed) is possible and indeed probable – though it cannot be guaranteed. Fees are not disclosed
• The group’s shares, despite a modest recovery from their mid-March lows, are still trading at historically very low levels
• But there is uncertainty. The earnings ability of the assets has not been diminished. None have been destroyed but the behaviour of consumers cannot be accurately predicted and a degree of caution with regard to financing was called for.
• Overall, this is a very reassuring development.
PUB & RESTAURANT NEWS:
• Hidden unemployment in hospitality could run into the hundreds of thousands. Government is currently buying jobs. That can’t go on forever. See Premium Email.
• The trade has welcomed the creation of a government taskforce to develop plans as to how and when closed sectors can reopen. UKH says a one-size fits all approach will not work. It says ‘a great deal of lateral thinking and planning will be required to help businesses open.’
• The BBPA says ‘one of the new taskforces will specifically look at pubs and restaurants and will be led by the Department for Business, Energy and industrial Strategy.’ It says it, the BBPA, is ‘already working very closely with BEIS on the support pubs and brewers need through this crisis, and for re-opening, and looks forward to continuing this relationship and offering its expert advice by further contributing to the new taskforce.’
• Both trade bodies agree that the hospitality industry will need additional support.
• A number of trade organisations have also called upon insurers to step up and pay up when it comes to business interruption insurance. The BBPA, SIBA, the BII and UKH say ‘we had hoped insurers would work with us at this critical time. With one or two exceptions, the collective failure of insurers to step up and meet their obligations has been deeply disappointing.’
• The insurers may argue that they didn’t have any such obligations and this may need to be settled on a case-by-case basis. The BBPA says that only 4% of its members had thus far ‘received a positive response from their insurer.’ UKH says a similar 3% of its members had managed to claim on their business interruption insurance.
• KAM Media has been investigating just what social distancing might mean in a selection of UK pubs. It says there will be pinch points (loos, entrances, bars etc.) in many venues and ways of working will need to be adjusted.
• This even before the consumer is asked as to whether they want to socialise in an unsocial environment where staff may have to wear facemasks. Grab and go venues may be more suited to the (temporary, we hope) new world.
• Worryingly nightclubs look to have been the source of a secondary outbreak of Covid-19 in South Korean capital Seoul. A wave of infections has caused the closure of some 2,000 nightclubs and bars.
• GDP may have fallen by 2% in Q1 but UKH says that ‘the hit the economy has taken is a substantial one but it is eclipsed by the hammering hospitality has taken. The declines we are seeing in other sectors, alarming though they may be, are incidental compared to the truly alarming hit that ours is taking.’
• The Brighton Pier Group has updated on trading (or rather non-trading) saying that its units are shut and it ‘expects that these closures will materially impact its financial results for the period ending 28 June 2020 and potentially also the subsequent period if mandatory closures or social distancing measures continue into the summer and beyond.’
• Brighton Pier says it can give little detail. Virtually all of its staff have been furloughed. The management has taken pay cuts and it is taking advantage of the various support measures put in place by government. It is getting some support from its landlords and has cut capex. It has accessed some new debt and says ‘looking beyond these mandatory closures towards a return to normal trading, the Group is confident that its pier, bars and golf businesses remain well invested, strongly cash generative and well positioned for future growth.’
• Brighton Pier CEO Anne Ackord says ‘we are ready to progress with the safe re-opening of our businesses, which must necessarily follow the steps set out in the Government’s ‘Covid-19 recovery strategy’. Whilst the timing will depend on a number of factors which remain uncertain, getting back to work is now the focus.’
• Marks & Spencer is to open some of its cafes for a takeaway service.
• Las Iguanas, part of Casual Dining Group, has joined the Feed Our Frontline campaign and will be providing 1,800 hot meals a week for NHS workers at the Birmingham Heartlands and Queen Elizabeth hospitals.
• Kiuchi Brewery in Japan is to collect unsold beer from local bars and distil it to make gin.
• Pretty negative day on the market for the sector yesterday as investors digested news of the 2% Q1 GDP drop with a 5.8% drop in March & services taking the brunt.
• Britvic, Gregg’s, GVC, Marston’s, M&B, On the Beach, Rank, Restaurant Group, SSP, Ten Entertainment, Whitbread, William Hill & Wizz Air all down 4, 5 or 6%. Gym Group, Playtech, Saga & PPHE 7% off, Compass & Everyman 8% lower, Intercontinental Hotels 9% off, City Pubs 10% lower, Carnival 11% off, New River 13% down & Cineworld off 14%.
• Winners included Young & Co up 6%, Dart Group up 7% on the bounce and Stock Spirits 18% higher.
• Land Securities has suggested that the economy may not recover until 2022. It may be right.
• The FT reports the City of London may close some roads to motor vehicles in order to give pedestrians more room when passing each other.
HOLIDAYS & LEISURE TRAVEL:
• Which? magazine has told Sky News that the situation regarding air travel is ‘chaotic’.
• IATA has called on governments not to impose quarantines. See Langton’s earlier work on ‘saying the wrong things for the obvious reason’.
• Hotel groups in the Canaries are resisting calls from tour operators for delayed payments for holidays already taken.
• The EU is pushing for the reopening of international borders to allow a tourism market of sorts to take place this summer.
• Uber passengers are going to be obliged to wear face masks.
• Cinema chain Vue has said it is making plans to distance customers and stagger film times in order to trade within new guidance (when the time comes to do so).
FINANCE & ECONOMICS:
• Big recession coming says chancellor. Comment of a ‘sun will rise in the east’ nature. We’re 2% down in Q1 says the ONS, the drop will be much bigger in Q2 and it only takes two quarters of decline to make a recession.
• The economy shrank by 5.8% in March. The lockdown was announced on 23rd of the month.
• The NIESR says ‘in a period of radical uncertainty, the short-term economic impact of Covid-19 is becoming clearer with the publication of GDP data for March, where output is expected to be lower by about 25 per cent in months when the lockdown is in place.’
• It says ‘restarting the economy by promoting activities in upstream sectors such as construction, some manufacturing and the government will increase overall activities via helpful spill-overs. But without a vaccine, there is significant risk of a second wave which could trigger a further setback in the economy.’
• Sterling lower at $1.2206 and €1.1292. Oil down at $29.36. UK 10yr gilt yield off 3bps at 0.22%. World markets down yesterday & London slated to open down around 70pts.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
WH Smith: The WH Smith share price has been under renewed pressure of late, falling back below the £10 level, on the back of worries about the pressures on air travel. But the statement with today’s interims (for the 6 months to end Feb) is defiant, headlined “Good first half performance; significant mitigating actions implemented following the Covid-19 outbreak; resilient Group well positioned for the recovery”. In April, group total revenue was down 85% on the same period last year, but WH Smith say that was expected (with Travel revenue down 91% and High Street revenue down 74%). As for the future for its key Travel operations, WH Smith expect “a gradual improvement in passenger numbers through Autumn 2020” and note that “we are well positioned to benefit from more space becoming available in travel locations and extending our user clauses to drive spend per passenger”. It will be
Today’s News: As well as the delayed WH Smith interims today, there has been a pre-close update from Watches of Switzerland, whilst later today we get the Just Eat Takeaway AGM (at 1pm London time, in Amsterdam) and the Next AGM (at 9.30am, in Leicester). Despite recent concern about the pressures on the Swiss watch market and the impact of store closures, WOSG has flagged that revenue of £819m in y/e April was ahead of the recently guided range, noting that demand for luxury watches has remained strong, with Online sales ahead of expectations and sales also boosted by what it calls “enhanced clienteling initiatives”.