Langton Capital – 2020-05-15 – PREMIUM – Time Out, Dart Group, William Hill, any Covid winners etc.:
Time Out, Dart Group, William Hill, any Covid winners etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I think the mental health of the nation’s dogs should be rising up the political agenda as, after years of being ignored, grudgingly fed and being periodically blamed for dirty marks and destruction that they didn’t even cause, they are being lavished with attention and, pack animals that they are, they may find it hard to adjust once lockdown is over.
And don’t say that the answer is ‘treat them badly so they’ll be relived when you clear off’ because, annoying though they, we can’t accuse them of causing Covid-19 and it might not have been them that dug up your begonias and dragged your washing off the line, it could have been next door’s cat.
Anyway, the RNSs are coming out and I see that we have stuff on again. On to the news:
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• Whilst operations are quiet, what’s the best use of this downtime?
• Winners and losers. It will be obvious with hindsight. Just now, not so much. Here a few thoughts.
NO SALES, NO CUSTOMERS. Finance departments will be busy (loans, JRS claims, discussions with landlords etc) but should operations directors be considering the shape of their businesses? 15 May 2020:
A spectrum of activity:
• 85% to 90% of hospitality staff have been furloughed.
• But finance departments will have been retained and will be busy talking to banks, suppliers, shareholders and landlords
• Hence any ‘accusation’ that hospitality workers across the board are currently redundant is somewhat misplaced
• Can operations directors switch from day-to-day concerns such as staff rotas, refurbishment schedules, brand refreshes and weekly LfL sales targets to strategic thinking?
• That may be a big ask because the ‘deer in the headlights’ feeling that many may have had is hard to shake off
• But some thinking in this area should be and will be taking place
• It may be over-egging it slightly but, as a result of the above, it is very likely that ‘the industry will never be the same again’
• We won’t go into too much detail as time is the enemy but we consider.
• The shift away from cash to plastic will be accelerated
• Delivery will not give back all of its recent gains
• Remote working for non-customer-facing staff will be considered
• Estates are more likely to shrink than grow
• Some rent-reductions may be permanent
• Over-optimism (re site selection etc.) has been exposed
• Some rogue landlords have self-selected themselves in the mind of operators. They may be treated warily going forward. Though we concede that hospitality entrepreneurs tend to be optimistic by nature and memories are (usually) short
• Customers may need a bit more space
• We are likely to see more facemasks rather than fewer
• The remote working patterns for customers may permanently depress demand for lunchtime office services, post office drinks venues etc.
• Sure, we are social creatures, but ‘intentionally-crowded’ venues could be shunned for some time
• Beer gardens are a plus. Patio heater demand is more likely to rise than fall.
• Customers may value what they can’t produce themselves. Certain foods, ambiance, real ales, log fires etc.
• Staff that relied heavily on the Tronc may want higher basic salaries going forward. This will increase fixed costs and risks for their employers.
• We could go on but have run out of time. Good luck out there and please drop us a line with any other suggestions.
WINNERS & LOSERS: Much will be obvious with hindsight. From where we are now, however, all is speculation. 15 May 2020:
The situation in context:
• This isn’t a zero-sum game. The losers far, far, far outweigh the winners.
• But nonetheless, there are still some winners and below we try to find something nice to say about them
• It’s also to be hoped that the worst of the Covid-19 disruption is not permanent. But that remains to be seen
• We’ll pair some of these up & then consider others below.
F&B out of the home:
• A third of bar & restaurant operators told CGA they were going to cut site numbers. Another third said they hadn’t decided yet.
• But people still need to eat. Food manufacturers will be OK – but some distribution companies, if exposed to pubs and restaurants (and most will have been), will be in a tight spot
• Certain packaged products are having something of a renaissance.
• Esports and video games should be winners. Compare an online shoot-em-up or an eSports tournament with Cheltenham. The latter seems so yesterday. This could change, of course.
• Losers sports stadia, major events, festivals.
• Home working (with Zoom, Teams) is a winner, the office property market and the companies that service large working-day populations may be losers.
• Hence the winners may include broadband service providers (and the governments that tax them) and the losers will include the office property market, city centre bars, grab and go city centre sandwich chains, F&B outlets at train stations etc
• The above disruption will last some time. Londoners are being told not to use the tube. How’s that going to work?
• And Langton is 220 miles away in York. It simply doesn’t want to and can’t afford to drive to its global HQ on London Wall, park and pay the congestion charge each week and, if train services are down to 10% of normal capacity to allow social distancing, it will be a bit of a bunfight getting a seat.
• Overall, it could be some time before Langton bends its elbow inside a London pub again.
• There have been various reports that deodorant, shampoo, cosmetics and razor blade sales have been depressed.
• City office rents may have to fall. Capital values will follow.
• Online is a winner, face to face sales are sharply lower.
• And, as Tesco reports, the fortnightly monster-shop is back in fashion.
• Staycations, country pubs, inexpensive rambles etc could be on the up, crowded airports with their busy F&B outlets charging a captive audience an arm and a leg for run-of-the-mill products will be losers
• The purchase cost of a villa anywhere you need to fly to get to is likely to be lower tomorrow than it was yesterday
• The secondary market in passenger airliners is likely to be weak.
Other bits & bobs:
• Good for bicycles, not so good for second cars.
• Changes in technology may be accelerated
• There may, simply, be less face to face communication.
PUB & RESTAURANT NEWS:
• Allegra has said that visits to a pub, restaurant or coffee shop are amongst the things that UK consumers have missed most during the current Covid-19 outbreak. And we would hope so, too.
• A visit to a coffee shop was mentioned by 42% of respondents whilst 29% missed restaurants and 19% missed pubs and bars. Visiting family and friends was the thing most-missed with 60% saying that this had left a gap in their lives.
• Allegra says that shops, gyms, cinemas and sporting events along with visits to cultural sites such as museums and the theatre were further down the list.
• Allegra says ‘hospitality is a major part of the British economy and fabric of our society. The warmth of hospitality is what we all yearn for. It is where we celebrate life events, where we meet friends for a catch-up. Our restaurants, coffee shops and pubs are at the very heart of British life.’
• Time Out has updated saying that it has ‘extended its existing £20 million loan from Oakley Capital Investments Limited…by drawing down £2.5 million of an available £18 million extension.’ It says the funds will ‘provide near term liquidity, whilst the Company finalises longer term funding in response to the impact of the COVID-19 pandemic and the previously announced, resultant temporary closure of all six Time Out Markets and a slowing of advertising revenues.’
• EI Group has agreed to some flexibility on rents. It says that any of its c4,000 pubs not receiving government grants (of either £10k or £25k depending on size) will be able to get a three month credit on their rent. Landlords should also be getting relief (for their staff) under the JRS and (for themselves) under the self-employment measures announced by the treasury.
• Greg Mulholland, chair of the British Pub Confederation, says this move is a ‘clever ruse’ that means EI Group is still charging rent on closed pubs. Most property owners across the country are in the same position.
• Greene King is to open some kitchens for the collection and delivery of meals.
• Motorway service station operator Moto is to reopen 25 Burger King restaurants.
• US operator The Cheesecake Factory has said that it believes its large-capacity units will be in a better position to reopen than would smaller-footprint stores. American states are introducing different rules when it comes to easing the lockdown. Cheesecake Factory says it will reopen in states that are allowing at least 50% capacity.
• Irish spirits company Intrepid has acquired a majority position in the Australian vermouth company Regal Rogue.
• Denny’s says 82% of its US units are now open. LfL sales were down by 6.3% in Q1 but they were down by 80% in the final week of the quarter.
• Another bad day for the sector. Only Cineworld (up 4%) and Marston’s (up 7%) defying the downward trend. Loungers & On the Beach down 4%. Diageo, Fevertree, down 5%. Hollywood Bowl, Hostelworld & Rank 6% off. Safestay 7% lower, Sportech & Revolution Bar Group off 8% and Brighton Pier, PPHE Hotels and Restaurant Group all 10% lower.
• Allegra reports that 50% of respondents to a recent survey believed that there should be a public enquiry into the government’s handling of Covid-19. The survey says that around 50% of people would be willing to pay more tax to support the NHS.
• Allegra finds that ‘the majority are worried about their long-term financial implications of the COVID-19’ and only 23% expect society to return to normal in 4-6 months, although 47% expect it to take between 10-24 months.
• NRN in the Us says that contactless payments and curb-side pickups are amongst the keys to success.
HOLIDAYS & LEISURE TRAVEL:
• A survey by Allegra finds that ‘the majority of people are not willing to travel abroad before the end of 2020.’
• DART Group yesterday updated on its trading (or non-trading) position yesterday saying that it was ‘delighted to announce that it has today been confirmed as an eligible issuer for the Bank of England COVID Corporate Financing Facility and has put in place a £300m commercial paper programme to facilitate issuance under it.’ DART says the facility ‘will be used to provide standby liquidity, should that be required, and is currently unutilised.’
• DART says it has been ‘able to display sound financial health, equivalent to an investment grade rating, prior to the economic shock caused by the COVID-19 pandemic.’ Chairman Philip Meeson says ‘though still early, we continue to be encouraged by the volume of our customer bookings for summer 2021 and their associated pricing. Based on this limited visibility, we are confident that once normality returns, our Customers will be determined to enjoy the wonderful experience of a well-deserved Jet2 holiday.’
• Norwegian Cruise Lines has reported a $1.9bn Q1 loss. Some $1.6bn of this was due to a write-down of goodwill.
• Norwegian reports that there is growing demand for Q4 holidays and this demand is ‘accelerating through 2021’.
• Carnival Cruise Lines has confirmed that it is to cut jobs and hours in order to save ‘hundreds of millions of dollars’.
• The travel jury seems to be out as to whether the current crisis will put the cost of holidays in future up or not. Assets – planes, hotels, villas etc – will all still be in place but there is a belief that operators will try to make back lost profits from Q2 and Q3 this year. Consumers may have something to say about that.
• Some observers have said that air fares will fall, others rise.
• STR reports that US hotels’ occupancy picked up slightly in the week to 9 May compared with the prior week. However, year on year, occupancy was down by 55.9% and REVPAR was down by 74.4%.
• The UNWTO has said international tourism arrivals could fall by between 60% and 80% this year. This could place 100m to 120m jobs at risk.
• Looking on the bright side:
o Travelzoo has said consumers still have a desire to book and go on holidays.
o Ama Waterways has said there is pent-up demand for river cruises in 2022.
o The Algarve has said that it should be open for tourists this summer. The view of would-be visitors will be critical.
• Legal advisor Travlaw has warned travel companies that there has been a sharp rise in statutory demands from customers seeking refunds. These are demands that are sent in advance of seeking a winding up order.
• HVS reports that Paris hotels ‘will experience short-term pain but a strong recovery’ as a result of the Covid-19 outbreak. Hotels are expected to start reopening from 2 June. HVS says ‘we expect domestic demand to recover faster largely due to growth in ‘staycations’ which will shift the balance in the short term. While this will help initially, the gap left by international tourism will present a challenge until international visitors can return.’
• TfL has picked up a £1.6bn loan from government after its income fell by 90%. Sky reports that fares will have to rise.
• William Hill has updated on the 17 weeks to 28 April 2020 and on the Covid-19 situation saying that it has seen a ‘strong performance achieved in international markets, led by growth in gaming, reflecting continued investment in product enhancements’ but there has been a ‘material impact from the absence of live sport and social distancing requirements leading to the closure of the UK and US retail estates.’
• WMH says it has reset the covenants on its revolving credit facility in 2021 and dropped them for 2020. The company says it is ‘well positioned across the Group to ‘power up’ quickly as live sporting events resume and health considerations permit.’
• Over the Covid-19 period (11 March to 28 April) William Hill says that online revenues were down 21% overall and down by 33% in the UK. Retail LfL revenue was down by 85% with the US down by 90%.
• William Hill CEO Ulrik Bengtsson says ‘William Hill has overcome many challenges in its 86-year history, and I am exceptionally proud of the team and their response to the COVID-19 pandemic.’ He says ‘we reacted quickly to the cancellation of sports activities and the closure of our retail estate. We took immediate measures to save costs, reduce cash outflow and minimise non-essential expenditure by negotiating with our suppliers, cancelling pay rises and executive bonuses and suspending the dividend.’
• William Hill continues ‘we have preserved liquidity and amended the terms of our net debt covenant, leading to significant, balance sheet headroom. This will enable us to continue to invest for growth, most notably in the US, as plans there to roll out sports betting continue apace.’ It concludes ‘we are developing products that we are proud of and that will improve William Hill’s competitiveness for the long term.’
• PRS for Music has said that 2019 saw the highest-ever royalties paid out to musicians. It warns, however, that the loss of live-venue revenue will depress income for artists this year.
• Sony has said its profits could drop by around 30% this year.
FINANCE & ECONOMICS:
• The OBR has updated its estimate for the cost of the JRS to £123bn. It had previously estimated that this would cost around £104bn.
• Government borrowing is on course to hit £298bn this year, up from last week’s estimate of £273bn says the OBR.
• Brexit rearing its head. PM accused of being ‘deeply dishonest’ after plans emerged that physical inspection posts will have to be set up in Ulster to check on movements from the rest of the UK. Boris Johnson had said ‘there will be no forms, no checks, no barriers of any kind.’
• A survey by Allegra finds that 64% of consumers now believe that implementing Brexit is either a low priority or not a priority at all.
• Another 3m US workers have signed on for benefits taking the total new jobless number to 36m since the middle of March.
• The UN says global trade will fall by 27% in Q2 this year.
• Sterling a shade higher at $1.2216 and €1.1304. Oil higher at $31.75. UK 10yr gilt yield unchanged at 0.22%. World markets mixed. UK down yesterday but US up overnight and Far East higher in Friday trade. London set to open up by over 50pts.
• The FT suggests that Rishi Sunak’s reputation is rapidly rising whilst that of Boris is becoming a little tarnished.
• The Asian Development Bank says the Covid-19 crisis could cost the global economy some $8,000bn in lost trade and output.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Boohoo: As the company had £241m of net cash at the end of Feb, the high-flying Boohoo (which is now capitalised at £4.1bn) is just about the last business in the world that you would think would need to raise more cash, but its share price has rebounded to hit new heights in the last month, on the back of the general surge in Online retailers and the amazing success of the equity placing of its rival ASOS. And so when it announced after hours last night that Boohoo was looking to raise an extra c£200m through an institutional placing, it was clear that it was doing so from a position of strength. The statement said that after improved trading in April, trading in May has been “robust” and it wanted to “take advantage of numerous opportunities that are likely to emerge in the global fashion industry over the coming months. The group continues to review a number of possible M&A
• BDO High Street Sales Tracker: Thanks to a big spike in Online sales, John Lewis sales are said to be running down by only c20% overall during the lockdown, but the general Non-Food market may now be improving a bit too. The BDO High Street Sales Tracker today for medium-sized Non-Food chains flags that in w/e Sunday May 10th, better weather and an “end of lockdown” feeling helped to boost trading and Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were down by a mere 18.6% (down c84% in Store sales, but up by c113% in Online sales).
• News Flow Next Week: Tuesday brings the Homeserve finals, the Topps Tiles interims and the Walmart/Asda Q1 results. On Wednesday we get the Marks & Spencer finals. Thursday then brings the Pets at Home finals, the Inchcape update, the ONS Retail Sales for April and the Pendragon AGM, whilst the delayed Burberry finals are on Friday. There are also a couple of interesting Property company results next week, with Shaftesbury (the West End retail landlord) announcing interims on Tuesday and New River (the community shopping centre and pub landlord) announcing finals on Thursday.