Langton Capital – 2020-06-04 – PREMIUM – Young & Co, Loungers, SSP, Fevertree, Restaurant Group & other:
Young & Co, Loungers, SSP, Fevertree, Restaurant Group & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Again, a bit busier than we’d imagined with news from a host of leisure companies. We’ll move straight onto the news but should have things to say on @brumbymark during the day. Stay safe out there & see you on the other side:
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• Accelerating trends already underway. There are a number of examples referred to in today’s email. More details in Premium.
• The lockdown in a European context. The UK’s coronavirus and prospective 2020 GDP numbers are at best, not good. But how do they compare with the rest of Europe?
ACCELERATING TRENDS ALREADY UNDERWAY: War and, it would appear, pestilence have a habit of accelerating trends that have already become apparent.
• Things are only ‘new’ for an instant. They may roll out over months, years or decades.
• Here we look at a number of points that just happened to get some coverage in this morning’s email.
Restaurant Group to close a swathe of Frankie & Benny;s:
• Stories had been circulating for a while but RTN has now sent an email to workers in its leisure division (chiefly Frankie & Benny’s) saying that 120 units may never reopen
• The group has already put its Chiquito and Food & Fuel businesses into administration
• Some 3000 jobs are said to be at risk
• Many other operators will dump sites. CGA says a third of operators will shed sites and another third have yet to make up their minds.
Jobs have been shed:
• Linked to too many sites, there were, prior to 23 March, perhaps too many people working in the sector.
• A material number of workers who are currently furloughed may find that they don’t really have any work to go back to. Three thousand and Frankie & Benny’s for starters
Move to cashless transactions:
• Customers expect to use less cash going forward. This will be accelerated by the Covid-19 emergency as neither customers nor pubs & restaurants nor banks want to handle cash
• ATMs aren’t being used much (see general email) and banks may take another look at their branch networks
Delivery and click & collect taking share:
• This trend was underway, but it has been given a boost as dine-in has not been possible for over two months
• Some of the shift could be permanent. Some of it might have to be as there will be fewer units reopening than shut down on 23 March.
• Many operators are slowly opening shuttered sites for delivery and click & collect as a warm-up ahead of dine-in reopening on 4 July
The off trade has taken more of the drinks market:
• Indeed, there has been no on-trade.
• That said, moves away from vertical drinking have been in place for years.
Transient shifts – hopefully not all moves are permanent.
• We would hope that the shift to the off-trade can be largely reversed.
• Staycations, zero-holidays this year, quarantines and Spain/Greece travel bans for UK citizens will hopefully be temporary
UK COVID-19 NUMBERS AND THE OUTLOOK FOR THE ECONOMY. This was always, arguably, going to be a trade-off between the economy and human life.
• Nobody wanted GDP to collapse, nobody wanted people to die.
• But the virus didn’t know that, so a trade-off between life and money had to be engineered. At that point it was imperative not to get both sides of the equation wrong.
• To be fair, if the government had done nothing, then several hundred thousand people would likely have died in such a short period of time that the NHS would have been overwhelmed.
• And big chunks of the nation’s workforce would not have been off sick leading to transport, infrastructure, food delivery and healthcare problems of a type not seen in peacetime.
• You can’t bluff a virus. Leaders that tried to do so let denial stay their hands and lockdowns were arguably put in place too late.
• Mr Trump said when it gets warm, it’s like a miracle, it just goes away. Mr Johnson, shortly before he got sick, said he didn’t believe in not shaking hands.
• And, with infections and c10dys after infection deaths, doubling every couple of days, this really, really mattered.
• Because deaths are the area under the curve and early (and shocking at the time) comments that ‘twenty thousand deaths would be a ‘good’ result’ have proved to be too optimistic by a factor of two, perhaps three already.
• This would suggest that, by its own reckoning, the lockdown was late in coming.
The position now:
• Spain and Greece are not allowing UK tourists into their countries for a reason.
• It isn’t that they don’t want the money. It’s because UK infections are still high and, with the lockdown being eased, they may be slow to fall further.
• Yesterday, 359 people died of Covid-19 in the UK. In Italy and Spain, 71 people and a remarkable one person, died
• Smoothing it a little, the average daily deaths over the last week in the UK have been 324. The numbers for Italy and Spain, early poster-boys for disease disaster, are 76 and one.
• If the UK is ‘two weeks behind’ Italy, as has been frequently said, then compare the average figure of 324 in the UK with 175 in Italy a fortnight ago and 112 in Spain.
• These numbers are not overwhelmingly good.
• Re GDP, it’s early days as far as forecasting goes but Oxford Economics is looking for an 8.3% contraction in the UK this year. Analysts expect a decline of perhaps 8% in the US and the IFO in Germany is looking for a 6.6% contraction
The near-term future:
• The UK will impose a 14dy quarantine period enforced by £1,000 fines on anybody entering the UK from next Monday
• Why now? We didn’t impose restrictions on travellers from Wuhan or Italy or Spain. If it’s the right thing now, why wasn’t it done in January or February?
• And, as the UK’s infection rates are still amongst the highest in the world, what are we signalling?
• Priti Patel says she is doing this to ‘protect the health of the British public’. She says, inexplicably, that the UK is ‘now more vulnerable to infections from abroad’.
• This will impact tourism – both inbound and outbound – and, with some countries such as France saying they will introduce reciprocal individual lockdowns, a traveller could spend 28dys in quarantine just to spend a long weekend in Paris
• Shops will open on 15 June and, hopefully, pubs and restaurants will open on 4 July.
PUB & RESTAURANT NEWS:
Running up to reopening:
• Opinions are divided on whether the lockdown was imposed to late and on whether it is being lifted too early. See Premium Email.
• Restaurant intelligence platform Yumpingo has reported that 73% of customers asked said they planned to dine out within weeks if not days of restaurants being allowed to reopen.
• Yumpingo says that 34% will try to eat outside of the busiest hours but only 7% say they will not eat out at all until a vaccine has been found.
• The Caterer.com had earlier found that 31% of consumers maintained that they would visit a pub within a week of them being allowed to open. The number rose to 53% for consumers in London.
• Yumpingo says ‘it is welcome news for the hospitality sector that diners in the main aren’t going to put off eating out, even though they will exercise some caution in their approach.’
• TableYeti.com has collected data from 222 respondents from a mailshot to c7,000 consumers suggesting that around 74% of would-be customers would pay more for a meal if they believed that costs had increased because of Covid-19. Consumers expect to see greater spacing between tables, more cashless transactions and an increased use of outside space.
• Re the two-metre rule, housing minister Simon Clarke said yesterday the Government was committed to keeping the two-metre social distancing rule
• The British Beer & Pub Association yesterday launched a cross-industry platform ‘to enable participating brewers to manage the safe destruction of their brands in pubs and for the millions of pounds in excise duty from unsalable beer to be reclaimed and the appropriate and agreed recompense passed back to licensees.’
• These practical issues will be coming to the fore as pubs consider tidying up and cleaning pipes etc before re-opening.
• Brewers are having to make hard and fast decisions now for beer to be delivered in 3-4 weeks’ time. The number of pubs that will reopen immediately they are allowed to do so is currently uncertain.
• The BBPA has estimated that reclaimed beer duty ‘could be worth tens of millions of pounds of credit flowing back to pubs and the wider on-trade.’ It says this is ‘crucial at this hugely challenging time.’
• Belgium will reopen its cafes, restaurants and gyms from next Monday. Nightclubs will not be permitted to reopen. Waiters must wear facial masks and a 1.5-meter distance needs to be kept between tables.
• Young and Co has reported audited full year numbers for the 52wks to 30 March saying that revenue rose 2.6% to £311.6m and adjusted PBT was down 11.3% at £37.7m. Adjusted EPS was down 13.7% at 60.2p and the dividend for the year was down 49.1% at 10.57p as a final is not to be recommended.
• YNGA says ‘the coronavirus pandemic has had a significant impact on these results. Closure of our pubs for the final 10 days of the financial year and the preceding downturn in trade resulted in an estimated £13.0 million shortfall in revenue, with a disproportionate impact on profits, estimated to be £7.7 million due to the limited opportunity for mitigating actions.’
• Managed house LfLs were down 2.4% – impacted heavily by the drop in sales in the second half of March. The company says it has ‘improved liquidity as a result of arranging £50.0 million of additional funds and committed facilities. We have agreed with our lending banks to replace existing covenant tests with a £20.0 million available liquidity test through to and including the quarter end in June 2021.’
• YNGA CEO Patrick Dardis says ‘we are grateful for the positive moves made by the Chancellor, extending the Job Retention Scheme to October and the £14.5 million relief we will receive from the business rates holiday to ensure that great businesses like ours survive these particularly tough times.’ He says ‘we are confident with the steps we have taken to safeguard our business from the immediate threat of coronavirus. The board expects the business to be in a position to return to profitable growth when this unprecedented period is at an end and conditions allow, and we remain confident in our proven strategy.’
• Loungers has updated on trading (or non-trading) saying it has secured its finances and it is now preparing for re-opening. It says ‘we have opened 17 Lounge sites for takeout and will open a further 10 sites on the same basis over the next week.’
• Loungers says ‘we have chosen not to go down the delivery route, and still don’t think it appropriate for our concepts which have customer and community engagement at the very heart of them but operating an order and collect model suits Loungers’ personality.’ The group says it believes that ‘some – and potentially the majority – of sites being allowed to open in July.’
• Loungers says ‘we are in the process of planning revised layouts and removing and storing surplus furniture to allow for the introduction of the physical distancing rules.’ It says ‘we anticipate being able to trade profitably with distancing rules in place. There is, however, a marked difference between 1 metre and 2 metre distancing, and if 2 metres is implemented, it may not make sense to open a small number of our more compact sites immediately.’
• Fevertree has updated on trading saying ‘as highlighted at the Group’s preliminary results in April, although we have been impacted by the COVID-19 crisis, we are well positioned to manage our way through the current situation.’
• The company says ‘while the On-Trade remains fully or partially closed across many of our regions, the Group’s performance across the Off-Trade continues to be very encouraging. Management remain focused on delivering our long-term strategy and we are confident the Group will be well placed once the current period of uncertainty ends.’
• Fevertree says the on-trade usually represents around 50% of UK revenues. In the US, the off-trade makes up around 70%. The company says ‘given the uncertainty and dynamic nature of the situation, it continues to be hard to predict how sales will evolve both during and as we emerge from the lockdown period.’ It says ‘we remain committed to continuing to invest through this period of uncertainty as opportunities arise, particularly in marketing, enabled by the Group’s strong balance sheet and conviction in our ability to deliver long-term sustainable growth.’
• SSP has updated on its share placing saying a total of 3.5m new shares have been issued at a price of 315.2p per share.
• The BBC reports that Restaurant Group has now communicated with its staff saying that 3,000 jobs are at risk because it does not plan to reopen as many as 120 outlets after lockdown. RTN has around 22,000 workers currently furloughed.
• We believe this illustrates a couple of points. First, trends (such as the closure of marginal sites) already underway have been accelerated by Covid and second, many of the c8m workers currently furloughed will not actually have jobs to go back to. See Premium Email for more comment.
• Restaurant Group may buy back some of its shuttered sites out of administration. The Times points out that ‘the decision not to reopen roughly half its Frankie & Benny’s branches effectively accelerates a much more gradual culling process.’
• AB InBev’s shareholders have approved the company’s accounts and proposed dividend for the year to end-December. A final dividend for the year (taking the total to €1.30) of €0.80 will be paid shortly.
• Stonebeach Ltd, the main operating company of failed cake shop chain Patisserie Valerie, has notified Companies House that it is to move from administration to liquidation. Criminal proceedings regarding the failure of Patisserie Valerie are ongoing.
• Documents now released show that the owner of the Giraffe and Ed’s Easy Diner restaurants operator Boparan paid £3.4m for a portfolio of 31 Carluccio’s sites. The new owner will have to fund any working capital necessary with the reopening process in due course.
• Luby’s in the US is reported to be seeking to sell its real estate assets and wind down its operating divisions. The company says it will distribute net proceeds to shareholders. It says it has ‘concluded a monetization process will likely unlock more value more quickly and with greater certainty for the benefit of all Luby’s stockholders than the other alternatives considered.’
• The UK services PMI for May came in at 29.0, up from the all-time record low of 13.4 in April. The number is the second lowest on record. Any number below 50.0 implies contraction. Markit says ‘the COVID-19 pandemic continued to have a severe impact on UK service sector activity in May, despite a boost in some areas from the gradual easing of lockdown measures.’
• Markit reports ‘customer-facing businesses continue to report extreme levels of concern about their near-term prospects, with efforts to adapt to social distancing measures set to hold back capacity and generate a sharp increase in costs.’
• UK Finance has reported that more than a half of all consumer payments last year were made on card, long before the impact of Covid-19 was felt. ATM withdrawals fell by two thirds in the early weeks of this crisis before levelling out around half of normal levels.
HOLIDAYS & LEISURE TRAVEL:
• Quarantine restrictions still hold the key to how leisure travel will (or will not) recover in the next few months.
• The UK is to introduce a 14 day quarantine from next Monday. Priti Patel says now is the right time. MPs and others have asked why it was not introduced sooner and why, now that the horse appears to have bolted, she is closing the stable door. Infection rates in most other countries are lower than those in the UK.
• Ms Patel says ‘pandemics have no boundaries’ but then, to be fair, they never did. A number of Tory MPs and business leaders say the proposals will badly-damage business. Scientists have also questioned the effectiveness of the scheme. There are about 40 exemptions including certain countries and most other people who are currently traveling such as hauliers and seasonal farm workers.
• The FT says ‘as so often during the coronavirus pandemic, Britain is engaging in dubious exceptionalism.’
• See also Premium Email. One has to question whether this might just be about the optics.
• The government is reported set to drop blanket quarantine restrictions from the end of June according to some reports. It will only just have brought them in. Home Secretary Priti Patel has said that a quarantine will enable the UK to stop the virus spreading and get tourism be ‘up and running faster’.
• Some observers have suggested that it’s not altogether clear that this has been properly thought through.
• Carnival has announced that its Princess Cruises operation has extended its sailing suspension on all cruises sailing in and out of Australia through mid-September. Similarly, cruises in and out of Vancouver and Seattle in September and October are paused.
• PPHE reports that a number of its markets are reopening. CEO Boris Ivesha says ‘we are continuing to adapt to the unprecedented environment. As the impact of Covid-19 begins to ease and restrictions are lifted, our focus now turns to gradually reopening our properties, creating growth opportunities and continuing to take active steps to maintain our financial position during periods of partial operations.’
• Ryanair has said that passenger numbers were down by 99.5% in May. It says flights will be minimal this month if quarantine requirements are introduced. Wizz Air has said that demand for flights to and from the UK could be up to 80% lower than planned if a quarantine is introduced.
• Various operators have cast doubt on their willingness to fly if they have to keep middle seats empty.
• Royal Caribbean is cancelling all this year’s sailings to Canada, New England and Alaska.
• Moody’s has reported that Cineworld’s covenant waivers and sourcing of addition liquidity are credit positive. It says ‘they will significantly ease the serious liquidity concerns looming over the heavily indebted company. The new funding gives Cineworld enough headroom to support the chain even if cinemas must stay closed until the end of the year.’
FINANCE & ECONOMICS:
• The UK Services PMI rose to 29.0 in May from 13.4 in April. The Composite PMI was 30.0 as the services number was pulled up slightly by manufacturing.
• Markit says ‘the COVID-19 pandemic continued to have a severe impact on UK service sector activity in May, despite a boost in some areas from the gradual easing of lockdown measures. Survey respondents noted that deep cuts to corporate spending had been a major factor dragging down business activity in May, leading to a lack of work to replace completed projects.’
• Bank of England governor Andrew Bailey has told UK banks they need to be ready to cope with a no-deal Brexit. He says a no-deal is only one of a number of outcomes.
• Boris Johnson wearing an earpiece to PM’s Questions raises questions as to whether ‘advisers’ are still prompting him as to how to respond to questions. Business Secretary Alok Sharma has been tested for Covid-19 after feeling ill in the House of Commons.
• Sterling lower at $1.2536 and €1.1178. Oil down at $39.23. UK 10yr gilt yield up 6bps at 0.29%. World markets better yesterday. London set to open down around 13 points.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: There is no sign of the promised Q1 update from Card Factory, but the troubled car dealer Lookers has issued a gloomy trading and operational update, flagging that the much delayed final results won’t be ready until the end of the month, as the fraud investigation still isn’t completed and discussions continue with auditors and bankers. Lookers’ freehold property portfolio remains very strong, but car orders have been c50% down over the last 2 weeks and the business is looking to get rid of a further 12 branches and make 1500 redundancies…
• FTSE Index Watch: As expected, the latest FTSE All-Share index quarterly review yesterday evening saw both Homeserve and KIngfisher win promotion to the FTSE 100 index (with effect from June 22nd), whilst B&M got onto the Reserve list. Further down the rankings, AO.com was promoted to the FTSE 350 index and N Brown was demoted from the All-Share index.
• News Flow This Week: First thing tomorrow we get the latest “flash” GFK Consumer Confidence report (with the record -39 index low seen in July 2008 yet to be tested so far in the current crisis).