Langton Capital – 2020-06-17 – PREMIUM – Crowd funding, Domino’s, 4 July, Admiral, McDonald’s, WMH etc.:
Crowd funding, Domino’s, 4 July, Admiral, McDonald’s, WMH etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Quite busy today but thanks to those who pinged emails back re yesterday’s questions.
Today, just a thought for you. I still tend to call Snickers Bars, Marathons. I get odd looks but that’s water off a duck’s these days so here’s a question for you; when did the name change?
Clue, Ms O’Connor was in the charts that year, with Nothing Compares.
And here’s another observation. As our continued existence on this challenging rock attests, humans are very good at what they do.
But ‘what they do’ for 99% of our existence has been to avoid predators, communicate with small groups of fellows and batter the odd rabbit for the pot, and only 1% has been dealing with ‘civilisation’ let alone surfing the Net.
Hence, we’re wired inappropriately at times. Ask Hal from 2001 or Mr Spock. We’re good with small groups. Communes and the like top out around 150 and anything beyond that goes a bit Animal Farm.
So, when you say national debt could go up by £100bn or £200bn or even £300bn if there’s another wave but we could ‘save’ £1bn if people staycation rather than fly to Spain, we think it all balances out, only it doesn’t, really, does it? Over to you, Rishi.
Anyway, follow us on Twitter at @brumbymark. On to the news:
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CROWDFUNDING: We have cautioned in the past about crowdfunding. Here, keen to get away from Covid-19 for a short period, we reprise the arguments and look at Crowdcube’s 2019 numbers. 17 Jun 20:
Re crowdfunding in general:
• In March last year we posed the question ‘who is the idiot in the room?’
• We said that it could be a solution looking for a problem
• We pointed out that the Internet has allowed some companies to disintermediate the fund-raising process, bypass brokers etc. and go straight to would-be shareholders
• We said this may be exciting & liberating or highly dangerous, depending on your point of view. It is very likely both.
• But it has raised valuation aspirations on the part of companies. Grind, which looks like a pretty good – though still heavily loss-making – company, is valuing itself at £34m pre-new-money
• We believe that valuations were stretched going into Covid and, at present, many crowdfunded companies could be in significant distress
• This may be overlooked by banks and creditors at the moment, as they have so many other fires to fight
• Dragon’s Den does indeed have a lot to answer for. The crowdfunding industry was conceived in 2011 with players including Crowdcube, Seedrs and Venture Founders
• The sector has raised perhaps half a billion pounds from private investors since inception
• The companies that have raised money are of a mixed quality – but usually they are companies that have tried fund raising elsewhere before coming to the crowd
• Because the sheer shoe leather involved in keeping in touch with hundreds or even thousands of shareholders is not inconsiderable
• For aggregate details as to how companies on the various crowdfunding platforms have fared, see earlier emails
Crowdcube’s trading performance – the numbers:
• Industry leader Crowdcube has recently lodged accounts, now very historic given what has happened re Covid-19, with Companies’ House
• The results show that the group lost £2.6m in the year. It has lost an accumulated £23.1m since incorporation
• Crowdcube’s revenues rose from £5.3m to £7.7m. Its operating loss was reduced from £3.0m to £2.6m. This is a move in the right direction – but it is not a large one
• It is possible that the whole game has changed in the last three months
• The group’s balance sheet reflects the fact that it raised £8.9m of new funds during the year under review. At the balance sheet date, it had £7.9m net cash left. The burn in the following 9mths to date will have been not inconsiderable
• Balance sheet totals are £9.9m. Or at least they were 9mths ago. Assets include £1.1m of intangible assets. These are ‘Media Rights’ which ‘reflect consideration provided to Crowdcube by Channel Four Television Corporation in the form of media credits as part of a fundraising round.’
• The group says ‘these media credits are initially measured at the fair value of the equity instruments issued, Crowdcube has elected to amortise the intangible asset when the credits are utilised, as this is the point at which the economic benefit is consumed. If those credits expire then the unused credits will be written off.’
Crowdcube, further comment:
• Whilst the risk posed by Covid-19 could not have been foreseen 9mths ago, Crowdcube, which signed off its accounts on 9 March, says ‘the Group operates in a competitive market and faces competition from both other crowdfunding platforms and other sources of finance in attracting potential issuers to the platform.’
• It has adopted the Going Concern principle re valuation
• It said, at the time it signed its accounts, that ‘based on forecast performance this [the £7.9m of cash on its balance sheet] will enable the Group to meet its liabilities as they fall due for at least 12 months following the date of signing the financial statements as well as allowing continued investment.’
What does the future hold?
• The future is uncertain but it is likely that crowdfunding platforms will be being roundly ignored by investors at present
• This could ‘thin the field’. Crowdcube has cash and it should be in a position to survive longer than most
• But the curve, which was heading towards profitability (but not very fast) will have been flattened further.
• Crowdcube’s cash burn may have worsened. It may need to raise more funds in due course and, investors will not have failed to notice, is quite a risky area.
Thumbnails (company experiences):
• Please feel free to contribute.
• Companies in the UK are currently without firm guidance as to whether 4 July is a goer or not and, at the moment, they don’t know whether spacing is 2m or 1m.
• But decisions (how much beer to brew or order, how many staff to call back from furlough, how much furniture to take out and where to store it etc.) are having to be made in real time.
• This is suboptimal and has led to allegations that the government is adopting an ‘any way the wind blows’ approach. See Marcus Rashford campaign reaction. Herewith a few anonymised comments. These are in addition to the two or three that have already been covered this week.
• From an operator of a dozen or so English-themed pubs in France (where pubs and restaurants can open in some districts, though restrictions vary). Pubs outside Paris have been open for a full week with 1m between tables. Takings have been between 50% and 60% of normal.
• Pubs in Paris have only been able to trade outdoors. Weather, we believe, has been average. These units have returned ‘between 0% and 63% of last year’s levels’. The 0% pub(s) were presumably shut.
• The company has covered COGS but, given increased costs, there is very little for head office and nothing for debt repayment, depreciation etc.
• Break even at the site level may be 60% to 65% of last year’s revenues. Another 10pts or so would be needed to break even at company level. Delivery hasn’t featured (but these are pubs).
UK independent restaurant operator (South of England):
• A lot of work going on behind the scenes. Likely to reopen early July.
• Tables 2m apart. That’s a sweeping brush at arms’ length from the next table. This will fall to 1m if anybody walks between them. Call the police.
• The company is making around 45% of its staff redundant. These will be mostly part-time roles. Opening hours will be reduced. Seating capacity at 2m spacing will be down by a short 40%.
• The co will add 20% to bills as a ‘Covid-tronc’. The reaction of customers, at this stage, in unknown.
• There is a ‘fear that the grey market is fearful.’ The company is considering temperature checking. This may seem intrusive and may be driven by what its customers want to see.
UK restaurant company:
• We’ve been stripping out furniture like nobody’s business. Aircraft hangers and farmers’ barns are well bid.
• Landlords are twitchy as we may never put it back again.
• 2m or 1m is important but we will have pinch points in the kitchens.
Loungers’ Alex Reilly:
• Tweet from Alex (who’s also been shipping furniture out of his loungers’ bars: ‘although the Government has previously stated that pubs and restaurants might be allowed to fully reopen by 4 July, there is speculation that this may be pushed back by a few weeks and that pubs and restaurants will only be allowed to serve customers outdoors from 4 July’
• We’ve heard nothing more on this but, given the focus with which previous announcements have been enacted, it is possible.
• Some operators we have spoken with have been pleasantly surprised by their click-and-collect and delivery take-up over recent weeks. The margin for the former is much higher than it is for the latter.
• All agree that landlords are under extreme pressure. Some are tapping into deposits to make up rents. Turnover rents are being conceded in a number of cases. The threat (as at Restaurant Group) of a CVA often focuses minds.
• CGA’s comment that a third of operators will not reopen all of their sites still seems reasonable. A further third have yet to decide.
• Some restaurants are asking customers to pay in advance, to buy vouchers for when they reopen etc. There will have been some take-up but, we would caution, the fate of an unsecured creditor is not always a happy one.
• Restaurant Tapa is reported to have launched a ‘pay it forward’ scheme aimed at getting cash in from customers. it is said to have raised over £16k in less than 2wks. See out comments on unsecured creditors above.
More feedback from readers welcome.
PUB & RESTAURANT NEWS:
• Downing St yesterday said that it was still working towards a 4 July opening ‘at the earliest’ for the UK’s pubs & restaurants. UK Hospitality boss Kate Nicholls welcomed the reaffirmation but Loungers’ boss Alex Reilly pointed out that this still isn’t a confirmed date, but rather a ‘not before’ date. He says if the reopening is delayed, then ‘all the plans the sector are busy making, on guidance we’re having to make up, will be for nothing’.
• Mr Reilly had earlier tweeted ‘although the Government has previously stated that pubs and restaurants might be allowed to fully reopen by 4 July, there is speculation that this may be pushed back by a few weeks and that pubs and restaurants will only be allowed to serve customers outdoors from 4 July.’
• Visa has told the FT that the current global pandemic ‘is heralding a “permanent” shift in consumer spending, with increases in debit card and domestic transactions here to stay.’
• The UK now has over 9m workers furloughed.
• Wireless Social reports that ‘uncertainty seems to be, for the short-term at least, the temporary new norm.’ It says, however, that ‘the UK and London specifically appear to be taking baby steps towards more busy times ahead.’
• This should have picked up more smartly from this Monday. Wireless Social says ‘the general trend is of people slowly re-emerging during the week to the 14th June. London continues to follow a pattern of increased footfall, notwithstanding the inclement weather of the previous week.’
• Research at Edge by Ascential has suggested that the Covid-19 crisis could add £5.3bn. This should take the total to £78.9bn. it’s a wonder, frankly, that the number is not higher. Amazon is adding an extra £2bn in UK sales, totalling £31.1bn by the end of 2020. Tesco should add an extra £1.7bn to reach a total of £61.1bn, up from forecasts of £59.4bn prior to the pandemic.
• Sainsbury’s and other UK retailers will add lesser amounts. See Langton comment on Cambridge University research on spending trends in Spain, post lockdown, earlier this month.
• CGA has reported that ‘an overwhelming majority of festival-goers who have received refunds on their tickets for 2020 say they will rebook tickets for next year, new research commissioned by UK Festival Awards and Brothers Drinks reveals.’ Some festival goers didn’t get refunds but were asked to defer to next year in any case.
• CGA says ‘while 30% of festival-goers would be happy to attend a live event this year (provided government restrictions are lifted) 26% would be cautious in doing so and 18% would attend as long as there were additional health precautions taken. Around 42% said they would feel more comfortable attending local events rather than travelling to large-scale live events across the UK.’
• SIBA has called for a ‘roadmap out of lockdown’ as a matter of urgency. That would be nice. CEO James Calder says ‘getting pubs reopened quickly and safely is simply the first step on the road to recovery for small brewers – for others irreparable damage has already been done.’
• See Finance & Markets for job losses. Some 600,000 jobs appear to have gone missing. This is likely to impact consumer behaviour. Real wage growth, helpful for hospitality spending, is now negative. See below.
• The Scottish Beer & Pub Association says that some 23,600 jobs could be lost in the pub industry if ‘social distancing guidelines are not re-examined in time for the provisional re-opening of premises on 15 July.’ CEO Emma McClarkin says ‘not only will 87 per cent of those surveyed be unable to open, those that can trade at the two-metre mark will potentially have to let 52 per cent of staff go.’
• In the US, the National Restaurant Association says that 75% of restaurant operators don’t expect to turn a profit in near future. The US industry has lost $120 billion in revenue since the onset of the coronavirus crisis per the NRA.
• The FT says queues at shops perhaps give a distorted picture as to how busy they are compared with ‘normal’
• Domino’s Pizza Group has updated on trading, giving the update that will be read to shareholders later today at its AGM. Dominic Paul says ‘throughout this crisis we have focused on looking after our people and working together with our franchisee partners to safely serve our customers and help our communities. I am proud of the performance of our system during this period, and that the vast majority of our stores have remained open. I am looking forward to giving a more detailed update on our performance and sharing my first impressions of the business at our first half results presentation in August.’
• The group says UK LfL sales are up 3.7% in the calendar year to date including splits in the UK. LfL sales are up by 5.1% on the same basis since lockdown. The group says ‘in the UK, LFL sales growth has been strong during the first half of the year to date.’ It says that, post lockdown, ‘we saw our sales performance from delivery grow rapidly with an increase in order count and a growth in items per order and therefore average ticket. This increase in sales from delivery more than offset the lack of sales from collection, however total order count has declined during the period. We have also seen a change in consumer purchasing behaviour and average basket composition, with a higher proportion of sides and desserts, which, whilst aiding our sales performance, has impacted our margins.’
• DOM here is confirming evidence elsewhere that transaction numbers have fallen but that transaction sizes are up.
• Casual Squid is reported to have ‘sealed a multimillion-pound rescue after being taken to the brink of collapse by the coronavirus pandemic.’ The Telegraph says that the chain, which ‘was put up for sale with a £50m price tag last year, has agreed an emergency £5m loan, safeguarding almost 1,000 jobs.’ There had been talk of an IPO in 2019. Giggling Squid has c35 sites.
• Admiral Taverns has launched its ‘Rising From Lockdown’ support platform for its licensees. MD Ian Ronayne says ‘during the COVID-19 crisis our approach has been to be as proactive and supportive to our licensees as possible and we were determined to ensure that they have some useful material available to help open their pubs when guidelines permit. Rising From Lockdown gathers some tools, timely information and common sense reminders in one place to help licensees re-start their businesses.’
• McDonald’s restaurants in the U.S. are reported to be picking up, albeit from a low base. The group has announced that sales were down by 12% LfL in April and May. The month of May was ‘only’ down 5.1%. Around 95% of McDonald’s restaurants worldwide are now open, up from 75% at the end of April.
• McDonald’s CEO Chris Kempczinski says ‘I am confident in our ability to manage through the immediate challenges and emerge from this pandemic in a position of competitive strength.’
• Other stuff is still going on. The CMA last week gave itself two more months to make a final ruling on Amazon’s purchase of a minority stake in Deliveroo.
• Denny’s in the US has reported that, for the week to 10 June, its LfL sales were down 40% on last year – but better than the down-47% of the prior week. Denny’s says that c82% of its US sites are now open. Off-premises sales (delivery) more than doubled between February and April.
• Oak Furnitureland has undergone a pre-pack administration with no job losses.
• Poundstretcher is proposing a CVA in order to cut rent and shed sites and staff. The group employs 5,500 people. It may permanently close a half of more of its current 450 sites in the UK.
• Brewing cuts have impacted Unilever’s Marmite production, which is being hampered by a shortage of brewers’ yeast.
• Prestige Purchasing says that ‘large-scale hospitality operators from the dining, catering and pubs sectors are considering pooling their volume in order help manage costs during the recessionary times ahead.’
• It says ‘the initiative, which is being co-ordinated by Prestige Purchasing is focused on high volume commodity ingredients, such as cooking oil, butter, chicken, high volume cheese, and chips. These types of products are typically purchased direct from manufacturer and are generally of similar specification across the whole sector.’
• Prestige says ‘hospitality businesses are facing unprecedented headwinds in the months and years ahead. In an environment where volumes will be weak and the opportunity to raise prices limited, operators need to leave no stone unturned in the quest to reduce cost per transaction.’
HOLIDAYS & LEISURE TRAVEL:
• PM Boris Johnson says ‘we are certainly looking at air corridors’. That will come as a relief to those who believe the PM’s strong point is focus, detail and execution. The others amongst us, not so much.
• Norwegian Cruise Lines has cancelled more departures, some until October and November.
• A 14dy quarantine must have killed business travel stone dead. Why travel if you can’t meet anybody?
• TUI expects to recommence its UK 2020 programme ‘later in the summer’. It has restarted its operations from Germany, Belgium, the Netherlands and Switzerland to a limited number of destinations and expects to restart more from the beginning of July.
• TUI says winter 2020-21 bookings for UK are up 6% with average selling prices up 5%. TUI says its ‘executive board together with operational management is continuously evaluating leisure travel policies and safety guidelines, and we will manage our capacity depending on customer demand and in line with the specifications as well as requirements of the authorities in our source markets and destinations.’
• Spain is considering imposing a quarantine on British travellers when it reopens its borders next week according to its Foreign Minister Arancha Gonzalez Laya.
• Club Med is to reopen some of its resorts from 27 June.
• Travel Weekly reports comments that the cruise industry has a “high-profile PR problem” that must be overcome for the sector to recover. Talk of plague ships and TV coverage of body bags being taken from ships earlier in the spring will certainly not have been taken positively by would -be customers.
• The Guardian reports that the UK is not taking part in an EU-led data-sharing project to revive tourism as lockdowns lift.
• Stena Line, which admittedly has a vested interest, says ferry travel is the “safest form of public transport.”
• Travelodge has sweetened its offer to landlords. It is reported to be proposing handing a larger proportion of profits to them in exchange for rent concessions.
• William Hill yesterday updated on trading saying that ‘we have been delighted to see a strong recovery in recent weeks with the easing of COVID-19 restrictions and the progressive return of sporting events.’ It says ‘we expect the trading backdrop to remain uncertain but are encouraged to see both Online and the US performing ahead of our initial expectations.’
• The company has reduced its monthly cash outflow. In the 23 weeks to 9 June, online was down 1% and total group revenues were down 32%. Revenues were down 57% in weeks 11-17 and down 50% in weeks 18-23.
• Wm Hill CEO Ulrik Bengtsson says ‘the return of sporting events has driven a strong recovery in our online volumes. Our UK Online business is in a better place than ever and our international business is displaying solid growth. In the US we have used this period of lockdown wisely to move our product forward and we are now in a strong position to capitalise on the US growth opportunity that lies ahead.’
• William Hill also announces a placing of shares via an accelerated bookbuild. The group announces this morning that ‘a total of 174,872,457 new ordinary shares in the Company will be issued at a price of 128 pence per share…raising gross proceeds of approximately £224 million.’
FINANCE & ECONOMICS:
• The number of people out of work and claiming work-related benefits in the UK jumped 23% to 2.8 million last month reports the ONS. The number was 1.2m in March.
• Another measure is the number of people on UK payrolls. This fell by 612,000 in May compared with March. Some 449k people lost their jobs in April with 163k losing their incomes in May. The ONS reports that the unemployment rate held steady at 3.9%. Plenty of opportunities for fruit pickers but, overall, job vacancies are at their lowest level on record.
• The ONS reports that real wage growth is once again negative. The NIESR says ‘UK average weekly earnings expanded by 1.7 per cent excluding bonuses in the three months to April 2020 compared to the year before, and by 1.0 per cent if bonus payments are taken into account.’ It says ‘we estimate that nominal earnings growth including bonuses will be negative at -1.1 per cent in the second quarter of 2020 as the downward trend on earnings growth persists in May and June 2020.’
• The NIESR says ‘as the UK economy progressively exits its lockdown, the effect of the pandemic shock on the labour market and wages is becoming every day more evident. Unemployment is set to increase to more than 10 per cent of the labour force and average weekly earnings are expected to decline.’
• Estate agents say they have seen house sales pick up (from virtually zero to more than zero).
• US retail sales rose by a record percentage in May. Again, from a very small number to a larger number.
• Switzerland believes its economy will shrink by 6.2% this year.
• Sterling lower at $1.2557 and €1.114. Oil higher at $40.23. UK 10yr gilt yield down 1bp at 0.20%. World markets: UK, Europe & US higher yesterday but Far East lower in Wednesday trade. London set to open down around 3pts (as at 7am).
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Boohoo: Along with a bumper Q1 update (for the 13 weeks to May 31st), mighty Boohoo has confirmed the Sky News scoop that it is buying the Online business and brands of Oasis and Warehouse. In terms of Q1 trading, not even the bulls were expecting much more than 20% sales growth, given the weakness in March, but Boohoo has smashed expectations with 45% growth (30% in the UK). In terms of full-year guidance, Boohoo is only expecting 25% growth, given the “likely promotional intensity in markets in which we operate”, but the City will take that with a pinch of salt and there will be full-year profit upgrades, despite the warning about “carriage inflation for some of our Overseas markets”. As for the acquisition, it is not clear why Boohoo didn’t pick up Oasis/Warehouse from the administrators, as it did with Karen Millen/Coast, rather than from the scavenger fund Hilco, but the deal is
• Kingfisher: Along with the delayed finals for y/e Jan, Kingfisher has announced a detailed trading update, showing impressive c28% LFL sales growth over the last 2 weeks, both in the UK and for the group. Cynics of the group’s record on synergies will groan at the news of a new ‘Powered by Kingfisher’ strategic plan (ie distinct retail banners addressing diverse customer needs, ‘powered’ by the group)…The new CEO says “The coronavirus crisis has provided us with the most unexpected test of these plans, while really pushing our capabilities as a business. The results have reinforced our strategic direction, demonstrated how our operations and teams can be agile, and pushed us to be bolder. Together, we look to the future with confidence and are committed to returning Kingfisher to growth”.
• News Flow This Week: Royal Ascot continues today (behind closed doors) and after a couple of complete duds yesterday “Honest Nick” has redoubled his efforts to find you a horse or two in the first three…and Convict looks worth an e/w punt in the 2.25pm, along with Bell Rock in the lottery that is the 3.35pm. Otherwise, tomorrow brings the finals from New River (the community shopping centre and pub landlord) and the Ted Baker EGM (to approve the recent rescue deal), with the ONS Retail Sales figures for May and the Boohoo AGM following on Friday.