Langton Capital – 2020-10-15 – Marston’s, Fulham Shore, BOWL, Hostelworld, Domino’s etc.:
Marston’s, Fulham Shore, BOWL, Hostelworld, Domino’s etc.:
A DAY IN THE LIFE:
London, huh, you’ve got to love it.
I mean where else could they charge you fourteen quid for two pints with a straight face? Six quid and a few coppers per pint plus 12.5% because they brought it to your table, I ask you.
And £3.75 plus 12.5% for an ashtray full of salted almonds…
Two quid for a pint of Sam Smiths back home and the pubs are quiet down here, I wonder why?
Anyway, had to dash out again yesterday evening just to make sure it wasn’t all a dream and, sure enough, it wasn’t.
On to the news:
LANGTON PREMIUM EMAIL:
Langton produces a premium email alongside the free version that you receive. It’s about 100 lines longer than the free version (depending on what’s going on) and includes analysis and opinion.
If you would like an example, please let us know.
Corporate Offer: Annual subscription just £295 (plus VAT) for a single subscriber or £495 (plus VAT) for multiple subscribers. Drop us a line to get involved.
Retail Offer: Easy in, easy out. £30 per month (inclusive of VAT, £25 net) via PayPal.
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
THE UPS DON’T EVEN OUT THE DOWNS. THERE’S A LACK OF SYMMETRY. Some industries will be up over the Covid period, whilst others could be bust. Those who lose on the swings aren’t guaranteed to make it back on the roundabouts. 15 Oct 2020:
One size doesn’t fit all: See Premium Email
MARSTON’S FULL YEAR TRADING UPDATE:
Marston’s has this morning updated on trading for its 53wk year to 3 Oct 2020. Given that the financial year to September included a period of total lockdown, the soon-to-be historic number are perhaps of less importance than would otherwise be the case. Our comments thereon are set out below:
• Marston’s has updated on trading saying that the 15wk closure ordered from 20 March has ‘had a material impact on the results for the year.’
• Group sales for the year were £821 million, 30% below last year.
• The group adds that ‘total pub sales for the year were £515 million, 34% below last year, principally reflecting the closure period and the impact of the disposal of 168 pubs for proceeds of £61 million in the first half-year.’
• The Beer Company reports sales for the year of £306 million, 22% below last year. It says that ‘off trade volumes for the year were up 23%, driven by exceptional demand during the period of pub closure. On trade volumes (excluding the closure period) were 11% below last year.’
Trading since reopening:
• Marston’s reopened the vast majority of its pubs very shortly after 4 July, the earliest date from which it was allowed
• The company says that, for the total 13wk period, it traded 10% behind the same period in 2019
• The group believes that this is around 7% ahead of the industry as a whole, driven by the fact that the company has a largely suburban and non-London estate
• Marston’s says ‘we estimate that social distancing and other restrictions reduced average indoor capacity by approximately 30% in this period, although this was mitigated by the fact that most of our pubs have beer gardens.’ The group adds ‘we are investing around £2 million in “Inside-Out” schemes including heated and weather-proofed structures to extend the use of outdoor space into the winter months, which will provide additional capacity of around 15,000 covers.’
• Sales comprised minus 26% in July, plus 6% in August and minus 12% in September, which included Storm Alex and the first two weeks of the 10pm curfew. The group has demonstrated that it can generate cash when open
• Marston’s has 21 pubs in Scotland, some 8 of which have had to close
• The group has 18 pubs in the Liverpool area, but only 4 will have to close as the rest serve food including main meals
• The company suggests that recent enhanced restrictions, the Rule of Six and the 10pm curfew have undermined consumer confidence
• The company comments on the 3-Tier system announced this week saying that ‘the initial effect of these new rules has been to undermine consumer confidence and create uncertainty.’
• It says ‘restoring confidence will only happen when UK Government and the devolved administrations are able to remove these restrictive measures, which they state are intended to be short term in nature.’
• Marston’s adds ‘the introduction of these further restrictions and guidance affecting pubs is hugely disappointing in view of a lack of clear evidence tying pubs to the recent increase in infection levels, and our own data which suggests that pubs are effective in minimising risks.’
• It says ‘inevitably, and regrettably, recent restrictions will impact jobs.’ Marston’s has 12,000 employees outside its Beer Company and it says that 2,150 positions will be under review
• The affected staff are currently furloughed and could face either cuts to their hours or redundancy
• The direction of travel looks to be toward increased restriction but Marston’s has made clear in the past that it can break even with sales reductions of up to 40% in its food-led pubs and as much as 60% reductions in its wet-led units
Balance sheet and debt:
• Pre IFRS16 debt is £1,329m. This is £70m down on last year and some £50m lower than it was at the end of March
• There have been some asset disposals and there will be some accrued VAT and Beer Duty accruals but the company has paid all of its rent bills and its food & drink suppliers
• The bank facility of £360m was increased by £70m during the lockdown but only £270m is drawn down. This will drop to £40m or so when the Carlsberg cash is received
• There will be a working capital unwind but debt of perhaps £1.1bn by the end of FY21 looks possible
• CEO Ralph Findlay says ‘the year has been testing on many fronts, predominantly from having to navigate the consequences of COVID-19.’
• The group has nonetheless created a joint venture between Marston’s Beer Company and Carlsberg UK during the period and says ‘on re-opening, we set ourselves three objectives: for pubs to be safe for our guests and our people, to retain pub ambience, and for our pubs to be financially viable.’
• CEO Findlay says ‘I believe we have met those objectives. Trading has been difficult, but to operate at 90% of last year on a like-for-like basis is better than our forecast, ahead of the market and a highly creditable result. In part, this is because most of our pubs are in suburban or community settings, and we have relatively few pubs in city centres which have been worst hit by changes in working habits.’
• The additional restrictions ‘will make business more difficult for a period of time.’ Findlay says ‘I very much regret that the consequence of this is that the jobs of around 2,150 of our colleagues will be impacted, but it is an inevitable consequence of the limitations placed upon our business. We will be looking at our cost base further in the coming weeks.’
• Mr Findlay concludes ‘there is much uncertainty ahead, the majority of which is outside of our control’ but adds ‘we look forward to our future as a focused pub operator, returning to growth when trading conditions allow and realising the opportunities which are open to us over the medium to longer term.’
• Marston’s has reassured on both debt and trading. Debt is lower than anticipated and will fall further when the Carlsberg money arrives later this month.
• As far as trading goes, as for that across the whole of the industry, this is something of an unknown and, as the company says, some of the more important determinants are out of its control.
• Marston’s can break even at much reduced levels of turnover and, post the Carlsberg transaction, it will be a focused pub retailer.
• Forecasting is not yet possible but, looking longer term, pandemics are rare, hostelries have been around since biblical times, Marston’s debt is reduced and will fall further and it has a well-financed, largely-freehold estate. Though much uncertainty remains, the group is well-positioned to prosper over the medium term.
PUBS & RESTAURANTS:
• Barclays has reported that consumer spending grew by 2.0% year-on-year in September ‘delivering the biggest increase since February 2020.’ But the uptick hasn’t been evenly spread. See Premium Email.
• Barclays reports that essential spending grew by 6.1% year-on-year in the month ‘due to continued robust supermarket spending –as a quarter of Brits admit to stockpiling.’
• It says that ‘non-essential spending rose by 0.6%, the first increase since February, bolstered by particularly strong consumer spending on home improvement activities and furniture.’
• However, within this, supermarket spend was up by 15.4% September this year on last and spending in restaurants was down by 18.7%. Fast food spend was up by 25.8% and spending on furniture, which has presumably been gradually wearing out during lockdown, was up by 25.7%.
• Not surprisingly, online spending was up. It increased by 7.7% year-on-year –to take a 43.4% share of total spending. Spending in shops was down by 1.9% year on year, much better than the height (or depths) of lockdown. In August, partially-recovered, it was running down by 6.7%.
• Wireless Social reports that footfall is hovering around the minus 40% mark. It says this is ‘no doubt impacted by local lockdowns and various government messages reducing consumer confidence’. The ‘London Villages’ have taken a dip, Wireless Social reports, after several weeks of strong performance.
• The Fulham Shore has reported full year numbers to 29 March 2020 saying that revenue during the period was up 7% at £68.6m ‘driven by improved trading in the Company’s existing restaurant estate and new openings.’
• The company says headline EBITDA was £15.2m post IFRS16 and £8.3m before it, the latter figure up from £7.8m in the prior year. The group is reporting a loss before tax of £0.8m after IFRS16 and a profit of £0.4m before it (versus a profit of £1.4m in the prior year).
• The numbers are historic and largely pre-Covid. The company says that it now has 68 of its 70 restaurants open and says that ‘thanks to the UK Government’s “Eat Out to Help Out” scheme, revenues for the days supported by the scheme increased markedly compared to those of the previous year.’
• The group has net debt as at 13 Oct post a summer equity raise of £3.4m with banking facilities of £25.75m. Regarding future trading, the company says ‘predicting the UK economy, and the restaurant sector within it, is probably more difficult now than at any time since 1945. Our experience over the last six months has shown that the restaurants that provide what customers want will thrive under the most difficult of circumstances.’
• It says that, re Franco Manca, ‘our policy of opening in London villages has borne fruit, as many commuters are now working from home. These Franco Manca sites are busier than they have ever been.’ It says The Real Greek’s central London units have been impacted by the absence of tourists in London but says ‘the complete opposite has occurred in our The Real Greek locations around the country. Some of our regional locations are twice as busy as they were last year.’
• Fulham Shore says that some landlords are adapting and becoming more flexible. The company concludes ‘Franco Manca and The Real Greek are popular with the public. Fulham Shore is well capitalised and we have ample headroom in our borrowing facilities. We are confident that this, combined with our cash balances, will see us emerge from this period as a successful survivor in an albeit reduced UK restaurant sector.’
• Domino’s Pizza has reported Q3 numbers saying system sales in UK & ROI were up 18.7% and LFL sales exc. splits up 17.5%. CEO Dominic Paul says ‘I am pleased to report a strong performance in Q3. Delivery orders were up 11.8% and we also benefitted from the reopening of our collection business.’
• The company says ‘we continue to work on a long-term strategic plan for the business.’ It says ‘despite the ongoing uncertain backdrop, we expect to report full year Underlying Group PBT in the range of £93m to £98m, in line with market consensus.’
• The company concludes that ‘despite the ongoing uncertainty presented by the potential for local restrictions, we remain confident in the continued demand for a family focused, value for money and enjoyable experience.’
• Boparan, which recently bought Carluccio’s from administration, has bought Gourmet Burger Kitchen. Sky initially reported that the company will acquire control via a pre-pack administration, handled by accountant Deloitte.
• Some 35 GBK restaurants will remain open with 650 staff set to keep their jobs. Previous owner, South African company Famous Brands, had said that it would no longer financially support its UK business.
• Comptoir yesterday made plain the fact that London footfall is low. Some observers have suggested that it has topped out (hopefully only for the time being) at perhaps 50% in some areas of what it was pre-Covid.
• Comptoir said it has ‘entered into negotiations with all landlords to agree on a sensible way forward which would help ensure our survival and protect their investments in the long term.’ It says ‘many of our landlords have been fully engaging with us in understanding the difficulties that we are all facing and we have come to mutually agreed positions involving rent waivers, deferments and deductions from rent deposits and more importantly turnover rents instead of base rents going forward.’
• Some landlords are not cooperating. Post re-opening, Comptoir says that trading was ‘very challenging’ and it says that its London sites ‘are still very quiet in terms of footfall, driven by very low number of tourists, offices still unoccupied and theatres still closed.’
• There is a trickle of discounting out there. M&B’s Vintage Inns is emailing customers offering 50% off main courses. Greene King’s Loch Fyne is offering 25% off. Franco Manca is offering pizzas for £5 on Mondays to Wednesdays this month.
• Deltic is said to be looking for a buyer. Sky News reports that BDO has been called in to ‘identify new investors who could help avert its potential collapse.’ Deltic has around 52 sites and employs around 2,000 people.
• The Night Time Industries Association has warned that 60% of the UK’s nightclubs could close without further government assistance. A Deltic spokeswoman told Sky ‘the unprecedented impact of the COVID-19 pandemic on the UK’s late-night sector has been well-publicised. Deltic’s board of directors is working with advisers BDO to assess all options available to the company, including the possibility of bringing in new equity partners. Deltic also continues to participate in discussions with the government regarding potential further support for the late-night sector during this difficult period.’
• Just Eat Takeaway yesterday reported on Q3 trading saying that ‘order growth at Just Eat Takeaway.com further accelerated, consequently widening the gap to competitors in our key markets.’ It says ‘we have continued to generate strong adjusted EBITDA, while investing aggressively, and are well-positioned for autumn and winter, our traditional growth season.’ The group’s shareholders have approved the purchase of Grubhub. The transaction should complete in the first half of 2021.
• Dave & Buster’s Entertainment in the US has reported that August sales were down 75% and by September sales had decreased by 62%.
• Gastrono-me founder Gemma Simmonite says if the rumoured circuit breaker ‘does happen (because it was planned all along), restaurateurs should at least be given the respect of pre-warning, so we can minimise huge amounts of wasted costs. Alex Reilley of the Loungers group reported 900k of stock written off due to insufficient warning, it is simply not good enough. As an industry we are sick and tired of being kept in the dark, being misrepresented, and being demonised.’
• HospoDemo it to demonstrate in Parliament Square at 10.30am on Monday 19th October. The demonstration will urge the government to revise its policies relating to hospitality venues, both in terms of restrictions and industry-specific support.
• Kate Nicholls, Chief Executive at UKHospitality, said ‘it’s no surprise to us that our colleagues from the beleaguered hospitality industry wish to express themselves in this way and we stand shoulder to shoulder in support of them.’ She continues ‘businesses are feeling the cumulative impact of all the restrictions placed on them, and have really suffered since the introduction of the curfew, which has had a severe and devastating impact. Now with the introduction of the tiers system, we are reaching the point of no return for many. Many are trading unsustainably and at a fraction of their pre-Covid levels.’
HOTELS & LEISURE TRAVEL:
• Hostelworld warns on trading.
• Hostelworld Group has updated on trading saying that ‘since the end of August, travel restrictions have tightened globally and we have seen demand level off, and in recent weeks we have experienced a marked deterioration in bookings.’
• It says ‘we have also seen a greater than expected decline in ABVs driven in part by bed price deflation and adverse foreign exchange movements.’ Hostelworld says ‘looking ahead to the rest of the year, we no longer expect an improvement in the macro travel environment and therefore expect any recovery to be muted. Based on this, and our current visibility of forward-looking bookings, we now expect full year net bookings to be in the range of 20 – 22% of FY2019 (Base Case: 25% of FY2019 / Pessimistic Case: slightly below the Base Case) and net revenue to be in the range of 16 – 18% of FY 2019 (Base Case: 20% of FY2019 / Pessimistic Case: slightly below the Base Case).’
• ABTA CEO Mark Tanzer has said that help for the travel industry so far and been too little and too late.
• Tanzer told Abta’s Travel Convention that ‘we’re more than six months into this crisis and the basic tools to help build customer confidence to travel are still missing.’ He says ‘we must move away from blanket Foreign Office advice and have a regionalised approach to advice and quarantine. We urgently need a testing system that is rapid, efficient and trusted.’
• KPMG has told Travel Weekly that it sees a 50% chance of the Covid-19 pandemic severely disrupting the peak holiday season in 2021. Economist Yael Selfin said that consumer confidence re travel could still be low without a vaccine.
• Dido Harding has been unable to reassure the travel industry that any system of Covid testing will be in place at British borders by the end of the Brexit transition period on 31 December.
• Hollywood Bowl Group has updated on full year trading saying that it has seen ‘encouraging customer demand following reopening.’ The company says trading since estate reopening has been at 68% of prior year revenue. It says that ‘trading remains highly sensitive to the impact of further local and national Government-mandated restrictions.’
• Hollywood Bowl CEO Stephen Burns says ‘the strong demand for bookings is very encouraging and the feedback we have received on our new COVID-secure operations has been excellent. We continue to explore new ways of working to increase our capacity at peak times whilst maintaining a safe and compliant environment.’
• Pure Gym is reported set to launch a legal challenge to the lockdown announced for Liverpool from yesterday as there is ‘no scientific basis’ for the restrictions.
• Swedish gaming company Thunderful Group has bought Sunderland development studio Coatsink Software
• Culture Secretary Oliver Dowden has said that the government is considering privatising Channel Four
FINANCE & MARKETS:
• Sterling higher at $1.3022 and €1.1078. Oil up at $43.30. UK 10yr gilt yield down 1bp at 0.23%. World markets mostly lower yesterday. London set to open down around 30pts.
RETAIL WITH NICK BUBB:
• Today’s News: The City was disappointed with the cautious outlook statement from the high-flying ASOS yesterday (knocking the shares by c10%), so it will be interesting to see the reaction to the first half trading update today from the best performing stock in the Retail sector this year, namely AO.com, but CEO John Roberts is bullish about the Online market and the business in Germany. Overall H1 sales growth was 57% and AO.com say that “the UK sales momentum continued from Q1 throughout Q2 despite the reopening of competitor bricks and mortar stores. We believe we have seen a lasting step change in Online penetration”. And the Dunelm Q1 update (for the quarter to end Sept) is also strong, with total sales up 37% and gross margin up 100bps (with overall Online sales penetration up to c30%). Dunelm note that September was also very strong, having already announced that July and August
• News Flow This Week: The Walgreen Boots Q4 results (for y/e August) will be out this afternoon in the US and tomorrow morning we get the much-awaited John Lewis Partnership Strategy review (as well as the results from the pub company Wetherspoons and its “colourful” boss Tim Martin).
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 8 Oct 20 Restaurant Group General Meeting
• 8 Oct 20 Carnival business update
• 14 Oct 20 Stock Spirits trading update
• 14 Oct 20 Comptoir H1 numbers
• 15 Oct 20 Marston’s FY trading update
• 15 Oct 20 Fulham Shore FY numbers
• 16 Oct 20 JD Wetherspoon FY numbers
• 21 Oct 20 William Hill Q3 trading update
• 22 Oct 20 Gear 4 Music trading update
• 27 Oct 20 Whitbread H1 numbers
• 28 Oct 20 Texas Roadhouse Q3 numbers
• 29 Oct 20 YUM Q3 earnings update
• By 31 Oct 20 DP Poland H1 numbers
• 3 Nov 20 DART Group AGM
• 4 Nov 20 Shepherd Neame FY numbers
• 10 Nov 20 Premier Foods H1 numbers
• 17 Nov 20 Gear 4 Music H1 numbers
• 19 Nov 20 Dart Group H1 numbers
• 24 Nov 20 Compass Group FY numbers
• 26 Nov 20 Britvic FY numbers
• 2 Dec 20 Shepherd Neame AGM
• 2 Dec 20 Stock Spirits FY numbers
• 10 Dec 20 Marston’s FY results
Many results are likely to be delayed. For information purposes, the results below were delivered at these dates last year.
• Timing can be (nearly) everything. Companies have raised money, diluted shareholders and passed dividends. Only time will tell if they acted too soon, too late or if they needn’t have acted at all.
• Restaurant Group, SSP & some others went early and deep. Whitbread went big. JDW went for cash after buying shares back recently. Marston’s had the Carlsberg deal bubbling away. Private companies, GNK, EI Group & others are, well, private.
• Breaking even at the cash level has to be key in this environment. EBITDA has a lot of faults but it might be the right measure for now. If you don’t haemorrhage cash, at least you can stay in the game.
• Alix Partners Market Recovery Monitor tells us 80.4% of known licensed outlets are now open. But more pubs than bars & nightclubs. Lower than average number of restaurants & fewer reopened in London than the provinces.
• Sobering comment. Comptoir says ‘re-opening has inevitably been very challenging’ and the ‘focus has continued on protecting the cash position’. It says ‘the large majority of our restaurants are London based which are still very quiet in terms of footfall…’
• Just Eat Takeaway updates on Q3. Says ‘order growth…further accelerated, consequently widening the gap to competitors in our key markets.’ Says ‘we have continued to generate strong adjusted EBITDA, while investing aggressively…’
LANGTON CAPITAL: Made in Hull. Like all the best things. Langton Capital is a financial advisory company providing insightful views on the UK and global leisure industry and the wider consumer sector in general. Subscription to the daily email is free. Unsubscribing is painless. We provide daily off the shelf and bespoke research. We have helped with transactions, fund-raisings, disposals and other corporate issues. We have a good ear, we are impartial, independent and not half bad at what we do. If you think that we could help you or your business, drop us a line.