Langton Capital – 2020-11-17 – PREMIUM – An end to lockdowns? G4M, Airbnb, travel companies, Pret etc.:
An end to lockdowns? G4M, Airbnb, travel companies, Pret etc.:
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A DAY IN THE LIFE:
Worse things happen at sea?
Just thinking around the issue of Covid yesterday and had to conclude that hotels have had a grim time of it.
Occupancy rates fell to little more than 10% or so in London in April (from their more-usual 90% or so) before rising, if rising is the right word, to around 30% to 50% during the summer and perhaps 50% plus in some recent months.
They’ve dipped again, since, of course but, while the short-term risks for the hoteliers during Lockdown 2.0 may be on the downside, hoteliers should spare a thought for the cruise line industry as, in this case, worse things really have been happening at sea.
Indeed, the cruise industry has been flat lining with occupancy at zero percent since the early days of the pandemic.
Regulations from above restricted sailings and a lack of demand made putting to sea pointless in any case as would-be customers envisioned plague-ships and floating prisons and decided that they didn’t like the thought of either.
So, whilst it may be grim in our neck of the woods, there are worse places to be.
Anyway, it’s nearer to Friday than it was yesterday. On to the news:
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LOCKDOWN 2.0, LOCKDOWN 3.0 ETC. Ultimately, one lockdown will be the last. But will it be this one or the next? 17 Nov 20:
• The announcement that at least two vaccines against Covid-19 is excellent news.
• Churchill said after El Alamein in November 1942 that it wasn’t the end, or even the beginning of the end of the war, only the end of the beginning.
• But vaccine news is surely better than that?
• The end, though distant, may be in sight.
What it means:
• Provided we don’t botch it up, immunisation should be making a real difference by perhaps the end of Q1 next year.
• But, like the turning of the tide, it may not be visible at first and changes in the rules and regs that we have been living under may lag progress on the ground rather than lead it
• But the ‘new normal’ next year really could be recognisable as more normal than the current situation.
A third lockdown?
• However, there may be no discernible impact this year or during most of Q1 next year (other than on sentiment)
• That does raise the potential for another shutdown, perhaps over Easter (the two Bank Holidays are 2 and 5 April) next year
• Which wouldn’t be great because what works in terms of lockdown (schoolchildren and students could be part of the lockdown) doesn’t work well for hospitality and the holiday industry, which makes much of its money during school holidays – be they Easter, the Summer or Christmas
• A third lockdown would not be good news.
• But a third lockdown preceded by endless promises that it will never happen would be even worse.
• Perhaps the government, which with hindsight should have perhaps ordered the circuit breaker being recommended by Labour last month, should make plans for the future and let the industry into its thinking
• Ruining Easter would be a shame. March would be better and the February half term would be ‘better’ (or at least, less bad) still
• But February, which could have worked if we had shut down last month, may be too early
• Still, it would be better to be able to plan – re staff, stocking, marketing etc – than not
• Pity the men killed on 11 November 1918. There were 10,000 casualties on that single day, over a quarter of them fatalities. Some 860 Britons died, more than on an average day over the prior three years
• Many soldiers died of their wounds thereafter and, similarly, a number of companies may well collapse as the pandemic is ending.
• They may even fail after it is over due to problems (let’s call them debts and liabilities) accrued over the last few months
• Indeed, banks and creditors may have an incentive to call in the receivers when or if they think there is a market for assets rather than beforehand
• Hence vigilance, though not always possible, is required.
• Persistence & good fortune likewise.
• The rewards for being the last restaurant or pub company standing will be material. It is almost time to look more carefully at which companies will survive and prosper rather than just at the industry as a whole.
PUBS & RESTAURANTS:
Life after Covid:
• With a second vaccine on the horizon, people dare to hope. Dare to hope, full stop. Trading will not be easy, but at least there is some light at the end of the tunnel.
• Foodservice analyst Peter Backman has been considering what life after Covid – or more specifically, life whilst Covid is gently squeezed out – will look like.
• There can be more confidence that we are right to be confident. That’s a ‘not the end, not even the beginning of the end’ type comment but, it’s nonetheless true for that.
• Backman says ‘over the next few months, there will still be uncertainty. When will the vaccine arrive in quantity? How effective will it be? And for how long? As experience begins to answer these questions, let’s hope that the answers are benign so that, shortly we will be able to lower our guard and start eating out, enjoying our communal leisure time and travel.’
• For some considerable period of time, a large part of the population, hopefully that part least at physical risk when it comes to Covid, will still be unvaccinated and at some risk, however reduced.
• And (see premium email) some habits may have changed. If not forever, then at least for some time.
• Backman says ‘customers will need to be reminded that eating out is fun, enjoyable, value for money – and safe. Businesses will need to create their own confidence by shoring up their finances, ensuring their people are committed, looked after and safe.’
Lockdown 2.0: A shadow of its former self:
• Mean as ever, we decided to walk the York Walls at the weekend and, at free, the price was right. They were busy. We were jostled past on a number of occasions and, though the pubs & restaurants were not open, there were people on the streets.
• Peter Backman says ‘there are two major differences between this lockdown and the earlier one, that provide a certain resilience. Firstly, restaurants that are around now have the confidence that comes from having made it through the first lockdown. And the second difference is that there is (or appears to be) a time limit to the current lockdown – it has just two more weeks to run.’
• The Daily Mash, less seriously, says that the current lockdown, holed beneath the waterline by indecision, waffle, Dominic Cummings’ breaches and the appearance of a vaccine, is ‘not visible to the naked eye’.
• Foodservice analyst Peter Backman says that preliminary numbers from his next ‘Ones to Watch’ report ‘reveal that 12% of sites run by smaller, previously fast growing, Bubbling Under brands, have closed in the last six months.’
• Operators ‘have been racking up debt since the start of Lockdown 1.0 – there are almost four quarters of unpaid rent on most books; utility bills have to be paid; and any VAT backlog is to be repaid next spring.’
• Backman says ‘some larger operators raised loans or equity in the early stages of lockdown, and those funds will probably be enough to see them through to the other side of the pandemic. But for most operators, finances are a worry.’
• The government is not interventionist by nature. But needs must. Backman says many restaurants ‘are kept going through government-backed interventions, such as the furlough scheme. To the accusation that such businesses are zombie companies and should be exposed to the rigours of the economy, I would say that many (probably most) restaurant businesses are operated on a sustainable business model (that was certainly the case before Covid struck), and they will return to health in due course, but in the meantime they need the financial help that is on offer to stay afloat.’
• With at least two vaccines out there, the reward for the last restaurant / pub company standing looks pretty significant. See premium email.
• Pret is reported to have launched a delivery-only dinner range that will be available from 30 shops from this Thursday. The Dinners by Pret service will work with delivery partners Deliveroo, Just Eat and Uber Eats and the menu will include focaccia-based pizzas, rice bowls and mac and cheese. Pret says ‘we’ve worked hard to take some of the nation’s most beloved comfort foods and give them a Pret twist including our new focaccia pizzas.’
• German Doner Kebab has appointed F&B industry operator Michael Bruno to pubsh growth in North America. The company recently opened its first two outlets in the region in Ottawa and Vancouver. The company has five franchisees who have signed up for a development pipeline of 75 restaurants across North America.
• Naked Wines has announced the appointment of Shawn Tabak as Chief Financial Officer on 7 December 2020. Current CFO James Crawford has been appointed Managing Director of the Naked Wines’ UK business.
• The Telegraph reports that Dick Enthoven, the South African tycoon behind Nando’s, has stepped in to rescue Wahaca, the Mexican-themed restaurant chain.
• The paper says that investment by the billionaire totals £4 million.
• EI company Craft Union ‘has launched Tears for Tiers, in partnership with Only A Pavement Away – a campaign helping local communities throughout the ever-changing COVID-19 restrictions.’
• Rank Group retail director Jonathan Swaine, who was previously MD at Fuller’s Inns, is to work with London’s Bohem Brewery as an adviser. Bohem says ‘we’re delighted that Jonathon is working with us to support the brewery’s growth. This is a challenging time for the whole sector, but Jonathon’s willingness to come on board is testament to the fact that we have a very distinct proposition in the market.’
• Former Greene King and EI executives, Euan Venters and Kim Francis respectively, have invested in Hofmeister, the former Scottish lager brand that was revived as a German craft beer in 2017.
• The Supreme Court is currently considering the issue of insurance pay-outs for businesses that have been unable to trade due to the Covid-19 pandemic and the legislation that has accompanied it. A ruling is expected later this week. The City watchdog, the Financial Conduct Authority, has brought a test case. This has already been decided in the High Court, where it was found that most, but not all, of the policies should pay out.
• Senior health official Susan Hopkins has said the regional tiered system of measures in England may have to be “strengthened” over the winter. She said tier one had “very little effect” and the impact of tier two was inconsistent.
• Several cities and states including Chicago, Oregon, New Mexico and others have introduced lockdowns in the US.
• The EU is to impose 15% tariffs on a number of US spirits in a continuation of the row over state aid.
HOTELS & LEISURE TRAVEL:
• Accountant BDO has forecast that more travel companies will go bust as a number of them are now ‘running on fumes.’ BDO’s The Travel Diaries suggests that companies with low cash reserves will be particularly vulnerable.
• The weakness of business models that have become established has been exposed by the current pandemic – and by competition authorities’ demands that consumers be repaid in cash for holidays not taken.
• BDO says ‘as travel businesses have always used customer cash as a permanent element of the working capital cycle, without cash flowing in it becomes almost impossible to pay overheads.’
• BDO says ‘this has unquestionably been a terrible year for the outbound travel sector and the recent news of another national lockdown is yet a further blow.’ It says, however, that the domestic industry has done relatively well – although it too has been subject to shutdown as a part of the two lockdown measures and demands that consumers not travel.
• Business travel agency Horncastle Executive Travel has ceased trading.
• Airbnb is stressing the resilience of its home sharing model once recovery from Covid-19 begins. The company is hoping to raise $3 billion by going public. Airbnb says ‘we believe that the recovery in the second and third quarters of 2020 is attributable to the renewed ability and willingness for guests to travel, the resilience of our hosts, and relative strength of our business model.’
• Airbnb adds ‘against an otherwise highly negative travel backdrop, there are several areas of our business that have shown resilience, notably, domestic travel, short-distance travel, travel outside of our top 20 cities and long-term stays. While we believe that travel will change as a result of Covid-19, the adaptability of our business suggests that we are well-positioned to serve this dynamic market in several ways.’
• The Travel Trade Gazette has reminded readers that the Spanish requirement for travellers to the country (including the UK) to provide evidence of a negative Covid test taken within 72hrs of arrival, comes into force on 23 November. The UK is currently on Spain’s list of high risk countries.
• Gear4music has reported H1 numbers for the period ended 30 September 2020 saying it has seen a ‘material improvement in H1 profits’ and that ‘strong trading continues leading to further upgrade.’
• The company reports H1 revenues up 42% at £70.2m with EBITDA of £8.5m (up from £2.0m and a net profit of £4.9m against a loss in the same period last year of £0.1m. CEO Andrew Wass says ‘the material improvement in profitability we announce today reflects the excellent commercial and operational progress we have made during the last two years.’ He says ‘COVID restrictions across Europe continue to accelerate our rate of sales growth, which alongside our previously stated strategies of improving gross margins and increasing operational efficiency, has resulted in record profitability during the six-month period.’
• G4M says ‘we expect the significant growth in new customers achieved during the Period will benefit the Group in both the medium and longer term, as more people appreciate the benefits that playing and creating music can bring.’
• The G4M CEO concludes ‘I am pleased to report that trading into November continues to be very strong, and we are well positioned for what we expect to be a busy peak trading period ahead of us. We therefore expect that results for the financial year will now be ahead of the recently upgraded consensus market expectations. The Board remains focussed on prioritising profitable growth and continues to look forward with confidence over the medium term.’
• Sky reports that the Everyman cinema chain has brought in financial advisers as it assesses the impact of the coronavirus shutdown on its finances. Sky says the cinema chain has appointed FTI Consulting ‘to assist it in talks with landlords during the coming months.’
FINANCE & MARKETS:
• Representatives of the British Ports Association have told the House of Lords EU goods sub-committee that some British ports will find it “impossible” to carry out checks on fresh food and plant imports in the event of a no-deal Brexit.
• Global share prices shot up again yesterday on the news that a second vaccine was proving effective against Covid-19.
• Rightmove has said that house prices are now edging down ahead of the end of the Stamp Duty holiday next March.
• Shares across the world were better yesterday on news that Moderna’s vaccine is also effective in inoculating against Covid-19.
• Sterling a little weaker at $1.3214 and €1.1145. Oil higher at $44.13. UK 10yr gilt yield 0.35%. World markets better yesterday but London set to open down around 25pts.
RETAIL WITH NICK BUBB:
• Yesterday’s Press In terms of Retailing stories, the Times follows up the Sunday Telegraph story that JD Sports is looking at bidding for Debenhams, whilst the Guardian follows up the Mail on Sunday story about the huge bonus for THG boss, Matt Moulding. The Telegraph flags that Arcadia has denied that it is on the brink of going into administration and it also notes that Superdry boss Julian Dunkerton is calling on VAT to be cut in December to boost retailers.
• News Flow This Week: Tomorrow brings the Homeserve interims, the Dunelm AGM and the Asda Walmart Q3. On Wednesday we get the Halfords interims and the British Land interims. Thursday brings the Kingfisher Q3 and the Card Factory Q3, whilst first thing on Friday we get the GFK Consumer Confidence index for “November” and the ONS Retail Sales figures for October.