Langton Capital – 2020-11-25 – PREMIUM – Fears for Tiers, normality, Fulham Shore, travel, spending review etc.:
Fears for Tiers, normality, Fulham Shore, travel, spending review etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Covid has arguably created a few jobs.
Maybe a fraction, 5% or less of the number that it has destroyed but it has provided employment in the early days at least for all those people needed to tell you to stand in line, keep your distance, get your hands out of your pockets, stop chewing and to only enter shops in ones rather than in family groups.
And the coppers got to exercise their drones when they were spying on dog-walkers etc but, more recently, there has been a spike in the jobs market for those people able to match canned cheers, boos and oohs to the comings and goings on the football fields across the country because there aren’t enough people in the grounds themselves to lift the skin off a rice pudding if they all blew at once.
And a very good job these people are doing too because, although they may have had plenty of experience on FIFA 94 through to FIFA 21, they must have fast thumbs to hit the right noises because it simply wouldn’t do to cheer an injury or even to laugh uproariously at an own goal (unless a referee is knocked over in the process).
Anyway, the graphics on FIFA 94 might make you smile. Friday is heaving into view so let’s move on to the news:
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THE PATH TO NORMALITY. It may take a while, and just how long will be critical to the survival of some firms, but the path to ‘normality’ looks relatively assured. 25 Nov 20:
• The key thing today is to make sure that there is a tomorrow.
• Ask a squirrel playing with its nuts or a field mouse evading an owl and, with three vaccines now into the 90s in terms of efficacy, there is some ‘redundancy’ built into the system if one or other of them stumbles at the last.
• So what?
What it means.
• We dare to say, with a degree of surety, that 2023 will resemble 2019 (in that it will be fairly ’normal’)
• And, just maybe, 2022 will be ‘normal’ as well.
• That would be a good result because, starting in just over 5 weeks’ time, 2021 is going to be off to such a bad start that it might not be redeemable.
• But it could, should and hopefully will be corporately survivable for many if not most companies.
• These, through a mixture of their own efforts, the loyalty of their customers, the contribution of their staff and the help of government, may be starting to consider the future as something a little more tangible than they had previously dared hope
• Some firms will fail at the last. Landlords and banks may step in and demand payments that prove terminal.
• Some may have been dead for months but just didn’t know it.
• But many will survive and, at some point, they and their shareholders will have to assess the cost of the lost year, lost 18mths or whatever.
• Corporate debt will be higher, sales lower etc.
• The critical question will be whether we should value the negative hit as:
o a) the net present value of an area under the line (i.e. we have lost a year) or,
o b) whether the growth gradient (maybe because of debt or exhaustion) is going to be shallower and therefore multiples have to be reduced and risk premiums, necessary Internal Rates of Return etc increased
OTHER PREMIUM CONTENT: See also extended comments on the row about the post-2 December trading environment for pubs and the ‘problem with cruising’ (which are included in the premium email only) in blue below.
PUBS & RESTAURANTS:
The trade has slept on it. And it still hates the post-2 December proposals:
• Fears for Tiers.
• We hear which areas are in which tiers tomorrow. There have been more deaths, hospitalisations and infections since the Tiers were last in effect three weeks ago. With that in mind, we could reasonably expect regions to have graduated up the scale rather than down.
• Some observers are pointing to the direction of travel, which, despite the R rate never having fallen below one in recent weeks, is perhaps less bad than it was perhaps on 5 November.
• The British Beer & Pub Association says: ‘the new tier system introduced by Prime Minister Boris Johnson will cost wet-let pubs £47,000 EACH for the month of December alone.’
• This will surely depend upon which tier they are in. And the £47,000 is presumably lost turnover rather than margin.
• The BBPA says ‘if all wet-led pubs in the UK were to be subject to the restrictions in tiers two and three this would cost the sector £1.5 billion, or £47,000 for EACH wet-led pub in the UK. £680 million of this would be from lost beer sales alone, the equivalent of 180 million pints, meaning the restrictions will also hugely damage Britain’s world class brewers.’ Continued in premium email.
• Pick a big number & emphasise it repeatedly.
• If the BBPA has learned anything from the big red Brexit bus with its NHS cash promises, it is – pick a big number and stick with it. The loss (in revenue rather than margin) will be significant, but it will differ according to whether pubs are in Tier 2 (drink only with food) or in Tier 3 (pubs shut and selling drink only as a takeaway offer).
• A bit of certainty would help.
• Pubs & restaurants will only find out what tier they are in – and therefore which restrictions they will trade under – tomorrow. Try to order real ale, lettuce and other perishables with so little time to spare. And try, as an independent, making your voice heard with suppliers when much larger competitors are also trying to source product.
• The BBPA quite rightly says that the brewers too will be facing major problems. Brewing is a chemical process and, even if brews were started now, they would not be ready under normal circumstances for a fortnight or so.
• More help needed.
• The BBPA is calling for emergency grants to be available ‘to pubs in line with those in the first lockdown, as 90% of pubs placed under the new tier two and tier three restrictions will operate at a loss – leading them to financial ruin without support.’ It points out that ‘the current support grants range from just £1,300 to £3,000 per month not anywhere near compensating for lost revenue and ongoing fixed costs.’
• December would be a bad month to ‘lose’.
• December is the busiest month of the year. But it is sandwiched between the worst three in the year, November, January and February and, if operators are not permitted to lay down some fat, they may struggle to make it through January and February.
• BBPA CEO Emma McClarkin has written to chancellor Rishi Sunak saying ‘I cannot overstate how serious the situation facing our brewers and pubs is at this stage. It would be utterly heart-breaking if, having survived through the last nine months, pubs now face ruin with the end of the pandemic in sight.’
• Specific demands with cash figures attached.
• She says: ‘yesterday’s Winter Plan has only made the situation more urgent and heading into what would have been our most valuable trading period, thousands of pubs are now reaching the end of the road.’ She asks that pubs with a rateable value of less than £15k should be eligible for a grant of £3,000 per month, those with a rateable value of between £15-£51k should be eligible for a grant of £6,000 per month and pubs with a rateable value of between £51k-£100K should be eligible for a grant of £9,000 per month.
• The BBPA says that the Government’s proposed plans to reduce restrictions over the Christmas period, labelling them a “mockery” of pubs. CEO Emma McClarkin says ‘these plans for Christmas make a mockery of the extra restrictions being placed on pubs and the economic devastation they are facing this Christmas.’
• McClarkin continues ‘how can it be that pubs cannot properly open while households can mix in private settings? The Government data has consistently shown that house-to-house transmission is one of the highest, whereas hospitality has accounted for as little as 2% of COVID incidences when open.’ She says ‘pubs are a controlled, safe and regulated environment to socialise in – following all Government guidelines and working with NHS track and trace. They are part of the solution for a safe and enjoyable Christmas, not the problem.’
• The BBPA calls for compensation and concludes ‘we all need some festive cheer after this tough year – and want we everyone to be able to enjoy a beer in their local pub with family and friends this Christmas, safely. After all, Christmas just won’t be the same if we can’t go to the local.’
• People are being urged to ‘think carefully’ before mingling with family members this Christmas.
• JD Wetherspoon has produced a 23 page online edition of Wetherspoon News, its pub magazine, with articles from leading academics, doctors and other commentators, highlighting serious flaws in the government’s reaction to coronavirus. Its cover highlights that advisors and ministers share a common Oxford University background. Chairman Tim Martin comments ‘when pubs reopened after the first lockdown in July, a sensible set of regulations was agreed between UK Hospitality, the civil service, local authorities and other interested parties.’
• He says ‘these regulations worked well, trade slowly recovered from very low levels and transmissions of the virus in pubs, as verified by the test and trace system, were extremely low. However, since then, the rules have constantly changed, without consultation, on an arbitrary basis, causing mayhem, unemployment and economic dislocation across the hospitality industry.’
• Mr Martin says ‘no one in the government seems to have any experience of running a business – and their current policies seem destined to cause the loss of a million jobs in hospitality, with further “ripple effect” job losses throughout the economy.’ The Wetherspoon News articles focus on the government’s alleged fear tactics, the ‘grand scale’ of corruption and the apparent ‘pressure for “political and financial gain”.
• UK Hospitality says the measures were at “at best a restrictive straitjacket and at worst a lockdown in all but name for hospitality”.
• Wireless Social reports that, last weekend (21 Nov), ‘the majority of England and parts of Scotland were still in lockdown ‘and as such there wasn’t a huge change in the pedestrian footfall in city centres compared to the previous two weekends.’ It says footfall on Saturday (21st) was at minus 69% of the footfall seen in February pre-COVID, and on Sunday footfall increased slightly to minus 66% of February’s footfall.’
• Footfall in Wales, out of lockdown for over a week, was only down by 18% on ‘normal’ on Saturday and minus 11% on Sunday.
• Wireless Social says ‘this is surely a promising microcosm of what may happen when lockdown restrictions are lifted in the rest of the UK, a sign that people are eager to get out, shop, eat and drink when it is safe and they’re allowed to do so.’
• Fulham Shore has updated on trading ahead of its Annual General Meeting today saying that ‘in the first eight months of the current financial year between April and November 2020, weekly Group revenues have increased and fallen, mirroring the trading restrictions on restaurants that have been set out by the UK Government.’
• It says ‘whilst comparisons with the previous year may be of interest, they are not particularly relevant given the unprecedented trading conditions caused by the onset of COVID-19. Sales in August 2020 were ahead of last year, driven primarily by the Government’s Eat Out To Help Out scheme, but during the months when full lockdown or other restrictions on dine-in hospitality have been in place, sales have been behind the comparable period last year.’
• FUL says ‘the Group incurred a loss for the first quarter of the current financial year to March 2021, when our restaurants were almost entirely closed, but during the second quarter, as the Company was allowed to reopen its restaurants to dine-in customers, we expect to generate Headline EBITDA to cover much of the lost contribution from the first quarter. It is not possible to predict the outlook for the rest of the year given the ongoing uncertainty over the nature and length of further restrictions that the Government may impose.’
• FUL says ‘we will continue to respond and adapt to changes to the restrictions as they are implemented by the Government.’ It has opened one new restaurant this financial year to date and is constructing two more. These openings will take Fulham Shore’s restaurant portfolio to 72 restaurants in the UK, as well as our summer Franco Manca franchise in Italy. The group says ‘we see more properties coming to the market at ever lower rents as a result of the current conditions in the property, retail and dining out sectors. We expect this trend to continue and will continue to take advantage of this as and when appropriate.’
• Sky News reports that ‘one of Britain’s most prominent businesswomen is being lined up to chair Deliveroo, the food delivery service, as it applies the finishing touches to a blockbuster London flotation.’ It says Claudia Arney will join the board of Deliveroo in the run-up to what is likely to be among the City’s most prominent initial public offerings of 2021. City sources said that Ms Arney’s appointment could be announced as early as Wednesday.’
• Patisserie Valerie is to sell cakes in Sainsbury’s stores next month
• Sky highlights that supermarkets rather than pubs, are the most common places visited in the days before a positive coronavirus test.
• Portobello Brewery has announced that it has commenced managing an additional 13 freehold pubs located across the London villages and suburbs. The sites include the flagship Westow House in Crystal Palace, which has recently added 23 en-suite bedrooms, along with other locations including Forest Gate, Peckham, New Cross, Sutton and Brixton. In total, Portobello now manages 15 sites located across London.
• Yumpingo has announced that former HotSchedules cofounder and chief customer officer is to lead the global platforms growth and U.S. operations
HOTELS & LEISURE TRAVEL:
• Grant Shapps says ‘the travel industry will benefit massively’ from upcoming changes. But did anyone tell the travel industry? Or its customers?
• The government has committed to work with industry on a tourism recovery plan followed by a similar initiative for aviation says Travel Weekly
• Costs are starting to add up. The Canaries now require PCR tests at £100 per pop & travellers will have to pay for tests again in UK if they want to shorten quarantine. This could add £1,000 to the cost of the travel plans for a family of five. Back on Planet Earth, this sort of thing is getting expensive.
• The World Travel and Tourism Council is urging governments to work together to establish a reciprocal test on departure regime. This would end quarantines and testing on both departure and return to home airports.
• The WTTC maintains that testing on departure would be the only way to get all travellers moving again until vaccines kick in in a meaningful way. The WTTC says ‘cutting the hugely disruptive 14-day quarantine to just five days with a test, albeit a rather expensive one, will be welcomed throughout the travel and tourism sector as real progress.’ It adds ‘however, while it may provide the shot in the arm needed to bring about the return of some international leisure travel, it is simply not enough to bring back the economically boosting business travel.’
• CNN reports ‘the US Centers for Disease Control and Prevention has upped its warning on cruise ships, now advising that “all people avoid travel on cruise ships.” It says cruises are ‘Level 4: Very High Level of COVID-19″ and clarifies that this includes river cruises and applies worldwide.’
• The CDC says: “passengers who decide to go on a cruise should get tested 3-5 days after your trip.” Continued in Premium Email.
• The CDC here is stating what maybe should have been obvious for some time. That is that a multitude of people are confined into a limited space for a material length of time when they decide to take a cruise.
• It is echoing what VP Mike Pence said near the beginning of the pandemic. Stopping short at the time of banning specific actions, Pence opined that older customers might wish to think twice before they took a cruise.
• The industry was up in arms at the VP’s comments but, almost inevitably, it has been extending the ‘pause’ in its operations by almost a month each month ever since. Indeed, the executives have maybe assumed that the world could not do without cruising simply because that is how they themselves felt about the industry.
• The same may be said about spectator sports, nightclubs, events centres, cinemas and some other venues. Their absence has been genuinely missed by many would-be customers but it has not threatened life as we know it.
• Video games industry service provider Keywords Studios has said that demand for games is up sharply and that its own performance is “significantly ahead” of the market as a whole.
• The Premier League could ban singing and the drinking of alcohol in stadia when fans are allowed to return in modest numbers next month. Scientists maintain that shouting and singing projects air (and whatever is in it) further from the lungs than does merely talking politely.
FINANCE & MARKETS:
• Speculation on whether vaccines will make their presence felt rapidly enough to prevent a third lockdown and a potential triple-dip (that is if the economy pulls itself out of its current, second dip).
• Governor of the Bank of England Andrew Bailey says that the economic cost of a no-deal Brexit would be bigger in the long term than the damage caused by Covid-19. He says failure to agree to a deal would cause disruption to cross-border trade and damage the goodwill between London and Brussels.
• Bailey may be relatively sure that there is a deal coming later this week. However, there are good deals and bad deals. You can buy a ten-grand car for twenty-grand any day of the week simply by agreeing from desperation to everything that the opposition demands.
• The SMMT says that the UK motor industry could lose £55bn of car production over the next five years if no Brexit deal is agreed.
• Haulier has claimed there will be “mayhem” at the Holyhead departure port for Ireland when the Brexit transition period ends.
• Rishi Sunak will reveal his Spending Review later today. He says his “number one priority is to protect jobs and livelihoods”.
• Sterling unchanged at $1.3342 but lower vs Euro at €1.1215. Oil up at $48.25. UK 10yr gilt yield unchanged at 0.33%. World markets better yesterday and London set to open up around 25pts. Shares in the US hit all-time highs.
RETAIL WITH NICK BUBB:
Today’s News: The ScS AGM is being held at 2pm today at HQ in sunny Sunderland and ahead of that the sofa and carpet retailer has announced a trading update and a new CEO: in terms of trading there isn’t much to say as the stores are all closed, with the last 3 weeks pulling the cumulative order growth run-rate back down from a heady c32% for the 14 weeks to Oct 31st to just 15%, but the company hopes for a similar bounce post-lockdown into the key January Sale. And the new ScS CEO will be one Steve Carson, who most recently was the Group Managing Director of Holland and Barrett, but before that held a number of roles at Home Retail Group. In addition, the embattled Motor dealer Lookers has announced its much delayed final results for 2019, following the fraud investigation and said that the group will publish its interim results for 2020 as soon as possible in December and expects to at
News Flow This Week: The Chancellor’s Spending Review is being announced at 12.30. The Motorpoint interims are tomorrow, along with the ASOS AGM and the Mothercare EGM. The Hotel Chocolat AGM is on Friday, but Friday is, more importantly, the core of the huge annual Online discount jamboree called BLACK FRIDAY…