Langton Capital – 2020-12-10 – Marston’s, On the Beach, TUI FY results, DoorDash & other:
Marston’s, On the Beach, TUI FY results, DoorDash & other:
A DAY IN THE LIFE:
So, Langton is down in EC2 again next week, its main task being to count the discarded party hats, streamers and bundles of tinsel lying around in The City.
We don’t expect that to take long so, after we’ve watered the (surely dead by now) office plants and waded through the post, we’ll be sourcing ‘business meetings’ and testing the limits of just what amounts to a ‘substantial meal’ to fill much of the rest of our time.
The above and taking meaningful walks by the Thames etc.
Anyway, as the year draws to a close, there’s just time to recommend a good book, Always Adam, by an up-and-coming young author whose name escapes me.
It’s HERE in hard copy & on Amazon in Kindle.
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Here we consider the hot topics & hope to analyse as well as report.
MARSTON’S FULL YEAR NUMBERS:
Marston’s has reported full year numbers for its 53wk period to 3 Oct 2020. Our comments thereon are set out below:
• Whilst the numbers, due to the Covid-19 pandemic, are not entirely meaningful, Marston’s has reported revenues for the year down £352m at £821m
• The group reports operating profit down by £100m at £74m with a loss before tax of £22m (post IFRS16) compared with a pre-IFRS16 profit before tax of £95m last year.
• The loss per share is 1.7p against a profit per share of 12.7p last year and, as previously announced, there is no dividend
• The group reports that Q4 sales ran at 90% of last year’s levels, a 7% outperformance re the market as a whole
• The company says it turned in a ‘strong off-trade performance’ in its beer company with volumes up 23%
Cash flow and debt:
• Marston’s reports that, despite operating profit falling, cash flow for the year was up £61m for the year due to working capital moves and to increased level of disposals
• Post the creation of the brewing JV with Carlsberg, Marston’s reports that over 90% of debt is long term in nature and there are no funding requirements for the next three years
• The group aims to reduce net borrowings (excluding IFRS16 lease liabilities) to below £1bn by 2024.
• The group has significant liquidity post completion of its brewing JV with facilities out to 2024. It has undrawn facilities of £110m.
• Marston’s has waivers for liquidity covenants to July next year and has EBITDA cover waivers for December 2020 and waivers in its securitisation for the January and April 2021 quarters
• The group says it has received ‘strong support from bondholders for covenant waivers and amendments to April 2021 and the adoption of liquidity and profit covenants with banks and private placement providers to July 2021.’
• The company adds ‘this collaborative approach was helped by open and constructive dialogue in a period of great uncertainty and underlines the importance of good, long-term relationships with all our stakeholders.’
• Marston’s says ‘we have secure medium-term financing in place. At the period end we had a £360 million bank facility available until 2024, of which £270 million was drawn providing headroom of £90 million, significantly better than our prudent forecasts.’
Other balance sheet issues:
• Rises in the discount rate applied have led to a goodwill (non-cash) write-off.
• Covid concerns have triggered a £260m property write-down, equivalent to a non-cash, 12% reduction in property values. Asset values may be written back up should trading warrant it
• Tangible NAV at the year-end therefore falls to c40p though the creation of the beer JV, after the year end, crystalised goodwill and boosted assets to c90p
• The future is, of course, uncertain. Auditors are insisting on Material Uncertainty and Going Concern comments – but these are common across the sector (and across others)
• Marston’s cash burn on full-closure is £3m to £4m per week (up from Lockdown 1.0 due to a slightly less generous furlough scheme and the loss of off-sales in its brewing division (now in the JV)).
• Marston’s is opening pubs in Tier Two and, due to the freehold nature of its pubs, it can break even at significantly lower levels of turnover than most leasehold estates
Outlook & company comment:
• Marston’s says that the ‘near-term [is] dependent on the development of restrictions across England, Wales and Scotland.’
• It says it has ‘significant cash liquidity to absorb impact of current restrictions’ and adds that ‘government support through reduced VAT, the business rates holiday and other taxes remains necessary’
• The group says it has a ‘clear strategy’ and a ‘strong team well placed to take advantage of return to normality.’
• CEO Ralph Findlay says, ‘2020 has been an extraordinarily difficult year for the pub and wider hospitality sector which has been particularly hard hit by the pandemic.’
• He says ‘whilst short-term uncertainty remains, we have taken swift action to future-proof the business to withstand the challenges presented by the pandemic and Marston’s has emerged a significantly stronger business, with a substantially strengthened balance sheet and well placed to rebuild trading momentum when restrictions are eased.’
• Mr Findlay adds ‘the roll out of the vaccine is clearly critical to that, but in the meantime the sector continues to face major challenges and Government support will need to continue in order for many viable businesses to survive.’
• The company says ‘looking forward, Marston’s has entered the current year fit for the future and excited about the next chapter in the Company’s development as a focussed pub and accommodation operator. We look forward to realising the potential of the Group’s brewing JV with Carlsberg and wish the team at CMBC every success.’
• It concludes ‘there is clear evidence that consumer demand for our pubs remains strong and our geography, as a predominantly community pub operator with 90% of our well invested, high quality pubs located outside city centres, leaves Marston’s well placed to leverage the market opportunities available to us over the medium to longer term.’
• Marston’s has reassured that, post the Carlsberg JV & discussions with bondholders, it remains well-financed with liquidity headroom and substantial flexibility.
• Across the whole of the hospitality industry, of course, trading is uncertain. But Marston’s has shown that, even under the restrictions seen during its financial Q4, it can operate at 90% of last year’s levels and outperform the market as a whole.
• Units have been closed for prolonged periods, they have been boosted by EOTHO and then they have been closed again.
• They are partially open and, with infections falling, it is hoped that some restrictions can be eased, perhaps as early as next week.
• Into the New Year, the emergence of several effective vaccines gives real grounds for optimism that next year will be better than this one has been.
• As mentioned above, 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 it has a well-financed, largely-freehold estate.
• Though much uncertainty remains, it is clear that supply across the hospitality industry will be reduced going forward and Marston’s is well-positioned to prosper over the medium term.
PUBS & RESTAURANTS:
Kicking the can on rent arrears & evictions:
• The UK government has announced that it will extend a ban on commercial landlords evicting tenants until March 31 next year. This provides more ‘breathing space’ to allow companies hit hard by Covid-19 to recover.
• On the other hand, it may be kicking the can further down the road. Operators, who are once again personally liable for debts run up if they trade whilst knowingly insolvent, are being offered the chance to run up more debt to their landlords.
• UKH says ‘an extension to the lease forfeiture and debt enforcement moratoria will help avoid an immediate bloodbath of business failures across hospitality, but it must be accompanied by support to resolve COVID-related rent debt.’
• It says it ‘has welcomed today’s announcement but warned that financial support will still be necessary, and landlords brought to the table, in order to find a solution and prevent widespread business failures. The alternative is a calamity of evictions on April 1st.’
• CEO Kate Nicholls says ‘this is a very welcome respite and it will be crucial in ensuring that more businesses do not fall off an immediate cliff edge. Hospitality businesses that have been hammered all year long were staring down the barrel of mass failures and job losses without this.’
• She adds ‘the Government must facilitate a resolution to the problem of rent debt which has built up over a devastating year. The forthcoming enhancements to the Code of Practice must bring landlords to the table to find a solution. They cannot be allowed to simply wait until April in order to evict and wind-up businesses.’
Hospitality a convenient target?
• The Sun quotes scientist Sir Patrick Vallance as admitting there is “no hard evidence” that a 10pm curfew on pubs and restaurants actually stops the spread of coronavirus. It must be said that the decision to shut hospitality venues was in the hands of the politicians, not their scientists.
• Warming to its theme, The Sun says that a ‘bombshell Dutch study’ has revealed that shutting pubs had virtually no impact on the spread or otherwise of Covid-19. It says ‘scientists concluded keeping people out of boozers has just shifted the transmission of the virus into domestic settings.’ The Dutch study says ‘infections cannot be linked to a sector such as the catering industry, but to the occurrence of unsafe contact moments.’ It concludes ‘the influence of the catering industry on the R-value is very small, and the decrease and increase since October 14 must be explained differently.’
Other Covid news:
• The Guardian quotes ‘pubs and restaurants in England’ as saying they are ‘powerless to prevent people from different households breaking Covid-19 rules in tier two areas by mixing at birthday parties or Christmas dinners, amid high-profile rule breaches by celebrities.’ Rita Ora and Sky newsreader Kay Burley have both recently been caught out.
• Hospitality venues have no way of knowing if guests are telling the truth when asked if they come from the same household (or an attached bubble). UKH has said venues are not obliged to go further than making customers aware of the rules and asking if they are following them. CEO Kate Nicholls says ‘the guidance is quite clear, the primary legal responsibility rests with the customer.’
• SIBA responds to news that Scottish pubs are to receive some support, along with £1.8m ring-fenced for breweries, saying ‘small brewers in Scotland will today be raising a glass to news of a £1.8m package of targeted support specifically for breweries. SIBA have been working directly with the Scottish Government to develop specific funding for small brewers in Scotland.’
• It adds ‘across the UK Small independent brewers have not received the same level of support as the broader hospitality sector during covid, despite losing around 80% of sales due to the closure of pubs. It is important that the Scottish Government now get this funding out to those who need it as quickly and simply as possible. Small breweries are running on empty and face lacklustre Christmas sales ahead – come January many will face closure without this promised support.’
• The SBPA has said that the decision to keep Edinburgh in level 3 will cost pubs £3.2 million. It says it expects 80% of Edinburgh pubs to stay closed. It says around 185 more would have been able to open in level 2.
• CEO Emma McClarkin says ‘the decision yesterday to keep Edinburgh in Level 3 was absolutely heart-breaking for the 185 pubs and bars that would otherwise have been able to open and start rebuilding their trade.’ She says even level 2 ‘presents significant viability challenges, particularly on the time restrictions, but at least businesses would be able to start the recovery process and bring some much-needed relief over the Christmas period.’
• Marston’s reports that it has hit another Environmental Milestone in that it has now ‘delivered the UK’s largest private network of rapid electric vehicle (EV) chargers across hospitality sites in partnership with Osprey, and it is one of the largest networks of any private business in Europe.’ Andy Kershaw, Head of Property at Marston’s, says ‘we look forward to developing our infrastructure further over the next twelve months.’
• DoorDash Inc has IPOd in New York with its shares closing up more than 85% at $189.51 a share. The company had previously said it planned to raise $3.4 billion in an offering of 33 million shares at $102 each.
• Tesco is reported to be stockpiling ahead of any potential Brexit-related delivery problems.
• Whitby Distillery is launching a community fund to finance the construction of its new premises. It hopes to raise £500k.
• Best Bar None has announced that it is partnering with Shield Safety Group to ‘enable [safety] assessments to be completed digitally.’
• The UK is to drop tariffs on US goods (which were applied during the UK’s membership of the EU) in the hope of attracting a trade deal. The US currently levies tariffs on Scotch whisky.
• Just Eat says it could create over 1,000 jobs as a result of the launch of a new agency worker model for couriers.
• Tesco chairman John Allen has told the BBC that he believes food prices could rise by around 5% in the event of a no-deal Brexit.
• The NRA is the US says that over 110,000 restaurants in the country, that’s about one in six, have been forced to close since the start of the coronavirus pandemic.
HOTELS & LEISURE TRAVEL:
• TUI has reported full year numbers saying that it made a loss of €3 billion in the year as a result of Covid-19 travel restrictions. It says revenue for the year to September 30 fell by 58% to under €8 billion. The number of holidaymakers carried fell by 62% from 21.1 million in 2019 to 8.1 million.
• TUI says it will operate 20% of usual capacity this winter, down on earlier suggestions that it would carry 40% of normal. It says ‘we continue to expect to operate an adjusted capacity of 80% for summer 2021, which will be flexed as we gain more visibility on future imposed travel restrictions.’
• The company has raised additional funding and says ‘as a result of these measures, we are confident Tui Group will emerge stronger, leaner, more digitalised and more agile, in what is likely to be a much more consolidated market.’ It says ‘Tui is ready for a speedy and successful resumption of travel activities as soon as the lockdowns are lifted and destinations reopen. The prospect of vaccinations from the beginning of the year will significantly increase demand for summer holidays in 2021. We are prepared for a new start after the crisis.’
• On the Beach Group plc reports full year numbers to end-September saying that revenues were £71.2m for the year, down by 52% and that PBT was £0.6m, down from £34.5m last year.
• OTB reports there was a one-off exceptional cost associated with helping customers to organise alternative travel arrangements post the liquidation of Thomas Cook. It says ‘the loss before tax of £46.3m is due to both a significant reduction in new bookings’ as well as cancellations.
• OTB says ‘booking volumes in October and November 2020 were significantly below normal levels as consumer appetite for booking holidays remained subdued.’ It adds ‘reduced consumer confidence over the summer and in recent months has resulted in the reduction and consolidation of airline flying schedules this winter.’
• CEO Simon Cooper says ‘there is no doubt that 2020 has significantly impacted the entire global travel industry and that the effects of the pandemic will have lasting impacts on the way the industry conducts business for many years to come.’ He adds ‘On the Beach continues to successfully build a leading position as more consumers discover the ease of use and vast choice of beach holidays across our platforms. The flexibility and asset light nature of our business model together with our recently strengthened balance sheet and the actions we have taken since the middle of March means we are well placed to capitalise on the inevitable structural changes in the market post COVID-19. As a result, the Board continues to look to the future with confidence.’
• Carnival-owned brand Cunard has further extended cruise cancellations until June next year. Cunard says ‘our extension to the pause in operations is the result of the ongoing restrictions on cruising in the UK and around the world and recognises the significant lead times to return to service, once those restrictions are lifted.’
• TTG quotes union the TSSA as saying that the collapse of ski operator Alpine Elements is as a result of UK government inaction.
• Manchester Airport Group lost £208 million in its first half-year as passenger numbers fell by 88.5% year-on-year in the 6mths to end-September. The company says it ‘has called consistently for a testing regime that would allow arrivals from higher risk destinations to quarantine for a shorter period of time.’
• Uber has sold its air taxi business, Elevate, to Joby Aviation.
• Founder of Facebook Mark Zuckerberg is reported to have threatened to pull investment out of the UK if the government did not soften its proposed actions re Silicon Valley companies.
FINANCE & MARKETS:
• The ONS reports that the UK economy grew by just 0.4% in October as the recovery continued to slow. GDP may fall in in November as a result of the second lockdown in England
• The IEA has suggested chancellor Rishi Sunak should ‘be more positive’ about the economic recovery in light of vaccines etc per The Telegraph.
• PM Boris Johnson says there is still “a good deal is there to be done” with the EU.
• The UK will drop tariffs on US goods in the hope that the latter will reciprocate.
• The Telegraph says foot is already rotting and factories are shutting as ‘stockpiling for Covid and possible no-deal Brexit plunges Felixstowe into turmoil.’
• Honda has suspended production at its UK car plant due to delays in the delivery of parts. It says it will restart work as soon as possible.
• Sterling down v dollar at $1.3355 but up v Euro at €1.1042. Oil higher at $49.01. UK 10yr gilt yield unchanged at 0.26%. World markets mostly down yesterday with London set to open up around 4pts.
RETAIL WITH NICK BUBB:
• Ocado: The Q4 update today for Ocado Retail covers the 13 weeks to 29 Nov and the c35% sales growth is not bad, although the main driver is an average basket of £133, with average weekly orders only 3% up. Ocado highlight, for some reason, “the continuation of a smoothed trading week compared to the peaks and troughs that reflected normal shopping habits pre-COVID”, whilst Melanie Smith of M&S notes that “despite exceptional demand during the period, we have high rates of on-time customer delivery and low rates of substitutions”. Investors will be pleased to hear that operational leverage is expected to push full-year EBITDA up to the heady levels of £70m.
• Frasers Group: In case you’re wondering, Ocado has a market cap of £17.4bn compared to the £2.3bn of Frasers, but there are no prizes for guessing which business will get most coverage in the press today…Having said that, there are no particularly catchy headlines in the interim statement today, with #MadMike keeping it simple in his CEO review. There is nothing about the putative bid for the bankrupt Debenhams and the most interesting thing is that Frasers have put out a separate press release boasting of their “Brand Relationships”.
• Grocery Market Share Watch: On Tuesday the Nielsen grocery sales figures (for the 4 weeks to Nov 28th) showed overall supermarket industry sales growth of only 10.1%, despite Online grocery sales growth of 109%. However, the rival Kantar grocery sales figures (for the 4 weeks to Nov 29th) were up by 13.9% on an overall “Till Roll” basis, albeit the growth was again flattered by the collapse in both the “on-the-go” food market and in the “food away from the home” market. On a pure “Grocery” basis (excluding Non-Food), overall Kantar sales were as much as 14.2% up, with Aldi/Lidl still lagging a bit with growth of “only” 11.2% combined (handicapped by their lack of Online presence). Morrisons was again the best of the “Big 4” on this basis, with gross sales 21.3% up, whilst Sainsbury was up 19.8%, Tesco was 16.6% up and Asda was 14.8% up gross. Outside the “Big 4”, M&S Food “at home”
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 4 Dec 20 Shepherd Neame AGM
• 8 Dec 20 Vianet H1 numbers
• 10 Dec 20 Marston’s FY results
• 10 Dec 20 TUI FY numbers
• 10 Dec 20 On the Beach FY results
• 14 Dec 20 Hollywood Bowl FY numbers
• Est 15 Dec 20 Fulham Shore H1 numbers
• 15 Dec 20 Shaftesbury FY numbers
• 17 Dec 20 Revolution FY numbers
• 17 Dec 20 JD Wetherspoon AGM
• 22 Dec 20 Revolution AGM
• 5 Jan 21 Morrison’s Xmas update
• 7 Jan 21 Constellation Brands Q3
• 12 Jan 21 Nichols FY trading update
• 12 Jan 21 Games Workshop H1 numbers
• 19 Jan 21 Premier Foods Q3 update
• 20 Jan 21 JD Wetherspoon H1 update
• 5 Feb 21 On the Beach AGM & trading update
• 11 Feb 21 Pepsi FY numbers
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