Langton Capital – 2020-12-11 – PREMIUM – Marston’s, current trading, London, prices, Deltic, Oakman, Disney etc.:
Marston’s, current trading, London, prices, Deltic, Oakman, Disney etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
What is it about some politicians?
Yes, a number go into the game because they want to change the world. You may not agree with them, but they have a vision, they mean what they say.
They sourced, produced, served, and drank the Kool Aid but others seem to have been attracted by the power to tell people what to do and, more recently, to tell them what not to do.
Indeed, the evolution we have witnessed has been a little worrying.
We remember the tentative suggestions of March. The ‘pleases’ and the ‘if you wouldn’t minds’ but they were replaced with orders, diktats enforced by commissars etc and the pleasure that some of them got from telling you what you mustn’t do was exceeded only by the knee-trembling gratification that they’ve wrung from ‘softening’ the rules.
Yes, you can see granny again.
But only on Tuesdays, and only if you stand on one leg, recite alternate words from the first verse of the national anthem and wear a mask. Back to front during daylight hours, the right way around at night and decorated with tinsel at the weekends.
Subtle is so yesterday, buy our book:
On to the news:
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MARSTON’S FULL YEAR NUMBERS – WEBINAR:
After reporting its FY numbers, Marston’s hosted a webinar for analysts and our comments thereon are set out below:
• The company outperformed the wider market by 7% since re-opening. Sales were down 26%, up 6%, down 12% and down 30% in July to October respectively
• The above is open pubs vs open pubs. The number of pubs shut rose sharply in October to 141 from 7 closed in September.
Cash flow and debt:
• Marston’s focus is on net borrowings rather than IFRS16, lease-liability inclusive figures. Group says 90% of debt is now long-term.
• The company has not utilised any of the £70m Covid facility negotiated earlier in the pandemic.
• Post the Carlsberg JV, the group has £170m of headroom and no repayments coming up until 2024. The group has secured covenant waivers where necessary
• Disposals should run at £5m to £10m p.a. This is normalised churn.
• As of today, debt is similar to that at the year-end.
Other balance sheet issues:
• NAV came down as goodwill was impaired. The property portfolio was also revalued downwards but the creation of the Carlsberg JV crystalised goodwill meaning tangible NAV is little changed at 87p per share.
• CMBC, the Carlsberg JV. Another £34m may be paid after 12mths. The ‘spot value’ of this is (based on a basket of share prices) c£20m. Synergies (target £24m) will hopefully be exceeded. Dividends received going forward should make up for cashflow foregone. The carrying value of the JV is c£280m (plus the Sept 21 dividend, when received).
• Marston’s reports it conserved cash. It looked after its people and communicated with all stakeholders. It provided significant help to tenants & looked after its suppliers.
• Capacity was reduced by ‘about 30%’ as a result of social distancing. Menus were simplified & some prices rose. The group used improved tech to speed ordering.
• The group suggests that the October rule changes (no bar service & 10pm closure) made less sense than those earlier in the year. There is ‘legislative fudge’ and a mire of regulations.
Strategy & the future:
• Marston’s is now a focused pub company. It has suburban locations rather than city centres and it is light in London. Over 90% of pubs have gardens or outside areas.
• The group has streamlined its management structure. It is focused on reducing complexity, simplifying menus.
Outlook & company comment:
• Marston’s says demand remains strong – when trading is permitted. Spend per head is up by perhaps 25%.
• Some changes will stick (at least for some time). Suburban units > city centres, use of table apps etc. Also, online training to reduce costs. Some 80% of sales are now via card.
• The group is currently skewed towards Tier Three (just over 50%). In Tier Two, around 90% of units are open. The near-term will be impacted accordingly.
• Capacity will be reduced, the ‘pricing environment will be better’ and costs have been cut.
• Q&A (some answers incorporated above):
o Brexit risk is reduced post the creation of CMBC. The labour market is softer (which reduces labour-supply risk).
o Food vs wet? Wet has been stronger in MARS’ financial Q4. The lower VAT rate helps food ‘sales’ (but not alcohol).
o Price rises? Some ‘between 10% and 30%’. Much of this is due to reduced discounting. List price increases were lower.
o Additional labour costs re hygiene etc.? No number given but customers like it and it will continue. It should be offset by increased spend.
o Will margin be permanently higher? Perhaps, yes.
o Dividend? Will readdress when the co has greater clarity re trading performance. The policy will (probably) be based on cash cover.
o CMBC dividends? Annual, in September. £20m is inked in for Sept 21.
• Marston’s has confirmed that trading remains uncertain but that it is well-placed.
• This more in the medium and longer term than in the immediate future, as a significant proportion of the group’s pubs are in Tier Three.
• MARS stresses its good relationship with all stakeholders.
• Importantly, MARS suggests that some cost cuts and price rises will stick. It believes supply will be reduced and margins should rise
• Simplification is an ongoing process. Again, this should help margins.
• As mentioned earlier, 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.
• 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.
• In the light of the webinar, it is clear that MARS believes supply will be reduced and some price rises (and cost cuts) will stick.
• This has a positive implication for margins – though some costs, e.g. hygiene, will rise.
• The dividend is, of necessity, uncertain at this time.
PUBS & RESTAURANTS:
• The latest Coffer Peach Business Tracker shows that Britain’s managed pub and restaurant groups ‘saw sales wiped out in November as lockdown hit in England and tough trading restrictions continued in Scotland and Wales.’
• The Tracker says total sales were 88.8% down on November last year, with bar operators down 90.2%. it says ‘group-owned restaurants faired marginally better, as some were able to rely on delivery business, but still saw total sales tumble 65.9% against the same month in 2019.’
• The Tracker reports that ‘total sales in food-led pubs were down 85.0%. Across the market as a whole total sales were 79.0% below November 2019.’ All licensed premises were closed from 5 November. In the last week of the November ‘just 6% of Britain’s managed pubs and restaurants were trading, with weekly sales down 88% across the market and trading in drink-led sites almost non-existent.’
• CGA says ‘November was a wipe out for the sector, and came on the back of difficult trading in both September and October as the roll-out of more regional Covid-19 restrictions depressed sales.’ It adds ‘although August with the Eat Out To Help Out initiative saw healthy sales in food-led businesses, since then trading has become progressively harder.’
• The Tracker reports ‘total sales for the sector were 21% below 2019 levels in September and 33.9% down in October before hitting the buffers last month.’ CGA says ‘with half the country still in effective lockdown in tier 3, and severe limits on trading in the other half in tier 2, it is hard to see the sector finding much to celebrate in the run up to Christmas, always the market’s most important sales period.’
• Davis Coffer Lyons agrees, saying ‘November was another complete write-off for most operators. Sadly, with effectively the whole country in tier 2 or 3 for the first half of December at least, prospects for a reasonable bounce-back in the most important month of the year are very weak indeed. The prospects for any loosening of trading restrictions in key markets such as London and other major cities look poor. Operators must resign themselves to very difficult conditions for the next few months, with the restrictions on household mixing and the need for substantial meals doing immeasurable harm to wet-led trade which is the heart and soul of so many communities.’
• RSM adds ‘with growing unrest within the Tory party, it’s clear the Government is becoming more divided when it comes to the stricter measures within tiers. The negative impact on one of the countries key sectors has become too much to bear for many and further material support is desperately needed.’
• RSM says ‘with the Bank of England reporting that excess savings of £100bn have been built up by UK households during Covid-19 lockdowns, the sector will be hoping that the start of the vaccine roll-out will release pent up demand in pubs and restaurants that are able to open over the festive period.’
• In a separate survey, the British Beer & Pub Association says that overall sales across all pubs in the UK the first weekend after the end of Lockdown 2.0 were 84% lower than last year as a result of the impact the new, tighter tier restrictions.
• The BBPA adds that only 4 in 10 pubs opened across the UK that weekend. CEO Emma McClarkin says ‘these numbers illustrate the perilous situation our pubs find themselves in this Christmas. The tier restrictions that have been unfairly placed on our pubs are killing them. This must change, or thousands of pubs simply won’t survive.’
• Ms McClarkin adds ‘Christmas should be a time where we can enjoy one another’s company in the pub round a warm fire and with a fresh pint in hand.’ She adds ‘either the Government reduces these extreme restrictions, so pubs have a fighting chance of survival, or they recognise the damage they are doing to our pubs and provide them with the proper level of grants they need. Our pubs have invested over £500 million in becoming COVID-secure and are safe. Pub goers visiting their local this Christmas are safe.’
Other Covid news:
• Rumours are swirling that London could be going into Tier 3 next week. The rate of infections was 191.8 cases per 100,000 people in the week to December 6, up from 158.1. This makes London one of only three areas in the country where rates are rising.
• Hugh Osmond, founder of newly-listed Various Eateries, has said that thousands of pubs, restaurants and cafes could collapse unless the bulk of their rent arrears are permanently “forgiven” by landlords. He points to the £1.6billion “rent backlog” that has built up across the sector. Speaking of operators’ liabilities, Osmond says ‘if they have to repay their rent, it is curtains for most operators, whether large or small.’
• Tesco, which is itself reported to be stockpiling non-perishable goods, says that shoppers could face shortages of some fresh foods and higher prices if the UK fails to achieve an advantageous Brexit deal.
• Lidl, meanwhile, has announced that it will cut prices ahead of Christmas.
• The Food & Drink Federation says that in the third quarter of 2020, food & drink exports fell by 11.6% to £5.5bn when compared to the same period in 2019. For the first three quarters of the year, it notes that exports to the majority of the top 20 markets decreased from January to September, with sales to Spain falling significantly by 33.8%.
• See news on Marston’s webinar above.
• Deltic Group, the UK’s largest nightclub operator, has filed a notice of its intention to appoint administrators, a legal move that provides it with some protection from creditors for 10 working days. The company employs around 1,500 people and runs 52 bars and nightclubs.
• Deltic has been attempting to attract more capital for some time. It is thought that any interested parties could require the company to go through an administration process before they bought out the bits that they want. Deltic was formed in 2011 when founder Peter Marks bought some assets of the collapsed Luminar nightclub business with the support of several private investors.
• The Guardian reports Michael Kill, the chief executive of the NTIA, as saying ‘Deltic is a key example of a business that has been stolen from Peter [Marks] by the restrictions. It is not down to him or the viability of the business, it is down to the restrictions and not being supported in a proportionate manner to allow him to survive.’
• NRN in the US has reiterated that some 10,000 restaurants have closed permanently in the US.
• Oakman Inns has announced that it intends to raise new funds. Steven Kenee says ‘we are aiming to raise £4.5m from the sale of shares at £2.75 each. There will be a minimum investment of 350 shares – or £962.50 per person. As well buying shares, new shareholders will also receive access to exclusive events, new menu tastings, meet the supplier events and an Investors’ Card which will give them a range of all year discounts based on the amount invested.’
• Founder Peter Borg-Neal adds ‘we enjoyed a stellar performance following LD1 and by the time we had to go back into LD2, sales were trading £2.5m ahead of budget. To help cope with the impact of this wave of restrictions, we have successfully developed our outdoor areas and created over 1,000 heated and covered outside spaces – an investment that we expect to benefit the business long after the restrictions on meeting indoors have been removed. We’ve tried to create an offer that allows everyone to be able to take a small stake in their local for less than the cost of a weekly Sunday brunch for two.’
• The Guinea Grill has announced that it is to launch the ‘Guinea Express’, a pop-up across the road from the Mayfair institution. Young’s, in conjunction with pub landlord Oisín Rogers, and his staff have taken over the former Pizza Express site opposite the pub in order to provide room for 60 additional socially-distanced guests this Christmas season.
HOTELS & LEISURE TRAVEL:
• The BBC reports that UK travellers may not be allowed to enter the EU from 1 January as pandemic restrictions block entry and exemptions to member countries will no longer apply. Foreign Secretary Dominic Raab says ‘restrictions on travel, inevitably, is going to be something that’s kept under review.’
• Travel Weekly reports that the travel industry is very much against such a move with a spokesman for Airlines UK saying ‘we expect EU member states that gain enormously from the tourism and air travel from the UK, and the billions of pounds it generates, to continue to apply their own rules, in order to provide certainty to consumers and families looking to travel to the EU from January onwards.’
• AITO says ‘this information, if correct, is hardly helpful in terms of resuscitation of the beleaguered travel industry.’
• The Canary Islands have been removed from the UK’s safe travel corridor list.
• Airbnb shares surged on their first day of trading to give the company a market valuation of more than $100bn. CEO Brian Chesky says ‘we’re going to be very prudent and very thoughtful about our investment, especially in a world of a huge amount of uncertainty, which is clearly where we still are right now.’
• The ONS has confirmed that travel agents and tour operators have been the worst hit services sector by the pandemic. ABTA CEO Mark Tanzer says ‘the start of 2021 will still be very challenging for the industry.’
• Cruise bosses have told the CLIA Virtual Cruise Showcase that hygiene moves make cruise ships safer than the home towns of most cruise passengers.
• Transport union TSSA has told Grant Shapps that Eurostar will need government support in order to head off “a financial calamity”.
• Occupancy across US hotels fell by 38% y-o-y in the week to 29 November with room rates down by 33%. REVPAR was 58% down.
• Consumers will likely download 130 billion apps in 2020 according to industry sources.
• Disney is to expand its Star Wars and Marvel franchises on its Disney+ subscription streaming service. It further announced that upcoming films Peter Pan & Wendy and Tom Hank’s Pinocchio would be launched directly onto streaming services and would miss out cinemas.
• The move will put further pressure on cinemas. Warner Brothers has said that it will release all of its 2021 films direct to streaming.
FINANCE & MARKETS:
• The CBI expects the UK economy to bounce next year and to reach 2019 levels of output by late the year after, 2022.
• The NIESR says GDP data for October Q4 shows that the quarter ‘got off to a ponderous start even before the second lockdown in England was imposed. Survey data suggest that although the economic impact of the second lockdown in November was smaller than the first, it does seem more likely than not that the final quarter of the year will show little or no overall growth in GDP with the recovery shuddering to a halt.’
• The NIESR adds ‘while the rollout of the vaccine offers some positive momentum, the final act of Brexit is likely to offset that in the early months of 2021.’
• Sterling lower at $1.3321 and €1.0953. Oil price lower at $50.42. UK 10yr gilt yield down 5bps at 0.21%. World markets mixed yesterday with London set to open down around 7pt.
RETAIL WITH NICK BUBB:
Today’s News: There has been a slightly odd trading update from the embattled fashion chain French Connection, highlighting that post-lockdown Retail trading has been encouraging and that Spring 2021 Wholesale orders are ahead of expectations, whilst its US arm has raised $5.5m in funding from Flushing Bank (?). And the posh London estate agent Foxtons has flagged that as trading has been better than expected it is returning some of the emergency cash raised from shareholders in April via a share buyback programme (!). And Heathrow Airport has found something else to moan about, apart from the 88% collapse in passenger traffic in November, via a press release headlined “UK tourist tax hands yet another competitive advantage to EU rivals”.
BDO High Street Sales Tracker: The BDO High Street Sales Tracker today for medium-sized Non-Food chains flags that things picked up in w/e Sunday Dec 6th, as the lockdown came to an end in England: BDO Fashion LFL sales were up, for the first time in 8 weeks, by c6% (with Store Fashion sales down by only c43%) and Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were up by c11% (down only c37% in Store sales, but up c78% in Online sales). However, the BDO survey is an unweighted average of percentage changes in sales, so it’s not to be taken too seriously (eg its vibes about November trading were exaggerated, relative to the BRC-KPMG survey outcome for the sales of big retailers last month).
News Flow Next Week: After another very busy week for Retail news, next week should be quieter, but there are a few things scheduled: the Dixons Carphone interims are on Wednesday, closely followed by the Watches of Switzerland interims on Thursday. Friday morning then brings the widely followed GFK Consumer Confidence survey for December and the ONS Retail Sales figures for November, whilst JD Sports and Frasers Group investors will be keen to hear what mighty Nike say in the US in the evening, with their Q2 results.