Langton Capital – 2020-12-14 – PREMIUM – Rent arrears, Tier review, prices, Brains, BOWL, ESC & other:
Rent arrears, Tier review, prices, Brains, BOWL, ESC & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Langton was considering averages the other day.
And it concluded that sometimes they work well (meaning they describe relatively accurately the subject population with just a single number (or value or description etc)) but at other times they most certainly do not.
They work with, say, height. The average adult male may be 5’9” and the spread is tight. Meaning that, if you were asked to guess the height of a random man behind a screen, you wouldn’t be too badly embarrassed if you gave the answer ‘five foot nine’.
No doubt statisticians could tell us how many standard deviations covered 99% or 99.99% of the population etc but averages aren’t as useful with binary decisions such as alive or dead or male or female.
And, as the latter is a hot topic at present, let’s consider the former. Here we could say that there have been 55 prime ministers in the UK of whom all bar six are dead.
Pining for the fjords so, we can conclude, the median PM is dead, the mode PM is dead but the mean is an issue and here it wouldn’t be any more accurate to say that Robert Walpole was 11% alive than it would be to say that Boris Johnson was 89% dead.
Some things are binary. They’re not meh? They’re either right or they’re wrong and, before we go off on another tangent here, we maybe should move to the news:
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THE EXTENSION OF THE EVICTION MORATORIUM: This has been extended to end-March. It’s welcome news but, arguably, it doesn’t solve underlying problems: 14 Dec 2020:
• 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. Communities Secretary Robert Jenrick, effectively giving one group of people’s money to another, says ‘this support is for the businesses struggling the most during the pandemic, such as those in hospitality — however, those that are able to pay their rent should do so.’
• The move does also allow tenants to accrue more liabilities. UKH says that hospitality rental debt could hit £1.6bn by the end of this month
• And this at a time when operators are once again personally liable for debts run up if they trade whilst knowingly insolvent
• The long term is made up of a series of short terms.
• So, if you can avoid bad stuff during enough ‘short terms’ and string them all together, job done, success.
• The Times says the ‘extended ban on tenant evictions ‘will just delay the pain’’
• Some insolvencies (with more severe consequences given higher levels of debt) may be stored up for the future
What the moratorium means in practise:
• The moratorium has been extended twice already and changes and U-turns do not make planning easy
• At the same time, as many tenants could and perhaps should have been working on the assumption that landlords would once again be able to evict them from the end of this month, those that are left owing money may be a mixture of:
o a) stronger tenants taking advantage of the situation alongside
o b) failed operators (effectively zombie companies) who will fall over when they are finally obliged to pay their bills
• in either case, the market has been distorted and operators who have paid their bills may be disadvantaged
• And in case b) above, it may simply be that failed operators should have pulled the pin earlier and are currently just climbing a higher bridge from which they will ultimately have to throw themselves
• The problem with the above, of course, is that 1) none of us can see the future and 2) even when in the tightest of tight spots, we all want to believe in financial miracles
Two sides to the argument:
• A number of property owners have suggested that some tenants, who are able to pay their rents, are not doing so.
• Melanie Leech, CEO of the British Property Federation, says ‘there has to be a time when landlords can plan for the future’ – and that makes some sense. The market and contracts must be allowed to either work or not.
• Relationships could either be a) soured and trust destroyed or b) rebased on a more equitable footing depending upon which side of the argument one wishes to make. It may be both outcomes feature going forward
PUBS & RESTAURANTS:
• The Tiers into which areas are allocated is to be reviewed on Wednesday with a government decision to be announced on Thursday. Infections have declined in many areas but, in London, they have risen leading to suggestions that the capital could move into Tier Three.
• A cross industry group of bodies including the BII, the BBPA, CAMRA, SIBA and UKH have called for the Government to relax restrictions on pubs ahead of the next tier announcement on 16 December. As it stands, the restrictions actually imposed within each tier are not scheduled to be reviewed for another fortnight.
• The BII says ‘pub-goers across the UK are flooding social media and MPs’ inboxes with messages about why their pubs matter this Christmas, as the UK prepares for a very different festive season.’
• A survey undertaken by the bodies finds that ‘85% of Brits have said that the pub is an important – or very important – part of their Christmas celebration.’ It says that, despite this, ‘many valued locals are facing forced closure or severe restrictions at what should be their busiest time of the year.’
• The trade bodies are encouraging customers to write to their local MPs. A spokesperson for the campaign said: “There has never been a more important time to send a clear message to politicians and the media that pubs matter.’ The spokesperson goes on to say ‘despite the fact that many publicans have spent thousands ensuring their pubs are COVID-secure, hundreds are still unable to reopen under the current guidelines. This is not only hurting local businesses, but also the wellbeing of the people using them. Pubs need fair treatment and better financial support to get through the festive period.’
• The Telegraph has reported ‘health sources’ as saying that London will ‘inevitably’ go into Tier 3 coronavirus restrictions. The paper says ‘officials say latest data is “terrifying,” with rates in the capital worse than those in Manchester when it entered strictest lockdown.’
• UK Hospitality CEO Kate Nicholls tweets ‘this would be absolutely devastating for businesses struggling to survive, for jobs in the capital and for the London’s social & cultural capital. Just 1 in 5 of London’s hospitality venues open, it is clear cases aren’t coming from hospitality so it makes no sense to close them.’
• The Night Time Industries Association has said that there could be more than 5,000 illegal parties across New Year’s Eve weekend as a result of clubs, which would police social distancing, being shut. NTIA CEO Michael Kill said: “There is a growing concern that New Year’s Eve is going to culminate in social unrest and will see a substantial number of illegal parties and mass gatherings following the closure of businesses at 23.00pm, with a real risk of overwhelming the police and emergency services.”
Customer demand & pricing:
• KAM media has said that, even for operators in Tier Three, some 25% of people may still consider a take-away Christmas Dinner. Whether operators would be able to identify customers and market to them quickly enough remains uncertain. Operators are still not sure which tier they will be in post Thursday.
• KAM says that 26% of respondents would like to buy a gift voucher for their local pub/restaurant. This is encouraging. The number might be higher if customers were not hearing that the outlets in question feel that they may not survive, in which case holders of vouchers would likely be unsecured creditors.
• KAM says of the industry’s customers that they are ‘both adaptable and loyal’. KAM says ‘if we can’t provide them with the traditional services and products that they love, that they are willing to join us on a new journey and explore new ways of interacting with good food, good drinks and great service.’
• Menu prices higher. Some price increases visible across a number of multiple operators and independents. Relatively few operators passed on the 15pps cut in VAT to customers and some have increased prices. Meanwhile, certain M&B Vintage Inns are now offering 50% off main meals this Monday, Tuesday & Wednesday.
Other Covid news:
• JDW put out a Stock Exchange news statement on Friday suggesting that ‘the results of Sweden’s COVID-19 policies have been widely misunderstood.’ Chairman Tim Martin says ‘Sweden’s no-lockdown strategy is working better than the UK’s approach.’
• The Telegraph reports an interview with the JDW chairman, now 65, saying that he ‘worries, however, about the future.’ The Telegraph says he believes that red tape means it ‘will be difficult for Wetherspoon to appoint a replacement with similar latitude to make big calls. Corporate governance requirements are likely to push the company into the hands of men in grey suits.’ Mr Martin says ‘current corporate governance rules guarantee eventual mediocrity or failure… by sweeping away the mechanism by which the company is run.’
• Greene King CEO Nick Mackenzie has said that any Christmas closure will cost the average pub £5,000 over the four-week Christmas period, rising to £13,000 for a three month closure. The Sunday Times reports that Greene King has 200 pubs in London, meaning a short shutdown could cost almost £1m. Mackenzie fears smaller pub businesses, and Greene King’s 1,000 tenants, could struggle to reopen.
• The Sunday Times reports that 140yr old Welsh brewer SA Brain, owned by the same family since it was founded in 1882, has put itself up for sale after’ grappling with a slowdown in trading and rising costs.’ The paper says ‘Brains, led by chief executive Alistair Darby, has hired advisers from Evercore to invite offers for an investment or sale to a trade buyer. Earlier this year, Brains said it would sell 40 of its 200 pubs to pay off debts and help it to navigate “uncertain economic times”’.
• William Lees Jones of JW Lees Brewery in Manchester tweets ‘very sad to see Brains up for sale according to The Sunday Times. [Restriction] has made it virtually impossible to run pubs in Wales and yesterday our sales were down 76% on what would have been one of the busiest days of the year – lots hanging on tier announcement this week.’
• The Sunday Times reports that Nightcap, a company formed on 23 September with directors including Michael & Sarah Willingham Toxvaerd and Toby Rolph, is to value itself at £7m pre-new money as it is seeking to raise some £6m (to value the enlarged business at £13m) and buy London Cocktail Club, which has ten leasehold sites, nine in London and one in Bristol.
• Nightcap says its ‘vision is to become the UK’s leading bar operating group through acquiring, investing and expanding drinks-led hospitality concepts, such as LCC, as the wider UK hospitality market emerges from what has been one of the most challenging periods of trading for the sector in modern times.’
• Brakes has said that demand for scotch eggs has rocketed.
• Having imposed tariffs of between 107% and 212% on Australian wine last month, the Chinese Ministry of Commerce is to levy additional duties of around 6%.
• An initial 18 companies have joined the Zero Carbon Forum as founding members. Companies including Marston’s, Greene King & The Restaurant Group consider that carbon reduction and sustainable business is increasingly important to their customers.
• In the US, data from Nielsen & CGA suggests that on-premise sales in restaurants across the country remain at about half what they were a year ago for the week ended Dec. 5. Sales are down 48%.
• US retailer Authentic Brands is said to be planning a ‘swoop’ on Debenhams & Arcadia.
• Households have been warned not to stockpile food and toilet roll ahead of a potential no-deal Brexit. That may fall on deaf ears.
HOTELS & LEISURE TRAVEL:
• Visit Britain is forecasting that arrivals into the UK from overseas could be around 16.9m last year, up 73% on the 9.7m expected this year but well down on the 40.9m visitors in 2019. Inbound visitor spending may be £9 billion in 2021, less than a third of a record £28.4 billion in 2019 but up 59% on the 2020 figure of £5.7 billion.
• Self-isolation for those arriving into the UK from non-travel corridor destinations is to be cut to 10 days (from 14 days) from today.
• TUI is reported to be seeking a joint-venture partner for UK cruise brand Marella. The company is thought to have dropped plans for a deal with Royal Caribbean. The company says it will not be panicked into a fire sale. It says ‘with Marella, the strategy is clear. The ships need to be in a separate investment vehicle. It’s clear what we want to do, but not clear how we will do it. We are certain we will find a solution, but with whom it is not clear.’
• IATA has cautioned that travellers remain worried that they might catch Covid-19 whilst flying. IATA research has found that nearly 60% perceive air travel as ‘high risk’ or ‘very high risk’. Respondents saw flying as riskier than working in an office, eating in a restaurant or grocery shopping.
• Heathrow has reported passenger numbers down 88% in November vs a year ago. The company says ‘to make Global Britain a reality, the government should be helping the aviation sector to survive, to develop routes to our key trading partners, and attract businesses and tourists to come to Britain to spend their money.’
• Intercontinental Hotels Group on Friday reported that it had secured ‘a further waiver and relaxation of existing banking covenants.’ It says, re its existing $1.35bn syndicated and bilateral revolving credit facilities, that waivers have been received for existing covenants at 30 June 2020, 31 December 2020 and 30 June 2021. ‘
• IHG says that it has now received an additional waiver of the covenants at 31 December 2021, together with a relaxation to the covenants at 30 June 2022 and 31 December 2022.’
• Moody’s says that Uber’s disposal of its self-drive vehicle Apparate subsidiary is credit positive ‘because it will put the company closer toward its goal of achieving positive EBITDA in 2021.’
• Hollywood Bowl Group has reported full year numbers to end-September saying that it had an excellent first half, was shut for chunks of H2 but remains ‘well-positioned for the future’. The company says ‘this year included five months of normal trading conditions in the first half and the subsequent five month closure of the estate from March, followed by the reopening in mid-August (subject to localised lockdowns) with trading restricted by capacity limitations, 10pm curfew and smaller group sizes.’
• Results are not particularly meaningful. Revenues were down 39% at £79.5m with operating profit down by 65% at £9.9m. EPS was down 94% at 0.9p versus 14.9p in the prior year. Year end debt was up to £8.7m from £2.1m in the prior year. The group says that it demonstrates an ‘agile response to ongoing localised tier restrictions and national lockdowns’ and managed a ‘successful reopening of c. 60% of the estate on 2 December supported by localised marketing campaigns.’
• CEO Stephen Burns says ‘our ability to deliver this performance while having the majority of the estate closed for almost half the year demonstrates the strength of our business and the outstanding efforts of our team.’ He says ‘some of the changes we have made as a result of COVID-19 have enhanced our service proposition and we are very encouraged by the customer response to our re-openings both in August and again in December.’
• Burns says ‘we remain confident in the continued strength of demand and we are optimistic for a gradual return to more recognisable market conditions in 2021. We will maintain our prudent approach but our core focus and longer-term strategy remains unchanged: to deliver the best possible inclusive, affordable, and safe family entertainment experience.’
• Escape Hunt reports it ‘is delighted to announce that the formal opening of its newest site in Watford is now scheduled for 27th December 2020.’ It says ‘the fit out is progressing well and is expected to be completed on time and on budget.’ The site will be the Company’s 13th owner-operated site in the UK, and the 14th in the portfolio, including Dubai.
• The company says it has recently exchanged contracts on a large site in Kingston, with completion expected in early January. CEO Richard Harpham says ‘despite tier 2 and tier 3 restrictions placing a significant strain on our industry at the moment, we remain encouraged by the performance of our estate when open, and are delighted with the progress being made with our digital propositions underpinning our ‘Escape Hunt for Business’ product strategy.’
• AMC Entertainment Holdings, the world’s largest movie theatre operator and the owner of the Odeon chain in the UK, is reported to have secured $100m in emergency funds. The company has still warned the money will only help it through another month. Attendance has dropped 92% in the US and 86% internationally.
• The group is reported to be burning $125m a month. Warner Bros has said it plans to release all of its 2021 films online on the same day they are released to cinemas. Disney is also to push more of its films to its Disney+ streaming service. AMC says ‘these practices have significantly impacted our revenues and are expected to continue to have an adverse impact on our business and results of operations going forward.’
• AMC says ‘our current cash burn rates are not sustainable.’
FINANCE & MARKETS:
• PM Boris Johnson and the EU have agreed to allow their representatives to continue talking past the latest deadline of last Sunday.
• Union Unite has warned that car production in the UK could be shut down early next year if EU trade talks fail.
• Sterling a shade higher at $1.3327 and €1.0973. Oil up a little at $50.49. UK 10yr gilt yield down 4bps at 0.17%. World markets mixed on Friday. London set to open around 13pts lower.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front page headlines of most of the Saturday papers were torn between the ludicrous UK threat to use what’s left of the Royal Navy to block French fishing boats and the worries about how the Covid pandemic could spread at Christmas: the Times took the Government line on a no-deal Brexit, as usual (“Navy to board French boats”), whilst the Daily Mail went with “We’ll send in gunboats”…and the FT ran with “EU urges bloc unity on Brexit talks”. The Telegraph, however, flagged that “Schools face being sued if they close early” and the Guardian highlighted “Rethink your Christmas plans, urge scientists”.
• Saturday’s Press and News (2): In terms of Retailing stories, the main news was that, according to the latest Asda accounts, Walmart took a £1.1bn dividend out of the business back in March, following a pension deal (as noted by the FT, the Times, the Telegraph and the Daily Mail, inter alia). In terms of Brexit, there were plenty of articles about the impact of a no-deal, eg with the Telegraph flagging the risk of a 3%-5% rise in food prices. The Telegraph also highlighted that Fortnum & Mason is running short on Christmas hampers…whilst the Guardian noted that Ikea has blamed clogged ports for the delays in delivering customer’s furniture orders.
• Saturday’s Press and News (3): In other news, the jaw-dropping premium achieved by Airbnb in its IPO in the US on Thursday (following quickly after the success of the DoorDash IPO) generated plenty of headlines, eg “IPO bonanza stirs uneasy memories of dotcom mania” in the FT, whilst there were several sceptical Business editorial comments, eg with the Times calling it a “risky booking” and noting the “stratospheric” valuation the business now commands. At a more mundane level, the market report in the Daily Mail highlighted that the French Connection share price edged up on Friday after its trading update, whilst the Times’ market report noted more Director selling in Naked Wines. And the “Share of the Week” in the Daily Mail was Dixons Carphone, ahead of the interims this week. Finally, the Times had a feature interview with Pets at Home boss, Peter Pritchard, on how the pandemic
• Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were all about the threat of a Brexit no-deal: the Sunday Times went with “Ministers warn supermarkets to stockpile food”, whilst the Sunday Telegraph ran with “Billions in no-deal help for farmers and factories”, the Observer highlighted the “Tory grandees’ fury over PM’s “nationalist” no-deal Brexit” and the Mail on Sunday flagged that “Merkel wants Britain “to crawl across broken glass””…
• Sunday’s Press and News (2): In terms of Retail stories, the main news was the big Sunday Telegraph splash that the American retailing investor Authentic Brands is talking to the administrators of both Arcadia and Debenhams about a double takeover (“US retail powerhouse swoops for Debenhams and Arcadia”). To be fair, the Mail on Sunday had a very similar splash as its key Business story (“US giants size up bid for Top Shop empire”), throwing various US private equity firms into the mix, but the Sunday Telegraph also had more detail about the auction of the Arcadia empire being conducted by Deloitte under the code-name “Project Kane”, including the news that Arcadia’s turnover fell to just £1.6m in y/e Aug 2019 (of which 19% was Online and £651m came from Top Shop/Top Man). Interestingly, the Sunday Times flagged that Primark is also looking at the various Arcadia brands, with
• Sunday’s Press and News (3): In terms of all the Economics and comment columns in the Sunday papers, we would, as usual, highlight the column by the Sunday Times Economics correspondent David Smith (“Now investment prospects go from bad to worse”), in which he said that “I feel sorry for those with the job of attracting new foreign capital to this country”. We would also flag up the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“For Merkel and Johnson, politics of Brexit triumph over its economics”), in which he highlighted that “almost wholly forgotten in the EU trade talks is the City, a great dynamo of wealth and tax generation”. And the column by the veteran Economics commentator William Keegan in the Observer (“Brexit lies do not bring freedom: the truth alone is sovereign”).
• Today’s News: There has been no more news from Frasers Group about its pursuit of the bankrupt Debenhams…but there has been a bizarre update from the embattled funeral services business Dignity, announcing that “the Board has not lost sight of the need to drive the ongoing root & branch review through to an economic conclusion” and that the FD, Steve Whittern, has resigned with immediate effect, as if the 2 events were linked…
• News Flow This Week: After another very busy time for Retail news last week, this week should be quieter, but the first-round of the auction of the Arcadia brands concludes on Friday and there are a few other 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 mighty Nike report their Q2 results in the US on Friday evening.