Langton Capital – 2021-01-05 – PREMIUM – No more tiers, feedback request, Lockdown 3.0, Ladbrokes etc.:
No more tiers, feedback request, Lockdown 3.0, Ladbrokes etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Well, having sat through another ‘we’ll meet again’ type presentation from Mr Johnson last night, it’s tempting to say that ‘led by donkeys’ might have to be reclassified as hate speech, given how unfair it has become recently to donkeys.
Of course, here in the sunny uplands of Tier 3 (at least for a few more hours), the pubs were shut already so no major changes to lifestyle are planned for them or for the Brumby household.
However, in a) the interests of economy and b) the knowledge that I’m not going to be seeing anyone outside my bubble for the foreseeable future and the barbers are shut anyway, I’m going to have to cut my own hair again, which will be almost as interesting as it is sad.
Anyway, as I’ve not recovered my sense of smell since my brush with Covid, I was hoping for some compensating skill such as the power of flight or the ability to see through solid objects – but nothing yet. On to the news:
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NO MORE TIERS: The Prime Minister has announced Lockdown 3.0 will commence in the early hours of tomorrow morning. 5 Jan 2021:
• Scotland announced yesterday lunchtime that it was to go into full lockdown for the remainder of this month.
• PM Boris Johnson spoke at 8pm putting England into full lockdown and suspending the tiers system.
• He says that, if the rollout of the vaccines goes well, the situation could be reviewed in mid-February. Schools will shut until that time.
The changes in context:
• The last changes were on Boxing Day. There were not going to be any more, then there might be and now there are. This makes planning somewhat hard.
• Admittedly, it is easier to criticise than to create.
• PM Boris Johnson and his cabinet are attracting criticism for what appears, perhaps unfairly, to be a lack of direction. The Cabinet is long on former journalists and spin doctors on light on administrators and business people.
• The government has been accused of following the example of Scotland and the advice of the current Labour Party as well as its former leader Tony Blair without ever once using the words ‘Scotland’, ‘Labour’ or ‘Blair’.
• Of course, this isn’t a joking matter.
• In practise, for the on-trade, there is little difference between Tiers 3 and 4 and a total lockdown. Perhaps consumers might even save a little more money during a full lockdown and be better-positioned when they come out of it to spend.
• But, to state the obvious, a full lockdown puts you one or even two stages further away from being able to reopen than does Tier 3, and that’s not a positive.
Company & industry feedback:
• Alex Reilley of Loungers hopes that the vaccine rollout is efficiently handled. He tweets ‘what is going on with the vaccine ‘program’? Is overly-officious health & safety getting in the way?’ He asks ‘is there any sort of plan?? Anyone?!?’
• Jonathan Downey, London Union, tweets asking why it is that ‘pubs and restaurants are no longer allowed to sell alcohol for takeaway/click & collect but supermarkets still can.’ SIBA adds ‘as ever, we’re seeking urgent clarity and permission for pubs to trade as takeaway…’
• The BBC has been confirming some of the details. Simon Jack says ‘restaurants & other premises can continue delivery / takeaway BUT takeaway or click and collect of alcohol will NO longer be allowed. Supermarkets / pharmacies / garden centres / builders’ merchants may stay open.’
• Sacha Lord, night-time economy adviser to Greater Manchester tweets ‘I’m running out of words. Totally shambolic.’ He says ‘stay home. Follow the guidelines. Protect the NHS.’
• See also general email for more industry comment.
What this means:
• The distance between a) where we are and b) normality, has been increased.
• Hopefully this is temporary, but the situation means operators will likely require additional support.
• The cliff-edge to which we referred yesterday is a real one and there will be a pressing need to extend either or both the VAT cut and the suspension of business rates until the end of this year or, preferably, March 2022
FEEDBACK FOR REQUEST – THE OUTLOOK FOR 2021:
Please drop us a line & let us know your views. Thanks to contributors to date. In light of what might be a staggered return to work, we are keeping this open for a couple more days. Shortened introductory note below:
• The first working day of 2021 seems like an appropriate time to consider the outlook for the whole year.
• 2021 should be a ‘getting better’ rather than a ‘getting worse’ sort of year, but various plans, chiefly re inoculation & normalisation, need to be executed competently.
How will 2021 pan out?
• As we said yesterday, the UK will ‘be in virtual lockdown for a while, starting about now.’ So, how will we perform quarter on quarter?
• How will performance vary over outlet / product types? Through wet led, mixed, food-led pubs and restaurants?
• How will take-away and delivery settle down?
• What will the ‘zombie company’ situation look like?
• Harsh, but will rents drop or will the ‘quality’ of tenants be improved via eviction?
• We’ll share answers with Premium Email subscribers and contributors / respondents to the above questions.
PUBS & RESTAURANTS:
Latest Covid developments – England:
• England is to go into lockdown once again tomorrow. PM Boris Johnson has appealed for the lockdown rules, though not yet formally in place, to be obeyed today. Mr Johnson says that the coming weeks will be ‘the hardest yet’.
• The BBPA says it is urging the Government for a comprehensive pub support package to be announced. It says ‘a third lockdown is yet another blow to our sector. Particularly after it has faced an abysmally quiet Christmas and New Year’s, which saw many pubs remain closed over what is meant to be their busiest time of the year.’
• The BBPA adds ‘given the circumstances, a wave of business failures is imminent unless a greater package of financial support from the Government is given to secure pubs and the brewers that supply them. That means grants in line with those in the first lockdown and support beyond April when the business rates holiday, lower VAT rates and furlough scheme all end.’
• It says ‘without such support, this lockdown will just tip pubs over the edge meaning jobs vital to communities across England will be lost forever to the detriment of the economy in the long term.’
• UKH is calling ‘for a road map to recovery and has committed to assisting vaccine roll-out.’ It says ‘tighter restrictions are a clear and grave indication that we are still a long way from normality. That means hospitality businesses are a long way from being able to begin to trade their way back to safety and keep jobs alive.’
• It says ‘the Government has to be clear about how it is going to make the best possible use of this time. It needs to be used effectively to provide a rapid and extensive roll out of the vaccine and we need a clear exit strategy along with a road map for recovery and business support.’
• UKH says that its members’ properties should be used as Covid vaccination centres.
• Business leaders elsewhere have also said that more state aid is needed. The pub and restaurant sector has said its “road to recovery just got longer”. The BCC is calling for more financial support measures to be announced. It says it is “baffled and disappointed by the fact that he [Mr Johnson] did not announce additional support for affected businesses alongside these new restrictions.”
• Foodservice analyst Peter Backman agrees saying ‘the road back to normality is not straight. Instead, there will be times of greater significance and danger. It seems to me that the second quarter of the new year is probably going to be a crucial period. It’s when things will start to look brighter – customers will be starting to come back. But it is also the time when the backlog of costs and debts will start to be repaid.’
• Backman adds ‘the timing may change, especially if the government steps in with overt encouragement – retaining the 5% VAT rate, perhaps, or maybe launching EOtHO v2 – or it helps by further delaying debt repayments (even if they ultimately must be repaid).’
Covid lockdowns – Scotland & other comment:
• Scots were yesterday told that they must stay at home in a move that might see schools closed until February. The new rules came in at midnight last night. Right or wrong, there was no messing around there.
• Churches & other religious gathering places will be shut down. First Minister Nicola Sturgeon said she was “more concerned about the situation we face now than I have been at any time since March last year.” The new coronavirus strain now accounts for half of new cases.
• On a brighter note, foodservice analyst Peter Backman points out that ‘vaccination brings immunisation. Immunisation brings confidence. Confidence brings a return to normality. Vaccines are on their way – so a return to normality is on its way too.’ The question is, how long will this take?
• We would suggest that, whilst any single vaccination is better than none at all, this is a numbers game, and the devil will be in the execution. The 2 million per month target may be a shade ambitious.
• There should be some indication as to the deliverability on targets by later this week. Any undershoot is relatively likely but, as the government showed with testing, it has been capable of getting there in the end in the past.
Other Covid news:
• The UK restaurant sector recorded nearly 30,000 job losses in 2020, as the COVID-19 outbreak increased redundancies by 163%.
Company & other news:
• The Swordmaker, the North East England based cocktail group has launched a premium delivery service named Bottled.Sealed.Delivered. Founder of the Swordmaker, Josh Callon commented: ‘COVID-19 absolutely decimated the diary for 2020 events, which was hugely disruptive, especially given how young the business was when the pandemic hit’.
• Morrison’s has updated on the Christmas period saying that LfLs over the period ex-fuel rose by 9.3%. This is clearly where consumers’ money is going (alongside Amazon, Netflix etc.). CEO David Potts says ‘while the extremely unpredictable current circumstances, and the consequences for both consumer behaviour and our COVID-19 costs, make precise guidance difficult, we still expect 2020/21 profit before tax and exceptionals to be in line with our expectations, in the range £420m – £440m prior to the rates payment of £230m.’
• The UK is to ban promotional tactics on unhealthy food items such as endless top-ups for fizzy drinks.
HOTELS & LEISURE TRAVEL:
• The Luxury travel group, Secret Escapes has reported a group loss of £12.8m in 2019 up from £11m in 2018.
• STR suggests that US hotel owners are still ‘in survival mode in 2021’. It says ‘last year ended with a glimmer of hope for the hotel industry as some expect the availability of COVID-19 vaccines to get the traveling public moving again, but the celebration could be short-lived.’ It quotes the Wall Street Journal as saying that the steady rise in virus cases in the US continues to hold back hotel bookings.’
• The WSJ says ‘in a November report, S&P Global Ratings estimated that revenue per available hotel room fell by 50% in the U.S. in 2020. The ratings agency expects revenue to pick up in 2021, but estimates that it will still be 20% to 30% lower than in 2019. It doesn’t expect revenues to fully recover before 2023.’
• The Flight Centre has offered its empty UK premises as Covid-19 vaccine hubs.
• The BBC reports ‘about 10 UK nationals resident in Spain say they were wrongly turned back when their flight landed in Barcelona.’ There have been reports of 10 UK nationals also being refused entry into The Netherlands as Covid-19 regs are in force, the UK is no longer in the EU and the travellers did not have sufficient reason to be visiting the country.
• Entertain, the owner of Ladbrokes, has received takeover proposals from US-based MGM Resorts International. MGMRI would offer 0.6 MGMRI shares for each Entain share, meaning Entain shareholders would own approximately 41.5% of the enlarged MGMRI.
• Per Pragma Consulting, downloads of home fitness apps grew by 46% worldwide in H1 2020, with daily active users up 24%. Fitness influencers have also gained traction over the last year with notable names including Chloe Ting, Adriene Mishler, Joe Wicks and Kayla Itsines.
• The British Phonographic Industry (BPI) reports that music streaming grew for a sixth straight year, with music helping people get through lockdown. There were 139 billion audio streams, up by more than a fifth yoy, with streaming now accounting for 80% of music consumption.
FINANCE & MARKETS:
• Bank of England figures show that more than 100,000 mortgages were approved in November defying expectations of a slow down. There were 715,300 approvals in the first 11 months of 2020, just below the 722,000 seen a year earlier.
• Several specialist online retailers in EU countries will no longer deliver to UK addresses due to VAT changes. The tax changes mean the companies now face higher costs and increased bureaucracy in order to comply with UK tax authorities and deal with British consumers.
• Bloomberg has reported that ‘the three biggest venues in London that handle European shares saw almost all of this business shift into the European Union on the first trading day since Brexit.’ This wasn’t what was planned. Discussions are underway aimed at allowing the UK to continue to compete. CEO of Aquis Exchange Alasdair Haynes told Bloomberg TV the move ‘is a spectacular own goal as Britain is now losing its very strong position in trading of European equities in London.’
• IHS Markit reports its PMI for the UK’s manufacturing sector in December saying it had ‘a mixed end to 2020.’ It says the index ‘rose to a three-year high of 57.5 in December, up from 55.6 in November.’ It says this was partly due to ‘a marked lengthening of suppliers’ delivery times and substantial increase in stocks of purchases as part of preparations before the end of the transition period (which also boosted new order intakes).’
• Sterling down a bit at $1.359 and €1.1076. Oil lower at $50.83. UK 10yr gilt yield down 3bps at 0.17%. World markets mixed to lower yesterday with London set to open down around 27pts.
RETAIL WITH NICK BUBB:
Next: Today’s trading update from Next is unusually long and detailed, but the key point is that the company is broadly holding its profit guidance for y/e Jan, with the likely impact of a poor January offset by a much better than expected outcome to November and December trading (with full-price product sales in the 9 weeks to Dec 26th only 0.5% down, with Online sales up 38% and Retail sales down 43%). Interestingly, the graph of weekly sales shows that the biggest Christmas week was w/c Dec 6th. There is an additional £40m property provision, but the main surprise is that Next feel confident enough to forecast that the next financial year will see profits rebound from £370m pre-exceptionals to as much as £670m, based on full price sales being flat versus 2 years ago.
Morrisons: As expected, Morrisons kick off the supermarket reporting on Christmas trading with strong sales: for the nine weeks of Q4 to date, to Jan 3rd, Retail LFL exc-fuel was 7.3%, and the three weeks over Christmas and New Year improved to 8.0%.
This Week’s News: The latest Kantar and Nielsen grocery market share figures (for the 4 weeks to Dec 26th/27th) come out at 8am tomorrow. Greggs and Topps Tiles will also be reporting tomorrow. The B&M Q3 update is on Thursday, along with Naked Wines and the Walgreen Boots Q1 in the US, whilst the M&S Q3 update is on Friday.