Langton Capital – 2021-01-07 – M&B Q1 and potential fund raise, UK services, cruise ships etc.:
M&B Q1 and potential fund raise, UK services, cruise ships etc.:
A DAY IN THE LIFE:
Having studied economics at an august university to degree level, I continue to stun myself (and all those within hearing distance of my conversations) by how little I know.
However, I would argue in my defence that complete knowledge is an illusion.
And anyone who thinks that they ‘know’ economics is simply on the path to knowing that they don’t know it. Meaning that, as I already know that I don’t know anything, I know more than those who don’t even know how much they don’t know.
Here’s a worked example that might illustrate just how tricky some problems are.
• I might offer to pay you £1bn to hop on one leg for thirty seconds.
• But only if you agree to pay me £1bn for frantically blinking my eyes for the same length of time.
• We both honour our obligations. GDP rises by £2bn, we both have mild repetitive strain injuries and, though we are waving our GDP around like a happy flag, there is no cash to be seen anywhere.
• The government then tries to force its nose into the trough and demands some tax.
• However, as both parties here have effectively broken even, there’s no tax to pay and, even if there was, there’s no money to pay it with.
We could even jigger around with payment dates and demand a tax rebate on the £1bn loss whilst deferring the £1bn on income and it’s at this point you begin to realise that, alongside lawyers, the accountants out there will never be short of work.
More thoughts along those and similar lines in the short book what we wrote. Spoiler – it’s a thriller not a textbook. Available HERE and Kindle on Amazon. On to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
LANGTON PREMIUM EMAIL:
Langton produces a premium email alongside the free version that you receive. It’s c100 lines longer than the free version (depending on what’s going on) and inc. analysis and opinion.
If you would like an example, please let us know.
Corporate Offer: Annual subscription just £295 (plus VAT) for a single subscriber or £495 (plus VAT) for multiple subscribers. Drop us a line to get involved.
Retail Offer: Easy in, easy out. £30 per month (inclusive of VAT, £25 net) via PayPal. Email us for details or check:
IN TODAY’S PREMIUM EMAIL:
Here we consider the hot topics & hope to analyse as well as report.
MITCHELLS & BUTLERS Q1 TRADING UPDATE:
Mitchells & Butlers has this morning updated on trading for its Q1. It also reports that it is considering an equity raise and our comments are set out in the premium email:
Briefly, M&B reports that it ‘has cash balances on hand of £125m, with all facilities drawn.’ It is exploring a fund raise.
REQUEST FOR FEEDBACK – THE OUTLOOK FOR 2021:
Please drop us a line & let us know your views. Thanks to contributors to date. This week has seen a staggered return to work. We’ll put something out to contributors and to the premium list tomorrow.
PUBS & RESTAURANTS:
Covid, lockdown & financial support issues:
• The MA has reported that pubs offering takeaway services can claim the grants of up to £9k, announced by the government.
• The MA has further printed that the Department of Business, Energy and Industrial Strategy has confirmed that deliveries of food and alcohol from pubs should only be to fixed addresses.
Top down, the view of the economists:
• IHS Markit has reported a UK services sector PMI of 49.4 where any number below 50.0 implies contraction. The result is higher than the 47.6 registered in November but, as tiering got tougher as the month progressed, the exit rate for the month will have been well below the average.
• Markit says ‘margins were under pressure from sharply rising input costs and ongoing price discounting across the service economy.’ Operators remain optimistic with Markit saying ‘business expectations for the next 12 months strengthened in December and were the most optimistic for almost six years. Around 59% of the survey panel forecast a rise in activity over the course of 2021, while only 13% predict a decline.’
• Skewed performance.
• Markit says ‘companies reporting a decline in business activity in December almost exclusively cited shrinking client demand and restrictions on trade due to the COVID-19 pandemic.’ It says ‘where growth was reported, this was mostly confined to residential property, business-to-business services (especially e-commerce), and providers of digital consumer services.’
• Markit says ‘export sales remained a weak spot, with new business from abroad decreasing sharply in December.’ It adds ‘input price inflation accelerated sharply since November and reached a ten-month high. This was linked to rising charges by suppliers amid higher freight costs and transport shortages.’
• Markit’s Economics Director Tim Moore comments ‘December data confirm that the UK service sector has swung back into decline after the partial rebound seen during the third quarter of 2020, largely reflecting tighter restrictions on consumer services amid the worsening trajectory of the pandemic.’
• Mr Moore says ‘shrinking demand resulted in additional price discounting to stimulate sales at the end of the year. Margins were also hit by a sharp and accelerated rise in operating expenses, which were linked to transport shortages and the pass through of higher freight costs by suppliers.’
• He concludes ‘with a third national lockdown underway, service providers will be braced for a sustained period of subdued UK economic conditions and deferred client spending in the first quarter of this year. However, business optimism on a 12-month horizon was relatively upbeat in December and reached its highest level for almost six years, underpinned by hopes that a successful vaccine roll-out will help to deliver a strong economic rebound in the second half of 2021.’
Company & industry comment:
• CAMRA tweets that ‘nearly 6,000 emails have been sent to MPs in the last 24 hours – that’s fantastic!’ It has produced a template to make it simple for members and supporters to email their MP.
• CAMRA says ‘ask your MP to back our campaign to treat pubs in England fairly and let them sell beer & cider to take-away & drink at home during this new lockdown – just like supermarkets and off-licences can.’
• December 2019 accounts, referring to an accounting period that now seems a lifetime ago, were due to be lodged with Companies’ House by end-December 2020. These are more than usually out of date. If anyone would like details on submissions by Mabel Topco (Wagamama), Welcome Break, Dishoom or Boost Juice Bars, then we can forward them.
• The Californian wine company, O’Neill Vintners & Distillers has acquired the Rabble wine brand from Paso Robles-based vineyard manager Rob Murray for an undisclosed sum.
• Tofoo Co, the vegetarian food manufacturer has seen its revenue increase 89% in the last year to £14.7m. David Knibbs, founder of the group commented: ‘Through consistent innovation and a strong brand presence, we’ve built a very loyal consumer base that enjoys making delicious and wonderfully unexpected meals using The Tofoo Co. products’.
• LIVEKINDLEY Collective has purchased Iceland Foods’ No Meat brand. Iceland will begin to sell LIVEKINDLEY Collective’s brands in stores from April.
• Shepherd Neame has announced it will cancel rent for all its licensee pubs, and has offered its pubs as vaccination centres.
• UKHospitality Cymru has asked the Welsh Government to use new funding provided by the Treasury to support the sector. UKHospitality Cymru executive director David Chapman commented: ‘[The] Treasury’s announcement recognises that our beleaguered businesses are once again forced to close for a precarious third lockdown period’.
• Nearly 1 in 4 of those who have attempted ‘Dry January’ have given up on the challenge, according to research from KAM Media. Katy Moses, MD at KAM Media commented: ‘30% of UK adults intended to take part in ‘Dry January’ according to research we did in December. By January 1st that figure had dropped by 17%. Our most recent poll, conducted on 5th Jan shows that only 25% of those who actually attempted ‘Dry January’ are still going strong’.
• Supermarkets reassure customers that there is no need to bulk-buy products due to the new national lockdown. Stores have said they have good availability and have increased delivery slots in response to a surge of demand in the immediate aftermath of the lockdown announcement.
HOTELS & LEISURE TRAVEL:
• Carnival Cruise Line’s suspension of US operations has been extended to 31 March, with the company also cancelling selected cruises on later dates in 2021. Carnival said guests and travel agents are being notified of the cancellations and options for a future cruise credits or a full refund. Princess Cruises has also extended the suspension of sailings.
• Commenting on the US hotel market, STR says that ‘group business was nearly non-existent in 2020, but hoteliers are preparing for its likely return in the latter part of 2021 and continued growth in 2022.’
• Re conventions business, STR reports commentators as saying ‘state restrictions have forced changes in how companies organize and host events, which has made the segment risky.’ Large venues will have to be socially distanced. It also believes that client companies will be sending fewer guests for corporate jollies and / or conventions etc.
• Grand Central and Hull Trains will cease operations to London from 9 January to 1 March. Neither operator receives a government subsidy and instead rely on ticket revenue.
• Nintendo has acquired Canada-based Next Level Games, the developers of Luigi’s Mansion 3, marking its first studio acquisition since 2007.
• The parent group to Odeon Cinemas, AMC Entertainment is considering increasing its debt facility by offering the cinema chain as collateral.
FINANCE & MARKETS:
• IHS Markit has reported its composite output index for the UK in December at 50.4, up from 49.0 in November. It is ‘slightly above the 50.0 no-change threshold.’ The number represents a strong contribution from manufacturing and a weaker service sector performance (see Pubs & Restaurants above).
• Markit says ‘business optimism across the UK private sector as a whole was little-changed from November’s 68-month peak. Both manufacturers and service providers anticipate a sustained expansion of business activity amid hopes of a swift improvement in UK economic conditions as the pandemic is brought under control in 2021.’
• The Daily Telegraph suggests that the latest lockdown could increase the government’s spending deficit to £450bn, up from the £394bn previously estimated by the OBR. Growth and tax receipt estimates are being ‘slashed’ at the same time as spending is rising. The deficit is ‘ballooning’ says one of the newspaper’s contacts.
• The EY Item Club says a £450bn deficit was a “rising and genuine possibility”.
• Sterling down at $1.3584 and €1.1031. Oil up at $54.73. UK 10yr gilt yield up 4bps at 0.25%. World markets better yesterday and London set to open up around 69pts.
RETAIL WITH NICK BUBB:
• Today’s News: On top of the expected/strong B&M Q3 update today, Sainsbury’s has brought forward its Q3 update from next week, to flag a useful profit upgrade and Joules has announced its Christmas trading update (with a similar pattern to Next, of weak Stores offset by strong Online sales). B&M’s perfect “lockdown winner” model of food and DIY/gardening sold in retail park locations delivered chunky 21% LFL sales growth in the 13 weeks to Dec 26th and that has enabled B&M to narrow its previous guidance for FY21 Group adjusted EBITDA to be within the range of £540m to £570m (after the voluntary payment of Business Rates in FY21 amounting to c£80m). As for Sainsbury, full year PBT is now expected to be at least £330m, compared with previous guidance of £270m, after Christmas LFL sales growth of 9.3% excluding fuel.
• This Week’s News: After the Walgreen Boots Q1 in the US this afternoon, tomorrow brings the Marks & Spencer Q3 update.
• Grocery Market Share Watch: The latest monthly Nielsen grocery market share figures (for the 4 weeks to Dec 26th) came out at c8am yesterday and covered broadly the same period as the rival survey from Kantar on Tuesday. The Kantar grocery sales figures (for the 4 weeks to Dec 27th) were up by 10.8% on an overall “Till Roll” basis, lower than the 13.8% growth in the previous period, albeit the growth was still flattered by the collapse in both the “on-the-go” food market and in the “food away from the home” market. The food price inflation rate edged down from 1.4% to 1.3%. On a pure “Grocery” basis (excluding Non-Food), overall Kantar sales were as much as 13.6% up, with Aldi/Lidl still lagging a bit with growth of “only” 11.6% combined (although Lidl massively outperformed Aldi…). Morrisons saw 14.1% gross sales growth on this basis, whilst Sainsbury was up 13.8%, Tesco was 14.3% up
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 5 Jan 21 Morrison’s Xmas update
• 6 Jan 21 Gregg’s Q4 update
• 7 Jan 21 M&B Q1 trading update
• 7 Jan 21 Constellation Brands Q3
• 8 Jan 21 M&S Q3
• 11 Jan 21 Carnival business update
• 12 Jan 21 Nichols FY trading update
• 12 Jan 21 Games Workshop H1 numbers
• 13 Jan 21 Sainsbury Q3
• 13 Jan 21 Just Eat Q4
• 14 Jan 21 Tesco Q3
• 14 Jan 21 C&C EGM
• 15 Jan 21 Gym Group trading update
• 19 Jan 21 Premier Foods Q3 update
• 20 Jan 21 JD Wetherspoon H1 update
• 20 Jan 21 WH Smith AGM update
• 22 Jan 21 GfK Consumer Confidence numbers
• 27 Jan 21 Marston’s AGM & Q1 trading update
• 28 Jan 21 Britvic AGM
• 29 Jan 21 Hollywood Bowl AGM
• 4 Feb 21 Compass Group AGM
• 5 Feb 21 On the Beach AGM & trading update
• 11 Feb 21 Pepsi FY numbers
• 3 Mar 21 Government Budget Statement
• 16 Mar 21 Gregg’s FY numbers
• 24 Mar 21 M&B AGM
LANGTON CAPITAL: Made in Hull. Like all the best things. Langton Capital is a financial advisory company providing insightful views on the UK and global leisure industry and the wider consumer sector in general. Subscription to the daily email is free. Unsubscribing is painless. We provide daily off the shelf and bespoke research. We have helped with transactions, fund-raisings, disposals and other corporate issues. We have a good ear, we are impartial, independent and not half bad at what we do. If you think that we could help you or your business, drop us a line.