Langton Capital – 2021-01-11 – PREMIUM – 2021 outlook, Covid lockdown, TUI, cruise operators, staycations etc.:
2021 outlook, Covid lockdown, TUI, cruise operators, staycations etc.:
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A DAY IN THE LIFE:
So, the lockdown goes on.
And the government, which really does appear to be worried now, is finding out that, as Albert Camus said in The Plague, a pestilence has a habit of lasting a) longer than you want it to and b) longer than the public can remain energised and vigilant.
Still, we are where we are and, once again, we find ourselves chez nous typical of would-be holidaymakers in that we didn’t go overseas last year (for the first time in more than two decades, our daughter for the first time in her life) and we lost two short-break cottage holidays to the virus, one to Lockdown II and the other to Tier Four restrictions (or something).
Wondering where the financial hit was going to land, credit card company, cottage owner, holiday company or wherever, we found the government had done the heavy lifting already. It had decided, probably rightly, that upsetting a few holiday companies was less damaging than hitting a few million would-be holidaymakers (a.k.a. voters).
Hence one company refunded our cash without contest. We thought they were wonderful, but it turned out they’d been threatened with legal action by the CMA earlier in the year and the other company started quoting the Frustrated Contracts Act, 1943, at us but paid up before the emails got too heated.
Not Plan A. That was, have a holiday, but not as painful as it could have been. Not good news for the holiday industry, though. On to the news:
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FEEDBACK REPORT: WHAT CAN WE EXPECT FROM 2021?
Last week, we asked for reader comment as to how the year might turn out. Thank you to those who responded. We’ll cover this over the next few days under the headings set out below. Today, how will the year pan out?
We would suggest that pubs, restaurants & accommodation have been provided for guests since biblical times and the industry will ‘survive’.
However, that’s a macro comment. Operators are also interested in the micro. Survivors will prosper but, to prosper, operators need to survive:
a) Covid and,
b) The concurrent / subsequent recession and,
c) Any damage that has been done to their own balance sheets
The above will be the subject of later emails. For the moment, we’re concentrating on reader feedback. We’ll look at it under a number of headings over the following days:
• How will the year pan out, by quarter? Any special observations?
• Any permanent or long-lasting changes?
• Different recovery paths by sub-sector, region, product-type
• Longer term implications for rents
• Major risks & other considerations
How will the quarters pan out over 2021?
• Several responses here. The near term is more visible than are the later months of the year.
• There is a degree of certainty as to how January will pan out. It will be horrible.
• The same is true for February. The idea that we could return to ‘normality’ after Feb half term is perhaps less likely than it was only a week ago.
• Several respondents suggested zero revenue for Q1. This may be likely for wet-led outlets. Some food pubs will deliver some product to customers. More casual diners will be active here.
• The positive about a zero-revenue estimate is that the only way is up.
• Because the casual diners will register some sales via delivery, perhaps 10% to 20% of normal across the whole industry for the whole period is likely.
• This will vary a great deal across operators. Investors cannot invest in ‘the industry’ and nor do workers work in it. Rather they work for a specific company and performance here will be vastly different between a shuttered, wet-led boozer and a pizza restaurant with a good delivery performance.
• An interesting point has been made that, with the 15bp cut in VAT not being passed on to customers, we should perhaps be looking at gross sales rather than the more usual net.
• Hence a 12.5% reduction in gross sales leads to the same net figure in the hands of the operator – though only for food and soft drinks. Some costs may also have been reduced. Some prices have been edged up. This also widens margin.
• Valentine’s Day falls in the period (14 February for those in danger of forgetting) and it is a goner. Mothers’ Day is 14 March. This is harder to call. The weather, important for outside space, as always, is an unknown.
• This could be the most important quarter in the last 20yrs.
• Or the last 50yrs for that matter as the eviction moratorium is due to end, VAT (as it stands) is due to rise back to 20%, business rates are set to be reintroduced – this all at end-March. The furlough scheme is due to end in April.
• In addition, Q2 is the hardest to call in terms of the lockdown, the rollout of the vaccines and consumer behaviour.
• Some wet-led operators hope to bounce quickly and to be back to 80% of normal sales by Q2. Venue type and location will make a big difference.
• Other operators hope for as much as 90% of normal. This would represent plus infinity percent on Q2 2020 as the industry was shut.
• With food (at 5% VAT) in the mix, 80-90% would represent a good performance towards the bottom line – although the VAT cut could have gone by this time. These estimates do seem a little hopeful.
• The weather is an unknown. At present, it’s planned that half of the delayed Euro 2020 football will fall in Q2.
• It isn’t helpful but the only certainty re Q2 is that we are not certain what the outturn will be. This not least because, if banks, creditors, HMRC, landlords etc get even the slightest bit more aggressive, the number of CVAs could balloon, supply could drop and surviving operators could perform well.
• Further away, less certainty but more hope.
• Operators hope for 85% to 90% of normal. This with average weather, the second half of the Euros and no repeat of EOTHO.
• Some operators are out-and-out bullish, particularly those with outside space and units in residential areas.
• The staycation (and associated spend) market should be strong.
• Even further away, even more hope.
• Operators hoping for 85% to 100% of normal. This will depend, of course, on consumer confidence, social distancing requirements, a successful vaccine rollout and a lot more
• Christmas could be poor, even if the rest of Q4 is good. This because social distancing may still be (at least partially) in place and venues simply cannot be as busy as they would be over a ‘normal’ Christmas.
• Quarterly best guesses. Bad, unknown, moderate, back to normal. The margin for error & slippage is significant.
• Bull case. Pent up demand, football in the summer & staycations.
• Bear case. Botching the vaccine rollout, recession & job losses. Tomorrow, comments on any permanent or long-lasting changes and the different recovery paths by sub-sector, region, product-type
PUBS & RESTAURANTS:
Covid-19 issues – politics & healthcare:
• The weekend press was full of stories highlighting that the current numbers re hospitalisations and deaths would get worse before they got better. There are calls for lockdown measures to be even stricter.
• As the hospitality industry is effectively shut, it’s position in absolute terms would not slide any further and, if tightened lockdown measures speeded the end of the pandemic, they could be helpful.
• Specifically, Prof Neil Ferguson, a hate figure for some, has said that the high level of infections is beginning to build herd immunity (especially in London) and that, alongside vaccinations, could (or even should) mean that the virus is effectively under control ‘by the autumn’.
• PM Boris Johnson is being called upon to appoint a Hospitality Minister to argue the industry’s corner. Up to 600,000 jobs may have been lost in the sector to date. The House of Commons will debate the issue after a petition demanding a hearing attracted 200,000 signatures.
• The Sunday Times speculates that February half-term target for reopening is unrealistic. It says that the one-year anniversary of the first lockdown (23 March) is more realistic but says that pubs may not reopen until 1 May.
• Travel testing restrictions, which require Brits returning to the UK to have tested negative for Covid-19 prior to travelling, could depress flight volumes & boost staycations this year.
Covid-19 issues – business & hospitality:
• The Sunday Times says that ‘jolting’ firms into and out of lockdown is ‘damaging confidence’. You reckon?
• Accountancy firms are discussing with their regulator the possibility that companies should be permitted to delay their accounts due to ‘going concern’ issues. Meanwhile, the latest BRC-Shoppertrak Footfall Monitor has shown footfall down by 43% last year.
• The BRC has said that CVAs are ‘usually simply bringing payments up to date with market values’. It says ‘CVAs are one of very few ways a company in distress can restructure to keep trading’.
• The FSB says that a record number of small firms could close in the next 12 months without further government help. FSB national chairman Mike Cherry says ‘the development of business support measures has not kept pace with intensifying restrictions. As a result, we risk losing hundreds of thousands of great, ultimately viable small businesses this year, at huge cost to local communities and individual livelihoods.’
• Chief economist of the Organisation of Economic Cooperation and Development, Laurence Boone commented that the world is set for more lockdowns and social distancing in 2021. Boone remarked: We probably have another six to nine or twelve months of this ahead of us. I’m not saying it’s easy, I’m saying we’ve seen that it worked in 2020. We must keep going both with the non-pharmaceutical measures, the government support and deploy the vaccine, as long and efficiently as fast as efficiently and securely as possible‘’.
• Surveys conducted by Deloitte have found that bosses anticipate 25% of the British workforce will continue to work from home even after the covid pandemic has subsided.
• Retailers are requesting more financial support from the government after shopper numbers have fallen more than 40% on last year. London was the hardest hit in December, with footfall down 58%.
• Data from the USA has shown that the restaurant and bar industry saw a decline in job numbers, while most other industries increased the number of positions. In December, leisure and hospitality jobs declined by 498,000.
• South Africa has imposed a third domestic alcohol sales ban following a surge in Covid cases in the country. In a speech, President Ramaphosa acknowledged that the ban would have a significant impact on the alcohol sector but stated the decision had been made in order ‘to save lives’.
• The consumer has a lot on his / her mind. The virus, job security and cash problems probably feature high up their lists.
• Eviction bans in England and Wales have been extended for at least another six weeks in England and by longer than that in Wales.
• The Times has reported that Electra Private Equity, which owns TGI Fridays in Britain, ‘plans to put the bar and restaurant chain up for sale this year as it winds down its portfolio after succumbing to an attack by a corporate raider.’ The Times says ‘analysts reckon that TGI Fridays, which Electra bought for £100 million in 2014, could be worth as much as £275 million.’ There are 85 TGI Fridays in the UK and they are all run as franchises. The Times reports ‘although its outlets have been forced to close during lockdowns, a new management team has introduced delivery, as well as click and collect ordering in select restaurants. It has also introduced new products, including food to cook at home and there are plans to build up the cocktails offering.’
• Fulham Shore owned Franco Manca Pizza tweeted yesterday ‘from today, every pizza is £6 when you order online for collection.’ It says ‘until Wednesday (13th Jan 2021)- if you use our order and collect online system OR app, every single pizza is just £6.’ This is only available with pre-orders online.
• December and March accounts with Companies’ House. Five Guys, Black Sheep Brewery. If anyone would like details on submissions by Mabel Topco, then we can forward them.
• The Sunday Times says that the £200m lawsuit being brought by the liquidators of failed company Patisserie Holdings against the latter’s auditors, Grant Thornton, could pose an existential threat to the accountancy firm.
• The CMA has begun a merger inquiry into the anticipated acquisition by Diageo of Chase Distillery. Diageo announced in October 2020 that it had reached agreement to acquire Chase Distillery, the owner of Chase GB Gin and Chase Original Potato Vodka.
HOTELS & LEISURE TRAVEL:
• It is believed that Tui has avoided further government support after securing a third financial aid package of 1.9bn euros in Germany. Chief executive Fritz Joussen commented: ‘We do not expect to require any further government support from the KfW [German state development bank] or WSF [German economic support fund].’.
• Co-founder of data insight specialist Spike Insight, Roy Barker has commented that people are planning to make up for lost travel plans with ‘revenge travel’ when the holiday market returns. Roy Barker stated: ‘It’s called ‘revenge travel’, according to [management consulting firm] McKinsey & Company – people want revenge on the virus and travel for a special birthday, for example’.
• Eurocontrol, the European air traffic management organisation, claims that Europe’s air traffic won’t recover to pre-Covid levels until 2026. The organisation says 2021 levels will be just over half (51%) of the 2019 levels.
• Carnival UK chairman David Dingle has said the UK cruise sector will shrink without a change in Foreign Office advice against sailings as cruise lines will deploy ships away from Britain.
• British Airways Holidays has withdrawn package deals offering breaks to the Caribbean and elsewhere due to tighter lockdown restrictions.
• HVS reports the UK hotel sector will see an increase in insolvencies and job losses through 2021. Independent hotel businesses with constrained financial resources or liquidity are expected to be the hardest hit, while larger groups and owners with capacity to inject additional funds will be less at risk.
• HVS London chairman, Russel Kett, said the sector needs urgent Government help and recognition, although warns this could come too late for many of the UK’s smaller businesses. Kett called for the moratorium on business rates to be extended along with the lower rate of VAT of 5% for a further 12 months.
• Aida cruises has extended its suspension of operations to the end of February due to tighter lockdown measures in Germany. The company hopes to continue its Canary Islands season from March 6.
• STR reports US hotel occupancy decreased 17.2% to 40.6% for the week ending 2 January, with ADR down 21.5% to $107.93 and RevPAR down 35.1% to $43.81.
• Donald Trump has, with a week and a half left to go on his presidency, been banned from Twitter.
FINANCE & MARKETS:
• Some products are not getting through from the UK to Northern Ireland. This may settle down over the coming weeks. Or it could get worse as stockpiles are unwound and the need for fresh supplies becomes more acute.
• The Halifax Building Society said on Friday that house prices rose 0.2% in the month of December to put them up 6.0% on the same month in the prior year. The Halifax says prices in H2 ‘soared as a result of pent-up demand, a desire amongst buyers for greater space and the time-limited incentive of the stamp duty holiday.’ It says, however, that a ‘downward pressure on house prices remains likely as we move through 2021.’
• The US economy lost jobs in December for the first time since April. Some 140,000 jobs were lost in the month.
• Sterling mixed at $1.3498 and €1.1078. Oil higher at $55.16. UK 10yr gilt yield unchanged at 0.29%. World markets better on Friday. London set to open broadly unchanged.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines of the Saturday papers were dominated by the Government’s attempts to ensure compliance with its “Stay at home” message, to control the pandemic eg “Boris: You MUST Stay at Home” in the Daily Mail, “Police start crackdown on Covid-rule breakers” in the Times and “Crackdown planned as deaths hit record high” in the Telegraph. The FT went with “Covid daily death toll hits record as London infection “out of control”” (highlighting the concern of the Mayor of London, after formally declaring “a major incident” in the capital), whilst the Guardian ran with ““People are terrified”: on the front line of an NHS in the grip of crisis”, after gaining rare access to the busy ICU of Milton Keynes Hospital (where there are currently no patients over the age of 70…).
• Saturday’s Press and News (2): In terms of Retailing stories, the main news was the M&S trading update on Friday, with much of the coverage focused on the poor performance of M&S Clothing sales, with CEO Steve Rowe’s complaint about “near-impossible” trading conditions much-quoted and with a lot of comparisons made with the news that ASOS is to build a big new distribution warehouse in Lichfield to cope with booming Online demand. Lex column in the FT looked at the differences between ASOS and M&S, noting that the lesson of ecommerce globally is the need to keep investing in warehousing and logistics, concluding that “Asos’s post-Covid resurgence in spending is to be welcomed”. As for M&S, the Times focused on its failure to repay the Business Rates relief enjoyed by its Food business, notwithstanding the loss of its lunchtime sandwich trade with office workers, and the
• Saturday’s Press and News (3): In other news, the Sky News/Times story that the Online greetings card business Moonpig is about to gear up for a £1bn IPO got plenty of coverage, much of it focused on the news that former WH Smith boss Kate Swann is the Chairman of the company. There was less coverage of the strong Pets at Home trading update on Friday, but the Times stepped up to the plate with the headline “Profits jump with Britain raining cats and dogs”. The Times and the Telegraph also noted the news that Poundland is having to close 44 shops temporarily because of very weak footfall in some shopping centres and High Streets. Finally, the front cover story in the FT Weekend magazine was about the fading appeal of the US sportwear giant Nike, asking “Has Nike’s magic worn off?”.
• Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were split between the NHS crisis, the lockdown and the vaccine rollout: the Observer went with “Doctors raise alarm as Covid strikes down NHS workforce”, the Sunday Telegraph ran with “Police to issue fines after one warning””, whilst the Mail on Sunday flagged that “The Queen launches Britain’s Jab Blitz” and the Sunday Times highlighted that “Hospitals face “worst crisis in living memory””.
• Sunday’s Press and News (2): In terms of Retail stories, the main news in the Sunday papers was the Sunday Telegraph scoop that G-111 Apparel, a New York clothing dynasty with business ties to the Trump family, has joined another US business, Authentic Brands, in trying to take on the UK front-runners, Boohoo and Next, in the battle to take over Top Shop (“Trump’s tie maker joins tussle over Topshop”). Talking of Next, the Sunday Times had an article about “How Wolfson is turning Next into mini-Amazon”, noting that after nearly 20 years of running Next and showing little appetite for deal-making, Simon Wolfson is changing tack. The Sunday Times also flagged that an offer for the stricken Edinburgh Woollen Mill chain from an unnamed buyer has been accepted by the administrator. And the Sunday Times also profiled a member of the Clarks dynasty, Galahad Clark, who is expanding his healthy
• Sunday’s Press and News (3): In terms of all the Economics comment columns in the Sunday papers, we would, as usual, highlight the column by the Sunday Times Economics correspondent David Smith (“With every lockdown we lose some more of the economy”), in which he flagged that each lockdown “takes out thousands of firms, some bad, but many good”. We would also flag up the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“For many firms, a Covid reckoning is coming and it won’t be pretty”), in which he noted that “when we are finally free to socialise, a veritable tsunami of bad debt, insolvencies and redundancies will come washing through the economy”.
Today’s News: No news was scheduled today, but JD Sports has brought forward its update from tomorrow to flag a huge upgrade to full-year profit guidance because of stronger than Christmas trading: after seeing over 5% LFL sales growth in the 22 weeks to 2 January 2021, despite the lockdowns, “as consumers readily switched between physical and digital channels”, JD Sports is now confident that the group headline PBT for the full year to 30 January will be significantly ahead of the current market expectations, which average c£295m: it is now anticipated that the outturn for the full year will be at least £400m! That is such a big outperformance, you’d have thought that JD would have said something before now…but shareholders will forgive them that, particularly as JD has also had the confidence at this stage to forecast that the next financial year will see at least 5%/10% profit growth,
This Week’s News: The BRC-KPMG Retail Sales survey for December will be out first thing tomorrow (with Food good/Non-Food bad likely to be the main theme), followed by the Games Workshop interims and the THG Q4 update. Wednesday then brings the ASOS Q1 update and the Just Eat Q4, whilst on “Super” Thursday we get the Tesco Q3 update, the Boohoo update, the ABF/Primark update, the Dunelm Q2, the Card Factory update, the Halfords Q3 update and the Signet (US) update.