Langton Capital – 2021-01-12 – PREMIUM – Trading, grants, property prices, Nichols, Carnival, Games Workshop etc.:
Trading, grants, property prices, Nichols, Carnival, Games Workshop etc.:
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A DAY IN THE LIFE:
I think there’s a fine line between useful and irritating.
And, as I get older, I find that line moving further towards the latter because, when a photo jiggles as I move the mouse over it, yes, it draws my eye, but it also slightly raises my blood pressure and makes me just that bit more likely to click off the site because of some random feeling of accumulated bad-will.
Even simmering rage and being told that a site is ‘snoozing’ because I’m a lazy-bones and haven’t done anything on it for 1, 10 or 60 minutes can only be designed to annoy. Particularly when I’ve been up and working since stupid o’clock and haven’t had a nap during the daytime since I was in my pram.
Or, more accurately, since my last heavy lunch which, given the time of year, might have been about a fortnight ago.
But I reserve the right to judge, even on the most hypocritical of grounds and, the next time I see a line of ZZZs rising from a bubble on some website or other, I’m likely to throw the screen across the room.
Which will doubtless confuse the dog but, as being baffled by enigmatic humans is his life, no change there. 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. In the second of our reports, we consider here wrinkles in performance this year and whether certain geographies, product types and venues will perform differently to others.
This is effectively point 2 below:
• How will the year pan out, by quarter? Any special observations?
• Different recovery paths by sub-sector, region, product-type
• Any permanent or long-lasting changes?
• Longer term implications for rents
• Major risks & other considerations
Sub-sectors, regions, product types etc.
• See also comments by Fleurets below. They believe that tourist-dependent venues (and geographies) and those serving office and other workers with long commutes, may take longer to recover.
• That sounds very much like London.
• One respondent says its ‘sites in the City will do well to achieve 40% footfall at any time this year, we will try and do more on functions there particularly.’ Good idea but, if social distancing is still a ‘thing’, this might be difficult.
Food vs drink (product type):
• Some consensus that wet-led units (community boozers but not necessarily city-centre bars) could bounce back more rapidly than food-led units.
• Drink can be dependent on the weather but, with Euro 20 (and to a lesser extent the Olympics) still due to be held, drink could do well. It does not benefit from the 5% VAT but this will be withdrawn (as it stands) by Q2.
• The bounce in wet will be heavily influenced by what comes after the current lockdown. Will Tiers persist, what about the 10pm curfew, sport in pubs, social distancing etc.
Accommodation (product type):
• The staycation market could and should do well this year.
• It was jerked around during 2020 by lockdowns and the like (see our Day in the Life from yesterday) but 2021 should be smoother and the reluctance to deal with the Covid and Brexit hassle of travelling abroad could persist.
• This market would perform doubly well if the pressure on HMG to retain a 5% VAT rate yields results.
• Retaining it for accommodation and food would keep firms in business, retain jobs in the UK etc.
Restaurants vs quick service vs pubs (venue type):
• One contributor contrasts the possible performances of restaurants vs QSR vs pubs by quarter.
• Est for Q1 (% of normal sales) restaurants 18%, quick service 78%, pubs 21%
• Est for Q2 (% of normal sales) restaurants 55%, quick service 88%, pubs 80%
• Est for Q3 (% of normal sales) restaurants 78%, quick service 94%, pubs 90%
• Est for Q4 (% of normal sales) restaurants 89%, quick service 101%, pubs 96%
• Est for FY (% of normal sales) restaurants 61%, quick service 90%, pubs 74%
• If the VAT cut is retained (and it will anyway be there for Q1), it will be important to differentiate between gross and net sales.
• Also, whether they are industry or survivor numbers. That is, is the 61% figure for restaurants for the full year a) the whole industry or b) for the cohort of restaurants that survive. We think it might be a) in which case surviving restaurants will do better as supply will be reduced.
• Few believe EOTHO will be repeated.
• Most see some restrictions at least persisting for the full year.
• Most believe confidence will edge back in over the year as a whole.
• The jury is out but many operators are cautiously hopeful re the 5% VAT and business rates suspension being continued for the calendar year or even until March 2022
PUBS & RESTAURANTS:
• MPs yesterday debated the creation of a dedicated minister for the hospitality industry. MPs heard that the scale of hospitality’s financial hit was out of line with that suffered elsewhere in the economy.
• MPs also heard that, with vaccines now being rolled out, a little further help could head off a great number of failures. Business rate and VAT cut extensions were a running theme throughout.
• UKH has said that, if the pub industry is shut until May Day, it will be ‘simply unviable’. CEO Kate Nicholls tweets ‘if pubs, bars and restaurants are not able to open until May then they will have actually been closed for seven months. With one in five running out of cash by March, even with Government support, that is simply unviable.’
• The BBPA has responded to speculation that pubs may have to remain closed until May, with Chief Executive Emma McClarkin commenting: ‘We really hope that the speculation about pubs being forced to stay closed until May is not true. We strongly believe that pubs are safe places to socialise and can play an important role in our social and economic recovery’.
• Barclaycard has reported that British consumer spending fell in December at the fastest rate in six months, with pubs and restaurants especially hard. It says spending in pubs and bars dropped 71% and fell by 65% in restaurants. Barclaycard says ‘changing restrictions continue to have an impact on our spending habits – which was particularly acute across the high-street and hospitality sectors in December, with restaurants, pubs and bars hardest hit.’
• The BRC has said that half of non-food sales are now made online. It says ‘Covid has led to 2020 being the worst year on record for retail sales growth. Physical non-food stores – including all of ‘non-essential’ retail – saw sales drop by a quarter compared with 2019.’ It adds ‘Christmas offered little respite for these retailers, as many shops were forced to shut during the peak trading period. With shops still closed for the foreseeable future, costing stores billions in lost sales, many retailers are struggling to survive.’
• The All-Party Parliamentary Group (APPG), the night time economy committee has launched an inquiry into ‘the devastating impact’ of Covid-19 on the British nightlife industry. Jeff Smith MP, chair of the APPG for the night time economy, commented: ‘As we move now into a third national lockdown, there has never been a more important time for Government to address the urgent needs of Night Time Economy businesses, their supply chains and those that rely on them for employment’.
Grants – have money, keep money.
• The Telegraph reports that ‘many businesses say they are still waiting to receive the bulk of the money they are eligible for’ after government promises have not yet led to a transfer of cash. The paper quotes Fulham Shore (Franco Manca & The Real Greek) as saying only four of his 70 sites have received payments from councils, equivalent to £12,000 of the £160,000 in grants his business is entitled to.
• Local councils have been accused of hoarding cash. Rob Pitcher of Revolution Bars says ‘the most frustrating fact is the complete disparity between each local authority and their different application processes.’ The Federation of Small Businesses says ‘we absolutely cannot see a repeat of some local authorities who last year dragged their feet when it came to the distribution of these critical funds.’
• The British Institute of Innkeeping has conducted a survey of its members and also says that government grants are not easy to come by. It says ‘the consistency of delivery of these vital funds has given a further challenge to cash strapped licensees.’
• The BII says the rules are complex and ‘less than 1 in 4 pubs have received the full payment of grants they were entitled to during the Autumn and Winter months of 2020.’ CEO Steven Alton says ‘this survey has confirmed that there are very different experiences for licensees claiming these essential packages of support, depending on where they are based in the country.’
• Mr Alton calls for business rates to remain suspended until end-March next year. His members also believe that VAT should be held at 5%. Alton says ‘these additional measures, announced as soon as possible will give our licensees the ability to plan for the future of their pubs, and become an essential part of the economic and employment recovery of our nation.’
What’s happening to property prices?
• Property agent Fleurets has produced its annual survey of pub prices for 2020. It considers data and analysis from public house transactions by Fleurets for the period from 1 October 2019 to 30 Sept 2020 ‘and provides commentary on the rapidly changing landscape up to the start of December 2020, when the new, stronger 3 tier system was introduced.’
• The survey therefore comprises two, six month periods. One pre-Covid and the other very much impacted by the pandemic.
• For the first six months covered (Q4 2019 and Q1 2020), the average price of trading freeholds rose by 8.3%. Non-trading freeholds fell in value by 10.8% and leasehold prices rose by 10.2%. This feels like a very long time ago.
• During the second 6mth period (Q2 and Q3 of calendar 2020), Fleurets says that the average price at which it sold trading freehold properties fell by 34.7%. The value of non-trading freeholds was only down by 1.4% but the price of leasehold pubs fell by 46%.
• Fleurets does point out that the large drop in price is not like-for-like. It says the drop ‘is distorted by a significant reduction in the like for like quality of assets sold compared with the prior year alongside a higher proportion of transactions being in the north.’
Confidence & property values:
• Despite Lockdown 1.0, Fleurets says ‘the majority of transactions with terms agreed prior to 20th March proceeded to completion. In many cases agreed prices were unchanged, however, terms were adjusted in some transactions, particularly where existing trading performance was the foundation to value.’
• The agent says that, during Lockdown 1.0, ‘transactions were dominated by sales for alternative uses, where the trading income was not a key determinant to value.’ It says, however, that ‘demand for prime assets continued with prices seemingly unaffected as well funded purchasers focussed on the long term benefits of securing high quality opportunities, although volumes were subdued as vendors were concerned about the potential for selling at undervalue.’
What will property ‘recovery’ look like?
• Exhaustion may be setting in. Fleurets says ‘as 2020 draws to a close, market sentiment is rapidly changing and unpredictable.’ It says state support is deemed critical and there are many more questions than answers.
• Fleurets says ‘the challenges will not disappear with the end of UK social distancing. Businesses dependant on international tourism will continue to be affected as many countries are likely to take longer to widely administer the vaccine to allow free international movement.’
• Confidence will also be a major issue.
• More people will be working from home. Fleurets says ‘trading performance will reflect new and changing customer behaviours, the most obvious being the expected permanent increase in home working. Pubs and bars in the biggest cities with the longest commute and higher reliance on public transport are likely to witness the greatest evolution.’
• Tourist-dependent venues and office workers with long commutes sounds very much like Central London. Fleurets opines ‘consumers will visit local and out of town operations more, benefiting community pubs and destination venues.’ Landlords may have to cut rents for other operators.
The outlook for property:
• Fleurets suggests ‘2021 will be a difficult year and trading conditions will be tough, particularly in Q1 leading into Q2, however we are hopeful that the vaccination programme, a reduction or removal of trading restrictions alongside appropriate extended government support will lead to the gradual recovery of the sector, which has proven over the decades to be innovative, adaptable and resilient. ‘
• Deliveroo is reported set to expand to 100 towns and cities across the UK as it looks to IPO its shares. The company says it would like to do “everything possible” to help households get food during lockdown. The company reports that it made in profit in the last six months of last year.
• Nichols has updated on trading saying that, in the year to end-December, it ‘achieved strong growth in the UK and the Group’s International business continued to perform well.’ The company says ‘however, as reported by the Group in its trading update on 19 November 2020, this progress was offset by declines in the Group’s UK Out of Home route to market, as a result of the coronavirus pandemic.’
• Nichols says ‘in line with the Board’s expectations, total Group revenue in the period decreased by 19.3% to £118.7m versus the prior year. The Group expects to report Adjusted Profit Before Tax for FY20 in line with its previous guidance.’ The company concludes ‘whilst recognising the current and near-term impact of the pandemic on the soft drinks market, the Board continues to believe that Nichols, underpinned by the strength of the Vimto brand, the Group’s diversified business model and the robust balance sheet, remains well placed to deliver its long-term strategic ambitions.’
• Meat Liquor is celebrating the 10th anniversary of MEATeasy opening. It says ‘historically , we have included a 50% off ‘your total bill’ voucher in loving memory (RIP) of #meateasy, but that would be pointless right now. As soon as we can properly open the doors, we’ll be sending them out, so now’s a good time to let all your mates know.’
• December and March accounts with Companies’ House. Wagamama, Welcome Break, Dishoom, Boost Juice, Five Guys, Papa John’s. H Weston, Black Sheep Brewery, Leon. If anyone would like details on submissions then we can forward them.
• Constellation Brands has reported its 12th consecutive quarter of earnings growth in its Q3 2021 results. Constellation Brands posted fiscal third-quarter comparable earnings of $3.09 per share, which increased 44% year over year.
• Pernod Ricard, the French drinks giant, has acquired a majority stake in the alcohol-free ‘spirit’ brand for an undisclosed sum.
• Punch Pubs & Co has called on its 1200 publicans and their guests to nominate local people who have done something extra special for the community in 2020. The initiative is part of the Community Hero campaign, where pub-goers can nominate their hero via an online application form, with the chance for the nominee to win £1,000 and have a cask ale named after them.
HOTELS & LEISURE TRAVEL:
• Pre-departure Covid testing rules will apply to travellers entering the UK from this Friday. Travellers will now need to prove a negative test taken up to 72 hours before leaving the country they are currently in.
• Carnival has reported a net loss of $2.2 billion for the fourth quarter of 2020 as a result of Covid shutdowns. The company says ‘2020 has proven to be a true testament to the resilience of our company. We took aggressive actions to implement and optimise a complete pause in our guest cruise operations across all brands globally, and developed protocols to begin our staggered resumption, first in Italy for our Costa brand, then followed by Germany for our Aida brand.’
• CCL says ‘we are now working diligently towards resuming operations in Asia, Australia, the UK and the US over the course of 2021. With the aggressive actions we have taken, managing the balance sheet and reducing capacity, we are well positioned to capitalise on pent-up demand and to emerge a leaner, more efficient company, reinforcing our industry-leading position.’
• The company says ‘we ended the year with $9.5 billion in cash and have the liquidity in place to sustain ourselves throughout 2021, even in a zero-revenue environment.’
• UKinbound CEO Joss Croft claims the sector faces a battle for survival and the government ‘has not been overly helpful’. Mr Croft said ‘We’re fighting desperately to make sure the new round of business grants is available to tour operators.’
• Heathrow CEO John Holland-Kaye has called on the government to create robust measures to support the aviation industry, saying ‘We need a road map out of this lockdown, and a full waiver of business rates.’
• STR quotes Hotels.com as suggesting that ‘last minute’ travel could be a feature of the hotel market in the US this year. That is not good for forward planning or for margins. STR says ‘spontaneity will be the word of the year for 2021 travellers as a new global study reveals 89% of U.S. travellers intend to be more impulsive than ever, following 2020’s cancelled trips, boredom and all round ‘year of nothing’.’
• Hotels.com says ‘2020 was the year of staying home, postponing trips and posting old vacation pictures on social media. This year, travellers are ready to ‘seize the stay’ when travel returns and they feel comfortable to take the trips they missed out on”’.
• Luxtripper has closed a £1.2m funding round to develop its technology as an online travel agent, with the funding set to double its destination offering over the next three years.
• Games Workshop has reported H1 numbers to 29 November saying that revenues rose to £187m from £148m with PBT up to £91.6m from £58.6m. CEO Kevin Rountree says ‘another cracking performance from a truly amazing, global team; a solid six months building on the great progress and profitable growth we have been consistently delivering over the last five years.’
• Mr Rowntree adds ‘finally, I’d like to thank our enthusiastic and loyal fan base who share our love for the Warhammer Hobby and the fantastical settings, characters and narratives that make up our IP. Their ongoing support and feedback have been invaluable, keeping us honest when we have fallen short and driving us onward to continue to deliver more and better.’
• Re the outlook, GAW says ‘we will continue to do what is right for Games Workshop and our customers.’ It says it is trading well but that ‘our biggest risk is senior management becoming complacent. I will continue to do my best to ensure that does not happen.’
• Playtech has updated on trading to December saying its ‘strategic and operational progress helped drive a solid financial performance for 2020 with Adjusted EBITDA expected to be at least €300 million.’ Playtech says it will release its full year 2020 results on 11 March 2021.
• Twitter shares were down 7% after the social media platform banned Donald Trump due to his tweets posed a risk of inciting violence.
• Entain CEO Shay Segev has given notice of his intention to leave the company to become Co-CEO of DAZN in six months time. Although the shares finished the day down by 2.5%, some observers suggested that the departure of the CEO made a takeover by MGM Resorts more rather than less likely.
FINANCE & MARKETS:
• This is becoming politicised but there have been more stories about empty shelves in Northern Ireland and Scottish fishermen unable to sell their catches post the Brexit trade deal. Some say this will settle down, but Michael Gove suggests there will be ‘significant additional disruption’ before this happens. Scotland Food & Drink has said that exporters ‘are finding the door to the EU is shut.’
• Chancellor Rishi Sunak has said that the government cannot carry on borrowing without considering how it will raise taxes and cut services in order to pay back its ballooning debt.
• The Chancellor goes on to say the UK economy will “get worse before it gets better” as the country struggles with the Covid-19 pandemic and Brexit disruption. He says ‘even with the significant economic support we’ve provided, over 800,000 people have lost their job since February. Sadly, we have not and will not be able to save every job and every business.’ Sunak says ‘I am confident that our economic plan is supporting the finances of millions of people and businesses.’
• Sterling up at $1.3544 and €1.1139. Oil higher at $55.83. UK 10yr gilt yield up 2bps at 0.31%. World markets mostly lower yesterday with London set to open down a fraction in early trade today.
RETAIL WITH NICK BUBB:
Today’s News: As well as the scheduled Games Workshop interims and THG Q4 update, there has been an unscheduled trading update from Kingfisher, as well as the surprise news that the Arora family has dumped £218m of B&M shares (reducing their overall stake from c15% to c11%). The Kingfisher update is, inevitably, strong, with the company flagging that since its last update on Nov 19th things have picked up so well in France, in particular (such that total group LFL sales now running nearly 17% up in Q4), that the group is comfortable with the top end of the range of current sell-side analyst estimates for profits in y/e Jan. As for the others, THG has announced Q4 2020 revenue growth of +51%, outperforming the previous guidance of +40% to +45%, whilst Games Workshop beat its forecast of £90m operating profits for the 6 months to end Nov (versus £59.2m last year) and Kevin Rountree,
BRC-KPMG Retail Sales survey for December (the 5 weeks to Jan 2nd): We flagged yesterday that Food good/Non-Food bad was likely to be the main theme of today’s figures and that was certainly the case, but there was a bit more growth overall than might have been expected, with total sales up 1.8% (after just 0.9% growth in November), given further strong Online sales growth. The exact Food/Non-Food split of total sales last month is buried within the 3-month moving averages (of +7.3% and -1.5% respectively), but it looks to us as if total Food sales growth was at least 7% and that total Non-Food sales were over 4% down. The overall weak Non-Food performance masked further good growth in Home-related sub-sectors like Computing, TV/Gaming and Electrical Appliances, but was pulled down by poor Clothing and Footwear sales and weak Health and Beauty sales. Total Online Non-Food sales growth in