Langton Capital – 2021-01-13 – PREMIUM – Trading, Lockdown, Just Eat, Jet 2, Hostelworld, Wm Hill & other:
Hands up if you’re not here. An old, teacher joke but technology, huh?
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A DAY IN THE LIFE:
Our email list is maintained by Campaign Monitor. Periodically, dozens, if not hundreds of recipients are removed as ‘unsubscribed’ at the same time. As it’s unlikely (though not impossible) that we’ve said something so heinous as to force so many people to hit the ‘unsubscribe’ button at the same moment, this is probably a mechanised action.
The names are marked ‘unsubscribed’ (implying a recipient action – or a recipient’s server action) rather than ‘deleted’ (which would be down to us) so we’ve concluded, in the past, that these names are furloughed staff who’s mailboxes are full and we’ve put the names back on. This isn’t without incident as Cam Mon has all sorts of dire, anti-spam warnings when we do this, but we’ve done it nonetheless.
However, we won’t put them back on from now as the staff might sadly have lost their jobs. There will be some names taken off where people would like to stay on and hence the first line of this comment. A work around is to resubscribe yourself from our website, or read the email directly from the website, or have a Yahoo or Gmail address subscribed as well or pester your subscriptions people to go on the premium list.
Not a laugh a minute comment but we’ll try to do better tomorrow. 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. We’ve covered points one and two below and now we’ll have a look at point three.
• How will the year pan out, by quarter?
• Different recovery paths by sub-sector, region, product-type
• Any permanent or long-lasting changes? Any other observations?
• Longer term implications for rents
• Major risks & other considerations
Any permanent (or at least longer-lasting) changes?
Changes arguably ‘for the better’?
• VAT is 5%, good while it lasts. Ditto there are no business rates. Landlords’ teeth have been pulled (for the time being) and the furlough is currently still with us.
• There will be fewer sites going forward. The cake will not need to be sliced so thinly.
• Companies have cleaned house and cut costs. Not all these costs will be put back on once Covid is in the rear-view mirror.
• Menus have been simplified & margins could be better. Table ordering apps could cut costs going forward.
• Some menu price rises have been pushed through. Discounting could be subdued (although operators will need to hold their nerve). See also ‘inflation’ under negatives below.
• Wage pressure should have abated. Sad, as not for the most pleasant of reasons, but nonetheless true.
• Ditto rental costs have softened, and sites are more readily available – landlords are the main topic for tomorrow’s email.
• Some operators, with sites in suburban locations, could benefit if there is a move towards more working from home.
• Putting the ‘two consecutive quarters of negative GDP’ definition to one side, the UK is in recession.
• Perversely, the steeper the drop, the less likely is a ‘technical’ recession because, after a huge and sudden drop, there will almost certainly be a bounce sharp enough to prevent two consecutive quarters from being negative.
• The above has implications for jobs and demand. A bad recession could see 4%, 5% or 6% of people lose their jobs. Their behaviour will of course be impacted. But so will be the behaviour of the remaining c95%.
• Inflation may edge in. We’re told that ‘already malted barley prices are +15% on last year and there will be more.’ Some of this is Covid, some may be Brexit and some may be plain opportunism.
• Consumer behaviour maybe changed, not necessarily for the better. The sharp bounce back in demand in July was heartening but wet-led outlets performed most strongly and food was helped by EOTHO in August.
• We could have covered this under ‘negative changes’ but it is a big topic and we’ll cover it separately.
• Some other contributors suggest delivery will return to 2019 levels. The backers of Deliveroo in its current attempt to IPO would certainly hope this is not true. But it may be. Most operators seem to believe that delivery will have taken a step up and that not all delivery gains will be lost.
• Some suggest ‘acceleration will slow down’ and there will be ‘more delivery from dark kitchens.’ This isn’t particularly helpful for the casual diners as it will represent Deliveroo etc trying to capture more of the value chain themselves.
• One commentator says ‘Deliveroo is being overtaken in dark kitchens (Editions) by for example Reef plus many new entrants e.g., Karma Kitchens, Rebel Foods and Dephna
• Deliveroo’s charges may be unsustainable in the medium term. A contributor says they ‘have hiked their commission up to 35% for small operators.’ He says this is only palatable if operators have no other choice. He says ‘Deliveroo will be hoping that their commissions will be “sticky” – I’m not so sure.’
• Some revenue may have been ‘bought’. If the operator and delivery company behind lost money on the transaction, was there ever really a market there (at a sustainable price) at all? Operators, other than in very high-density locations, may have been dragged into a loss-making offer.
• One reader says, ‘more virtual brands to be launched (both out of dark kitchens and from operators’ bricks and mortar kitchens) but the link between “real” and “virtual” will start to fray. Restaurant operators will have to rethink their branding strategy.’
PUBS & RESTAURANTS:
• MPs have passed a motion to create a Minister for Hospitality following the ‘Seat At The Table’ petition, created by journalist Claire Bosi.
• S4 Labour has reported that 2020 revenue for pubs and restaurants declined 51.38%. Overall London was more affected, at a revenue decline of 56.0%, whilst Non-London performed better, at a decline of 50.2%.
• Length of Lockdown 3.0:
• If the current lockdown lasts until Mayday, it will be longer than Lockdown 1.0 (with its more generous levels of support) and more than three times the length of Lockdown 2.0. The suggestion that the local elections, due 6 May, are being put on hold, does leave the way open for the government to extend the current lockdown without tripping over its own feet (again).
• Fears over the suppression of the immune response following alcohol consumption has been rebuffed by William Moss, executive director of the International Vaccine Access Center at Johns Hopkins University. Moss stated: ‘There’s no evidence that, if you have one beer or a glass of wine a couple days after you get your vaccine, that’s going to interfere with your immune response or protection following the vaccine’.
• Foodservice analyst Simon Stenning has produced a report, The Future of Foodservice, in which he suggests that hospitality revenues could decline by £30bn this year (on 2019 levels) followed by a ‘great reset for the industry, rebuilding to 2025.’
• Stenning suggests the drop, equivalent to around 30% of 2019 levels of revenue, will be less severe than last year’s over 50% drop. He says some 21% of all casual dining outlets closed last year and more may close in 2021.
• Fast food outlets ‘will fare better and take share from service-led restaurants.’ Stenning says ‘the industry desperately needs further Government support, especially the retention of VAT on food sales at 5%.’
• Stenning’s report covers 2021 quarter by quarter. It suggests that 2022 revenues will be 93% of 2019 and some £133bn of revenue will be lost over the period during which the sector rebuilds. Stenning says ‘the hospitality industry faces enormous challenges at the start of 2021 and requires substantial further Government support; There are still significant property debts that are outstanding, and Business Rates are set to be re-instated from April. VAT is a significant factor for the industry for 2021, and our forecasts are built on VAT remaining at 5% for the rest of 2021.’ The report is available to purchase at www.FutureFoodservice.com
• Just Eat Takeaway.com has updated on Q4 trading saying that growth during the quarter accelerated to 57%.
• JET says ‘the fourth quarter of 2020 marks our third consecutive quarter of order growth acceleration. Our investment programme is very successful and has led to significant market share gains in most of our countries. The progress in the UK is particularly exciting; order growth of 58% and we have increased our Delivery Orders nearly five-fold in the fourth quarter of 2020 compared with the same period in 2019.’
• The company says ‘in 2021, we will continue to invest in price leadership, improving our service levels and expanding our offering to restaurants and consumers.’ It adds that it has ‘further strengthened its market leading positions by significantly investing in its most important countries. This led to strong and accelerating growth both in Marketplace Orders as well as in its Delivery business, combined with a solid financial performance.’
• JET reports that ‘orders in Rest of the World grew 47% in the fourth quarter of 2020 compared with the same period last year, with Australia (+166%) in particular demonstrating outstanding performance.’ It says ‘for the full year 2020, management expects revenue growth of more than 50% with an adjusted EBITDA margin of approximately 10%, reflecting significant investments in Delivery in the fourth quarter of 2020. To capitalise on the strong momentum from our investment programme, we will continue to invest heavily and prioritise market share over adjusted EBITDA.’
• In a separate RNS, JET says that ‘in light of the enlarged and more globalised investor base that Just Eat Takeaway.com will have following completion of the Grubhub acquisition, and in the interests of both Just Eat Takeaway.com and its shareholders, Just Eat Takeaway.com now intends to take a period of time in which to determine the optimal listing venues for its long term future.’ It had intended to delist in at least one location in The Netherlands.
• JET says ‘as part of this assessment, Just Eat Takeaway.com will consider, amongst other things, liquidity and trading volumes across the listings it will have in Amsterdam, London and New York, which will take time to find a natural home following a material acquisition such as Grubhub. Just Eat Takeaway.com intends to delay any decision on the structure of its listing venues whilst it completes its review. This is in order to minimise disruption for its shareholders. It therefore no longer intends to delist its shares from Euronext Amsterdam as soon as possible and it will remain listed at both the London Stock Exchange and Euronext Amsterdam until otherwise decided.’
• Following the UK’s exit from the EU, Diageo has announced that its EU Home Member State for purposes of the EU Transparency Directive will be Ireland. Diageo will therefore begin filing certain regulatory information with the Central Bank of Ireland in accordance with applicable EU and Irish law.
• Shake Shack has saw like-for-like sales down 17.4% in Q4 results. The group also stated that it aimed to open 35-40 new stores in 2021.
The consumer & other:
• The governor of the Bank of England has stated he believes the UK’s jobless rate has reached c.6.5%, higher than the official figures. The latest official figure for the rate stands at 4.9% but covers only up to the three months to October.
• The Road Haulage Association has suggested that food and other prices may have to rise in the UK as foreign truckers bringing freight to Britain have raised their prices by almost 700pc (from €1.50 per km to €10 per km) over concerns that they may find their lorries stranded on the wrong side of the Channel.
• The RHA says ‘hauliers are raising their prices for trips to the UK because of fears about disruption, getting held up by new paperwork and a lack of certainty that they can get ‘back loads’ for the return journey to make it worthwhile.’ It says ‘if British companies can’t work out the paperwork, what hope have foreign firms got?’ The easiest answer has to be to raise prices.
HOTELS & LEISURE TRAVEL:
• Jet2.com and Jet2holidays have extended the suspension of their flights and holidays until March 25 due to the ongoing uncertainty and travel restrictions brought on by the national lockdown.
• Hostelworld renegotiating debt facilities.
• Hostelworld has updated on current trading and financing saying that ‘global travel demand remained muted throughout Q4 2020 with ongoing travel restrictions continuing to severely impact the global travel industry.’ It says ‘the trading deterioration we had experienced since the end of August 2020 continued throughout Q4 2020, with minimal booking demand and ABV contraction primarily due to bed price deflation.’
• Hostelworld says ‘notwithstanding this, we have continued to release significant enhancements to strengthen our core platform to enhance our service offering and competitiveness when normal travel patterns resume.’ Ful year bookings will be between 20% and 22% of 2019 levels. This is in line with the statement made at the October trading update.
• Hostelworld says ‘as at 31 December 2020, the Group’s net cash position stood at €18.2 million (as at 30 June 2020: €29.4 million) with current liabilities of €20.7 million (as at 30 June 2020: €23.3 million), a reduction of €2.6 million versus June 2020 due to the partial repayment of a €3.5 million short-term financing facility. Cash liabilities due in H1 2021 are expected to be in the range of €6.5 – 7.0 million.’
• Hostelworld says it is engaged with debt providers. It says ‘there is no guarantee that the Company will agree the terms of the debt facility currently being negotiated.’ It is seeking shareholder approval to amend the borrowing limit contained within the Company’s Articles of Association. CEO Gary Morrison says ‘COVID-19 has had a prolonged and significant impact on our business and the entire global travel industry. We have taken swift action to protect the business and improve the core platform to position the business well for when demand returns. Given the prolonged nature of the restrictions, we are now actively assessing ways to strengthen our balance sheet.
• The CEO concludes ‘the Board and I remain confident that the Group’s enhanced service offering, and competitive positioning will provide a strong platform to deliver growth when normal travel patterns resume, delivering long-term future upside for our shareholders.’
• STR has reported that London hotels saw occupancy fall by 70% year on year in December vs the same month last year. Room rates were 46% lower and REVPAR was down by 84%.
• STR reports that ‘European hoteliers see growing staycation demand. It quotes a hotelier in Paris as saying that they are welcoming more domestic visitors.
• A survey commissioned by Wyndham Rewards reported that 44% of respondents intend to return to a British destination they have already visited and 39% plan to explore somewhere new in the UK.
• The government will require all international arrivals, including UK citizens, to have proof of a negative, pre-departure Covid test, starting from 4 am on Friday. Jet2holiday’s head of trade sales, Alan Cross, said ‘This is another major cost…and it’s not good news.’
• Carnival is ready to restart its cruise operations but is unable to say or give guidance on when. CEO Arnold Donald said ‘We are working towards resuming operations in the US, Asia, the UK and other markets.’
• Royal Caribbean Group is now suspending sailings until April 30, including Spectrum of the Seas from February 16-28.
• William Hill, currently the subject of an agreed bid from Caesar’s Entertainment, has updated on Q4 and full year trading saying ‘the Group’s total net revenue for the fourth quarter grew 9% year-on-year. Sportsbook staking increased 16%, driven by enhanced products and geographical expansion, whilst gross win margins benefitted from favourable sporting results, driving Group sportsbook net revenue up 20% year-on-year.’
• WMH says ‘2020 has been an extraordinary year with the impact of the Covid-19 pandemic on live sport, national and regional lockdowns in our Retail business and the effect of trading a smaller retail estate, meaning that total Group net revenue for the year decreased by 16% to £1,324m.’
• CEO Ulrik Bengtsson says ‘2020 was a year like no other. It tested our agility and flexibility and we delivered, keeping our customers and team safe, whilst materially improving our competitive position through product enhancements and geographical expansion. The offer received for the Group recognises the substantial progress we have made as well as the opportunities and challenges ahead of us.’
FINANCE & MARKETS:
• Sterling stronger at $1.3678 and €1.1197. Oil up at $57.19. UK 10yr gilt yield up 5bps at 0.36%. World markets mostly better yesterday with London due to open up around 10pts.
RETAIL WITH NICK BUBB:
Today’s News: As well as the scheduled ASOS Q1 update and the Just Eat Q4, there has been an unscheduled trading update from Howden (on the back of the strong Kingfisher update yesterday) and a strong Christmas update from Lidl UK. Lidl has confirmed the recent Kantar figures showing that overall sales increased 17.9% in the 4-week period to 27th December, meaning it was the fastest growing retailer versus the Big 4 supermarkets and massively outperformed its main competitor, Aldi, thanks to strong sales of premium food and drink. And the kitchen business Howden has announced that even though December is not a key period for the business, trading was so strong that it now expects full year PBT to be around £185m, which is c£20m more than the big upgrade it made only just over a month ago.
Moonpig Watch: Following the surprise launch of the IPO of Dr Martens on Monday, we missed another IPO launch yesterday, but we could be forgiven, as the announcement came from a business called Cards Holdco, rather than its trading name, the market leader in Online greeting cards, Moonpig. As flagged in the weekend press, the big thing that Moonpig has going for it is that that the highly respected former WH Smith boss Kate Swann is the Chairman of the company, but (as with Dr Martens), judging by the size of the star-studded syndicate of banks and brokers involved, the private equity owners are taking no chances on getting the £1bn float away, with Citigroup and JP Morgan Cazenove as joint coordinators and HSBC, Jefferies and Numis as joint bookrunners.