Langton Capital – 2021-02-23 – PREMIUM – M&B, un-lockdown reaction, trends, Caffe Nero, delivery, holidays etc.:
M&B, un-lockdown reaction, trends, Caffe Nero, delivery, holidays etc.:
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A DAY IN THE LIFE:
I read the other day that you’re meant to carefully trim the inward-growing branches on your fruit trees. You should then clean off the scarred wood, apologise to the tree, serenade it nightly with a song or two, give it a cup of tea and erect a windbreak to stop it getting a chill.
However, as we have several dozen of the blighters lounging around our garden doing not very much other than encourage the wasps every autumn, we thought no, we won’t do that at all. We’ll let them go wild and they can cope for themselves.
Laziness, perhaps but, as a holiday park owner said to us once when he caught us inspecting the weeds growing up through the cracks in his pavement, it’s the green thing to do, and that’s not a half-bad excuse so, there you are. We’re doing it for the bullfinches and the other assorted vermin that plague our garden and hey-presto, job done, we’re amongst the good guys.
Anyway, looking outside just now I can almost feel the sap rising and that awful day, the day that I have to get the lawnmower out, is fast approaching. For the moment, though, let’s move on to the news:
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MITCHELLS & BUTLERS:
Comment on timetable, take private possibilities etc.
• The 7 for 18 offer at 210p is operating on a tight timetable.
• The prospectus was published yesterday, payment deadline 10 March, company General Meeting 11 March & new shares dealing by 12 March.
• This is an accelerated process.
• The Takeover Panel has accepted the need to allow the underwriters to the deal, effectively M&B’s largest shareholders, to come together with 55% of the company (prior to any take-up of excess shares at 210p) without the need for a full bid for the company
• It does appear from the facts that, with its pension commitments, the need to service debt & the general costs during lockdown, M&B could not have survived beyond the summer without financial support
• The group has said that it will look to cut PLC costs via a reduction in the number of directors and a delisting of the group’s shares cannot be ruled out
• Ironically, any reluctance (due to the above) on the part of shareholders to take up their shares at 210p, would lead to an increased stake being held by Odyzean and could accelerate any move to delist
PUBS & RESTAURANTS:
Covid-19 – Prime Minister’s comments on un-lockdown.
• In brief, all much as leaked. Subdued presentation. (8 March, Schools). (12 April, outdoor pubs & restaurants – no curfew, no main meal requirement. Also, self-catered holidays & gyms). (17 May, indoor pubs & restaurants). (21 June, possibly nightclubs).
• One rule for England, four reviews, five steps and the rule of six
• PM says the Pfizer vaccine reduces hospitalisations and deaths by 75%. Astra-Zeneca vaccine is ‘too early to tell’.
• Cases should fall, a ‘zero-Covid’ solution is not possible, it’s all a matter of balance.
• PM promises this exit from lockdown, the third, will be the last. He says it must be ‘cautious and irreversible’.
• He says we are ‘on the road to freedom’ adding government will be driven by ‘data not dates’.
• All areas of England are similar, there will be no Tiers.
• The authorities will look at a) vaccine rollout, b) the evidence of its effect, c) they will check there are no infection surges after each stage of un-lockdown and d) will watch out for the risks from variants.
The five steps (impacting hospitality):
• First, schools on 8 March. Then second, non-essential retail can open & pubs / restaurants can trade outdoors. There will be no 10pm curfew and no need for a substantive meal. Holiday lets can also open, as can zoos & outdoor cinemas (if there are any).
• Third, no earlier than 15 May, pubs & restaurants can open indoors. Concert halls & theatres can reopen. Fourth, limits may be withdrawn from 21 June. Fifth, nightclubs may be allowed to reopen.
• One, a review into distancing & facemasks. No date.
• Two a review on restarting travel to take place by 12 April.
• Three, vaccine certificates to be considered.
• Four, consider allowing ‘major events’
• The PM says the chancellor will not ‘pull the rug out’. The Budget is 3 March. The government will ‘protect jobs & livelihoods’.
Blurb & boosterism:
• Not much in evidence (other than dates vs data, road to freedom etc.) But PM says the future will be ‘incomparably better’ than the recent past.
Trade response (broadly underwhelmed):
• SIBA says ‘under the Prime Minister’s roadmap published today, many small breweries and community pubs are now destined to fail, just as the vaccination programme should be providing hope and optimism.’
• SIBA adds ‘although it is welcome that nonsense restrictions like 10pm curfew and substantial meal have been dropped as part of steps 2 and 3 of the plan, the vast majority of pubs simply do not have the outdoor space or facilities needed to operate viably and profitably in April.’
• It adds ‘the 17th May when pubs might be allowed to welcome indoor patrons is 84 days away.’
• Loungers’ chairman Alex Reilley says the announcement ‘condemned thousands of hospitality businesses to death. Hopes & dreams crushed, livelihoods destroyed, & jobs lost. Seemingly it’s an acceptable sacrifice of a sector.’
• Oakman’s Peter Borg-Neal comments along the same lines tweeting that the PM’s comment that ‘the end is in sight’ could relate to the viability of hospitality businesses rather than to lockdown.
• Former Carluccio and current Gusto director Frank Bandura tweets he is ‘feeling completely numb after today’s announcement that hospitality will not reopen before 17/5. No evidence to support this and unless Sunak pulls some spectacular rabbits out of his hat on 3/3 it will be the death knell for many great businesses.’
• Looking forward to next week’s Budget, UKH says ‘hospitality urgently needs support. We hope that MPs of all parties will continue to support the key asks of the sector at this time, including a continuation of the VAT reduction, business rates holiday & targeted extension of furlough that are vital to businesses across the UK.’
• The BBPA says the ‘cautious’ reopening will cost pubs £1.5 Billion.’ It says ‘today we were looking for a clear roadmap out of lockdown for our sector and an indication of the dates when we could fully reopen and operate viably, again.’ CEO Emma McClarkin says ‘our sector will continue to face severe restrictions that limit their business and stop them from being viable. The reality is debt is mounting and many pubs simply won’t be able to hold out to April or May and will close for good before any door gets open.’
• Ms McClarkin says outdoor only opening ‘will likely mean that 3 in 5 pubs across the UK will remain closed. That’s 29,000 pubs still not able to open either because they don’t have any outdoor space or simply because they will not be commercially sustainable. Because of this, the majority of pubs will not reopen until May 17th at the earliest, meaning that they will have been closed for almost 8 months.’
• The BBPA is calling on the government to ‘plug that £1.5 billion hole for our sector with vital support in the Budget next week if thousands of pubs are now to survive.’
• The BBPA turns its attention to the Budget when it says ‘the PM said he will not pull the rug out and do whatever it takes. We will hold both him and the Chancellor to this. Our sector will need more grant support until pubs can fully reopen, as well as furlough extended to save jobs for pubs not able to open in April.’
• It says ‘even when they open in May, pubs will need help on their long road to recovery through an extension of the VAT cut and Business Rates relief – as well as a beer duty cut.’
• We would suggest that, whilst if you don’t ask, you don’t get, there is a risk that sometimes one asks for too much.
• There are plenty of other industries (as we outline in the paragraph below) that have suffered and government has to balance the needs, wants and wishes of taxpayers alongside hospitality and other potential worthy causes such as the NHS, the unemployed etc.
• The Telegraph says ‘we’ve got the vaccines, so why is this lockdown set to last longer than the first one? For all the talk of marching towards freedom, nothing is going to change in the next month apart from schools opening and care homes allowing one visitor.’
• It says ‘eighteen million people – a quarter of the adult population – have had their first jab of a vaccine that is working better than anyone could have hoped.’ The Telegraph opines ‘we must begin rebuilding our shattered economy and social lives. Lockdown is a disaster that can only be justified if it prevents a catastrophe.’
• The BBC quotes some operators as saying they are ‘delighted to have some dates to work towards at last.’ Online sales, click & collect and delivery have rescued some businesses but opening doors again will come as a great relief.
• City AM reports ‘the hospitality industry has reacted with fury as the Prime Minister plans to allow pubs and restaurants to only serve outdoors.’ It quotes industry sources as saying that ‘currently, only forty percent of businesses in hospitality have outdoor spaces, meaning many will still face restrictions after April.’
• UKH’s Kate Nicholls has warned of the impact enforcing outdoor table service will have, including forcing many businesses to trade below ‘sustainable levels’. She says ‘the Chancellor has just nine days to save thousands of businesses and hundreds of thousands of jobs that simply will not be there without a substantial package of compensation.’
• City AM quotes Chief Executive of the FDF, Ian Wright, as saying that a return to normal is now increasingly a long way off. Greene King’s CEO Nick Mackenzie suggested the upcoming government’s Budget needs to take account of the further blow to the sector. He says ‘next week’s Budget needs to bring positive news as we continue to burn tens of millions of pounds in cash every month.’
• This is ‘not brilliant but it is still something’. And the outlook for pubs & restaurants is a darn sight better than the outlook for airlines, cinemas, bowling alleys, bingo, casinos, cruise ships and events organisers.
• Freehold-based operators with lower fixed costs (and perhaps vertically integrated via breweries) will break even at relatively low levels of LfL turnover.
• Pubs are more likely to have outside space than restaurants.
• City centre, leasehold units (restaurants more than pubs) will be in a less-good position. Not least because they may not have many office workers around them. Ditto operators that buy their beer at spot prices rather than brew it themselves.
• Suburbs may outperform city centres – both due to outdoor space and because the ‘work from home’ order is still in place. Some operators, both in the suburbs and in urban locations, may be considering whether they should just open at weekends.
• Regarding outdoor opening, we would expect to see table service and access to indoor lavatories (with the rest of the pub roped off).
Other Covid-19 news:
• Alix Partners suggests that ‘throughout the pandemic we have seen the acceleration of a number of existing trends.’ It says omni-channel strategies, digitalisation, experiential offers and the move to ‘authenticity’ could be here to stay.
• Alix Partners says ‘it’s hard to imagine an immediate return to business as usual for the sector but, then again, when consumers do finally come back, they will find comfort in the familiar and a new-found appreciation of eating and drinking out. While elements of the hospitality industry will have changed forever, in many cases this will make for a more efficient and more resilient industry for years to come.’
• The Issa brothers, who own ASDA, have bought some of Caffe Nero’s reported £350m debt.
• Pragma Consulting considers whether food delivery services will become more common in airport terminals. Possible, of course, but physical delivery would not be possible air-side (i.e. through security) and, to be honest, there isn’t much shortage of restaurants of coffee shops evident in airport terminals in any case.
• Langton Comment: We may have missed something but, if we had to call it, we would suggest that this will not happen. There is plenty of supply already and no obvious unrequited demand.
• Furthermore, turnover rents are common in airports and why would the landlord, the airport terminal, risk their own revenue, by allowing delivery into the building? If customers want to have meals delivered to their cars in airport carparks, which they don’t, then even then, the delivery bike or car would be charged to exit once they had made their delivery.
• The Sun reported a poll as suggesting yesterday that ‘Brits are willing to carry a vaccine passport if it means pubs and restaurants can reopen sooner.’ It says ‘some 62 per cent say they would be happy to carry one for all circumstances – with a further 22 per cent willing to have one for foreign travel.’
• Drinks Business is questioning whether there could be a boom in demand in the on-trade once operations are allowed to recommence. It says ‘after a year of lockdown, there is huge pent up demand for socialising.’
• A survey conducted by Wine Paris and Vinexpo Paris has suggested that 55% of wine merchants reported an increase in sales last year.
• Ireland’s pubs may not reopen until the summer says PM Micheal Martin.
Company & other news:
• Foodservice analyst Peter Backman points out that ‘virtual brands are getting a lot of exposure at the moment.’ He says these operations, which do not have bricks and mortar exposure, come in two main shapes. First, existing physical operators who wish to offer a different food type or brand and second, operators who only have a virtual brand. The motivations for both of these groups are similar, i.e., to drive more revenue from existing assets.
• Restaurant chain German Doner Kebab has said it intends to expand and add up to 1,800 jobs in the UK.
• Fuller’s is offering a Home Sunday Roast box for Mothers’ Day. It says ‘each box also comes with a complementary bottle of English sparkling wine from Laverstoke Park Farm – one of Fuller’s favourite suppliers – for the Mum in your life.’ The box costs £120 for four people or £155 for six.
• Facebook is reported set to challenge Amazon and eBay in the online sales market in the UK. It is to launch a set of shopping tool to take advantage of the recent surge in ecommerce. Facebook says ‘during the Covid-19 pandemic, the shift to online shopping has rapidly accelerated, with an estimated 85pc of people worldwide now shopping online.’
• The NIESR has produced work for Channel 4 suggesting that the number of ‘destitute’ households rose from 0.7% in 2019 to 1.5% in 2020. The NIESR reports ‘as a result of lockdowns, levels of destitution seem to be rising across the country. But what’s terribly worrying is that in certain regions – in the North West in particular – we might see some 4, 5 or 6 per cent of the population living in destitution.’
HOTELS & LEISURE TRAVEL:
• See comments on un-lockdown above. The government is to report on when international travel could resume. A report is due by 12 April
• Travel company shares sharply higher. TUI and Jet2 both up over 8%. Hostelworld up 7%, On the Beach up only 2%.
• The Telegraph reports that MPs have been told that the UK economy could lose £18 billion if the current restrictions on international travel last into summer
• PM Boris Johnson has said there is ‘every chance’ of an aviation recovery this summer. He says people now have ‘time to make plans for the summer’. Former PM Theresa May said the 12 April review ‘will not allow people to plan’ and says ‘the industry needs three months’ preparation.’
• Travel Weekly reports ‘airlines say they have already seen a surge in bookings, following the Prime Minister’s announcement of the road map out of lockdown.’ It says ‘Tui reported that they had had their best day of bookings in over a month, with strong interest in Greece, Spain and Turkey for the summer.’ Thomas Cook said traffic to its website was up over 100% on Monday.
• Intercontinental Hotels has reported Q4 & FY numbers to end-December saying that full year revenue fell by 48% to $2.4bn to give an operating loss of $153m versus an operating profit of $630m last year. Basic loss per share is 143c versus a profit of 210c last year. There is no dividend. Debt is down by 5% at $2.529bn.
• IHG CEO Keith Barr says ‘2020 was clearly the most challenging year in our history, with Covid-19 heavily impacting demand across our industry. 2021 has begun with many of these challenges still in place, with more meaningful progress towards recovery for the industry unlikely until later in the year and dependent on global vaccine rollouts, lifting of restrictions and an acceleration in economic activity.’
• He says ‘the shape of recovery remains varied globally, but we’ve continued to outperform the industry in key markets thanks to the strength of our teams, business model and segments in which we compete.’ Barr says ‘despite so many challenges in 2020, the long-term confidence we share with our owners was reflected by another 285 hotels opening during the year and an average of almost one new signing a day.’
• IHG concludes ‘having demonstrated resilience and outperformed in 2020, we continue to work closely with owners to capture demand, alongside investing to capitalise on our industry’s long-term growth prospects. Our preferred brands in attractive markets and segments, even stronger technology and loyalty platforms, and a substantial proportion of our pipeline being under construction, give us confidence in our ability to achieve industry-leading net rooms growth as the market recovers.’
• Royal Caribbean has reported full year 2020 numbers saying ‘the COVID-19 pandemic is having a painful and profound impact on our world and our business; unquestionably, this crisis is the most difficult in the Company’s history.’
• It says the group lost $5.8bn in 2020 or $27.05 per share. This compares to a net profit of $1.9bn in the prior year. The Q4 loss was $1.4bn. CFO Jason Liberty says ‘these results reflect the staggering impact that the pandemic brought to our Company and the whole industry during 2020.’
• RCL says it ‘estimates its cash burn to be, on average, in the range of approximately $250 million to $290 million per month during a prolonged suspension of operations.’ The company says ‘we remain focused on improving our liquidity position, managing our operating expenditures and ensuring that our family of brands is ready for the return to service.’
• Re 2021 outlook, RCL says it ‘cannot reasonably estimate its financial or operational results. Notwithstanding the foregoing, the Company expects to incur a net loss on both a US GAAP and adjusted basis for its first quarter and the 2021 fiscal year, the extent of which will depend on many factors including the timing and extent of the return to service.’
• Langton comment: RCL shows, if proof were needed, that there are worse places to be than UK hotels & restaurants. Travel in general is probably impacted to a greater degree.
• Some thoughts on Hostelworld’s financing yesterday at 9% above base. That is a pretty rich coupon and it represents the banks and debt providers trying to get their risk premiums right, always a tricky one. And something they got spectacularly wrong in 2008-09.
• Debt coupons speak louder than words & here we have the debt providers are tacitly suggesting that they think they are taking an equity risk. At least in part and, if they are going to do that, then they need a return on their capital that more closely represents the risk they are taking.
• Boeing 777s with the same engine as the one that caught fire and partially fell to bits over Denver will be temporarily banned from entering UK airspace says Grant Shapps. Signs of metal fatigue have been found on the fan blades in the plane engine that failed shortly after take-off in Denver.
• Orders for new aircraft virtually dried up in January reports trade organisation ADS. Some four orders were received, down from 296 in January 2020.
• Pure Gym has told the BBC ‘we are burning about £500,000 a day and that’s the average over eight months of closure.’
• Spotify is reported set to launch in 85 new markets.
FINANCE & MARKETS:
• Sterling stronger at $1.4073 and €1.1565. Oil higher at $66.36. UK 10yr gilt yield down 1bp at 0.69%. World markets mixed to down yesterday with London set to open up around 3pts this morning.
RETAIL WITH NICK BUBB:
Today’s News: Following the news that John Lewis is planning to not-reopen up to 8 more department stores after lockdown, Frasers Group (aka Sports Direct etc) has been quick out of the blocks today to flag that after yesterday’s announcement by the Government on the potential reopening of “non-essential” stores in England on 12 April, Frasers Group expects to have to make a material accounting impairment to the value of its freehold properties etc: “given the length of this current lockdown, potential systemic changes to consumer behaviour, and the risk of further restrictions in future, we believe this non-cash impairment could be in excess of £100m”. It has not said which parts of its rambling empire it is focused on, but although we assume that a big chunk of the asset write-offs will come in House of Fraser, it is not the first time it has had to write down its ill-fated investments
This Week’s News: Thursday brings the ABF (Primark) pre-close update, the Howden finals, the Inchcape finals and the Shaftesbury AGM and by Friday, with February rapidly coming to an end, the embattled Card Factory is due to provide a “liquidity update”.