Langton Capital – 2021-03-02 – Budget, lockdown fatigue, footfall, rents, Restaurant Group etc.:
Budget, lockdown fatigue, footfall, rents, Restaurant Group etc.:
A DAY IN THE LIFE:
I was thinking about Warren Buffett, the other day, specifically, a comment that he reportedly made about gold.
Mr Buffett made the point that, if you put all the gold ever mined, milled and in existence in a field and left it for a decade, it would earn you precisely nothing.
And he’s right, of course, but, as we know, that’s not the point. It’s shiny and attractive and, above all, it’s a massive confidence trick that holds its value because, well, it just always does.
Which led me to think about all the gold that had ever been milled and mined.
I picked up a figure of $8tn somewhere. Admittedly that might be a little out of date but, if you work on the basis that gold is $1,772 an ounce, then it’s $57 per gramme.
That’s $57,000 per kg and, as it weighs around 19.3x as much as water (yes, 19.3 – there’s an ingot in the Bank of England Museum that you can pick up, it’s amazing) that’s about $1.1m per litre.
Or about $1.1bn per cubic metre. Meaning that $8tn would be a cube slightly less than 20 metres on each side. That’s about the size of a modest block of flats, perhaps 5 storeys high.
Of course, a) that’s a big pile of gold but b) compared to the size of the earth – or even a modest hillock, it’s not a lot to show for 10,000 years of digging, fighting, warring, pillaging and the rest, is it?
Anyway, if that puts you off gold and you’d like to send it our way, don’t let us stop you. Ditto Bitcoins. On to the news:
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PUBS & RESTAURANTS:
Lockdown fatigue – office workers:
• The BBC reports the boss of Canary Wharf Group as saying that workers are keen to return to the office because working from home isn’t ideal under all circumstances and they are feeling “fatigued”
• Maybe this is a self-serving comment but there are many reasons why working from home may not be optimal over the longer term.
• Canary Wharf only about 6,000 people on site, against 100,000 pre-Covid. If this (the 6,000) includes security and cleaning staff then the office-worker number may be close to zero.
• Howard Dawber, who is MD for Strategy at Canary Wharf, says ‘working from home for the first couple of months of last year when the sun was shining and people were enjoying perhaps a more flexible environment, there was a sense that this was going to be a short-term process.’ He says ‘I think now people are really missing that opportunity to collaborate with and just see their friends in the office, to get your hair cut, to go and get a good coffee at lunchtime, and to do all the life admin things you can do in a city centre.’
• Langton comment. See Premium Email.
Lockdown fatigue, shoppers:
• Springboard has reported that visits to retail destinations rose by 11% last week compared to the week. This may have been partly due to the sunny weather. But springboard still says this is “ever clearer evidence of lockdown fatigue”.
• Diane Wehrle, insights director at Springboard, says ‘perhaps prompted by the announcement of the government’s roadmap to reopening at the beginning of the week, but then supported by drier warmer weather in the second half of the week, footfall in UK retail destinations rose once again.’ She says ‘not only was this the sixth consecutive week that footfall has increased, but its magnitude was greater than in any previous week and nearly twice that in the week before.’
• Langton Comment: See Premium Email.
• The noise and lobbying must be working towards a crescendo. Everybody wants everything. See comments on Budget above for interpretation.
• We will know tomorrow but the extension of the furlough, the continuation of the 5% VAT rate, the extension of the furlough scheme and, perhaps under separate announcement, a continuation of the moratorium on rent arrear evictions seem to be the front running bets.
• Beer Duty may be cut. A differential between the supermarkets and the on-trade may be introduced, etc.
• Less likely – but not impossible – are the extension of the 5% VAT to alcohol and / or the making permanent of the 5% band.
• This is one of the several ‘elephants in the room’.
• Corporations are undertaking a major ‘equity for debt’ swap. Companies may not be shrinking in size (much) but the ownership of the capital used to run them is shifting from equity to banks, bondholders, the government and creditors such as landlords.
• A report from the Business, Energy and Industrial Strategy (BEIS) Committee has called on Chancellor Rishi Sunak to use his Budget to target support. It is thought that up to £3bn in unsettled rent has now accrued within hospitality.
• 45 Conservative MPs in “Red Wall” seats are calling for a permanent reduction in business rates
• KAM Media says of feedback from pub tenants ‘given the year the industry has had, it is even more critical than ever that pub companies stay close to their licensees in order to evaluate their performance and ensure their offer for their tenants remains competitive.’ It singles out JW Lees, saying the company ‘continues to gain very strong feedback from their Pub Partners across the majority of the criteria we measure, coming out top in many, which I believe is a direct result of them listening hard to their tenants and reacting to what they hear.’
• Cracker Barrel Old Country Store in the Us has reported a same-store sales decrease of 21.9% for the second quarter ended Jan. 29.
• CNN reports that Beyond Meat has signed two new deals with McDonald’s and Yum Brands.
RESTAURANT GROUP UPDATE:
This in yesterday’s premium email. Restaurant Group has updated on its debt financing & the impact of Covid.
• RTN reports that it has agreed £500m of new long-term debt facilities
• This comprises a £380 million Term Loan Facility to 2026; and £120 million Super Senior Revolving Credit Facility to 2025
• It says there will be no leverage tests until June 2022
• Coupon is c7% with no formal amortisation requirements
• The group says FY 2020 year-end (27 December 2020) net debt (pre-IFRS16) of was c.£340m, and adds this is ‘in line with our expectations’
• RTN says ‘the New Facilities provide the Group with enhanced liquidity and long-term financing with the maturities of the Term Loan and the RCF being in 2026 and 2025, respectively.’
• It adds the new debt ‘will be used to repay and refinance in full all of TRG’s existing debt facilities…which are all due to reach maturity by July 2022.’
More detail on the debt:
• It says ‘following the utilisation of the New Facilities, and the repayment of the Existing Facilities, the Group’s financing arrangements will be simplified, as the Group will be consolidated into one finance group at the TRG level which will provide a more efficient funding structure to support the Group’s strategic initiatives.’
• RTN adds ‘the Group shall be subject only to a minimum liquidity covenant set at £40m (versus £50m under the existing TRG Plc RCF) until 30 June 2022 with net leverage-based testing then resuming under the RCF.’
• ‘There shall be no net leverage-based testing under the Term Loan until the period ending 31 December 2022 at which point the Group’s net leverage covenant (as measured on a pre-IFRS 16 basis) shall be set at 5.0x before decreasing every six months to 4.0x by the period ending 31 December 2023 and thereafter.’
• RTN says both new debt tranches ‘are subject to a margin ratchet which allows the Group’s cost of debt to decrease according to prevailing net leverage (defined as pre IFRS 16 net debt/EBITDA).’
• It clarifies ‘for illustrative purposes the initial weighted average cost of debt is expected to be approximately 7.0%, which would fall to approximately 6.0% were net leverage to go below 2.0x.’
• There are no contractual amortisation repayments.
• RTN says it is burning cash at the rate of around £5.5m ‘per four week period during ongoing national lockdown, with a c.£40m working capital outflow post year-end due to unwind of supplier creditor positions’
• The Group adds ‘the cash burn rate is expected to stay at this level until the end of the current restrictions for hospitality businesses, which as per government guidance on 22 February are due to end no earlier than 17 May 2021.’
• It says it has seen ‘strong recent trading for delivery and takeaway across c.200 sites in Wagamama and Leisure businesses’
• It has an ‘accelerated reopening plan for dine-in trading, once the current restrictions for hospitality businesses end, with all viable sites being reopened within two weeks’
• This presumably takes into account the fact that many sites will not be able to open for outside dining in April
• RTN says it ‘currently has approximately 200 sites trading for delivery and takeaway across its Wagamama and Leisure businesses.’
• It says ‘the trading performance of those sites in the current financial year (FY 2021) has been very encouraging with average standalone delivery and takeaway sales in Wagamama and Leisure at approximately 2.5x and 5.0x pre-Covid-19 levels.’
• It concludes ‘with this strong operating platform in place, the Group has good capability to deliver an accelerated reopening plan for dine-in trading, once the current restrictions for hospitality businesses end, with all viable sites being reopened within two weeks.’
• Debt and liquidity issues are to the fore with all operators at the moment. Future potential will only be realised if there is a future
• This necessitates negotiations with banks, bondholders and equity holders. RTN has issued equity once and, it would appear, it hopes not to have to do so again
• Restaurants are perhaps better placed for delivery but less well placed than pubs when it comes to opening for outdoor trade next month
• Within delivery, Wagamama is relatively well-positioned.
• There are no forecasts at present and they would not be meaningful. But RTN has been ahead of the game in many respects when it comes to analysing the impact of closure and to doing something about it.
HOTELS & LEISURE TRAVEL:
• The World Travel & Tourism Council says that global travel should be reopened at Easter using a combination of testing and vaccine passports. This is, of course, much more easily said than done.
• Significant positive moves in some leisure travel share prices yesterday. Towards the market close, On the Beach was up by 6.3%, TUI was 4.2% higher, and Carnival shares were up by 5.1%. Lesser (though still positive) movement in Jet2 and Hostelworld (up 0.4% and 0.5% respectively).
• But there are concerns. Chair of the home affairs select committee, Labour MP Yvette Cooper, warns that the government could end up (again) overpromising on summer holidays this year – as it is not certain that they will be able to go ahead
• There are inbound queues o0f up to 7hrs at Heathrow Airport’s border control. This is not an encouragement to travel.
• Royal Caribbean Group has priced an issue of 16.9m shares at $91.00 per share.
MORE LEISURE SNIPPETS:
• There were 108,479 licensed premises in the UK at end-Jan per CGA.
• Scotland-based Mozza pizza is to open its first English site in Leeds shortly
• 93% of adults say they have shopped with Amazon in the last 12mths.
• Amazon Go, the giant’s contactless physical store-concept, opens its first UK store this week.
• Tequila owner Jose Cuervo has reported 20% sales growth during calendar 2020.
• VEKITCHEN is to open in Battersea shortly reports Big Hospitality
• Scandinavia Only & Taber Holidays are to be wound down per Travel Weekly
FINANCE & MARKETS:
• The Markit PMI for manufacturing in the UK in February has come in at 55.1, up from 54.1 in January. Markit says ‘the UK manufacturing sector was again hit by supply chain issues, COVID-19 restrictions, stalling exports, input shortages and rising cost pressures in February.’
• Markit says there has been a ‘near-record lengthening of supplier delivery times. However, while normally a positive sign of an increasingly busy economy, the recent lengthening was far from welcome, more often than not linked to problems resulting from Brexit and COVID related.’
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