Langton Capital – 2021-03-02 – PREMIUM – Budget, lockdown fatigue, footfall, rents, Restaurant Group etc.:
Budget, lockdown fatigue, footfall, rents, Restaurant Group etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
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 Admittedly that might be a little out of date but, if you work on the basis that gold is $1,772 an ounce, then it’s $57 per gramme.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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Death of an industry – stop to ask: Murder, suicide, or natural causes?
• A request for feedback.
• We often hear of the ‘death of…’ this and that. It might be The High Street or The Hospitality Industry of Cinema or Cruise Holidays or whatever.
• It’s often journalistic hyperbole. It is, at least we hope it is, with regard to hospitality.
• But sometimes it isn’t. We mention the candlemakers, saddle-makers, steam engine repairers etc below, all of whom presumably thought they had a future.
• And then a second major issue is whether the problems are, at least to some extent, self-inflicted.
• Covid-19 is a massive issue that perhaps invalidates the question – but maybe it shouldn’t as entitlement, price-gouging followed by discounting, CVA’s and pre-packs pre-date Covid.
• Lightning, as they say, rarely strikes out of a clear blue sky.
• We have a lot of thoughts on the above & will comment in the coming days. But we would also like to hear the views of any readers kind enough to share them. We’ll share this with premium subscribers and with any substantive contributors.
See also under Pubs & Restaurants below:
• Much of the spending side of this is in the shop-window & widely discussed.
• To quote a recent Prime Minister, there is no magic money tree.
• Overspending must either a) stop (and PM Johnson has said there will be no return to austerity) or b) be paid for by either increasing taxes or by borrowing.
• Borrowing is the soft and popular option.
• Spend today, pay tomorrow. What’s not to like? It is why borrowers borrow, smokers smoke, overweight people overeat etc.
• And money is cheap – but borrowing will ultimately be punished as lenders (the buyers of gilts) will go on strike. Interest rates would rise. Mortgage holders would rebel. Elsewhere, foreign buyers could withdraw, Sterling could collapse etc.
• And then the music would stop in all sorts of ways – and that might get very ugly, very quickly.
• So, it is likely that taxes will rise – albeit not yet.
• The government was elected on a promise not to raise VAT or payroll taxes. That leaves corporate taxation.
• The promises made re VAT and payroll may be impossible to keep but, in the first instance, the chancellor may look for companies to soak and also a) stealth taxes or taxes that are b) not noticed (ever or for a while or at least are not noticed by people that ‘matter’ – i.e., people who have a vote).
• Stealth taxes may include freezing allowances. But that might not move the dial.
• Taxes that are never noticed include those on dead people. Inheritance tax rises would be unpopular with some of the government’s supporters – but they would be painless for the deceased person paying (who isn’t a voter any more, in any case)
• Taxes that aren’t noticed for a while might target pensions. Gentile penury in 20yrs time might be less objectionable than would a hike to 25% VAT tomorrow.
• Taxes on people who don’t ‘matter’ could target foreigners, expats or online retailers against whom the public could be mobilised.
• In extremis, the government could tax small groups such as CGT payers or ‘the wealthy’ via a tax that only impacted a modest number of individuals (albeit rather heavily)
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. We would suggest that the wish may have been father to Mr Dawber’s thought. Canary Wharf may not be able to envisage a future without Canary Wharf. And it is probably secure in that – but saddle manufacturers, candle makers, steam engine repairers etc probably thought the same thing.
• If he had asked commuters to weigh this against the hassle and cost of a 75 minute commute each way and Mr Dawber may have got an answer that he didn’t want. And actions speak louder than words – not that many workers have deemed it essential that they make it into the office.
• The Canary Wharf man says ‘I think it is going to be more socially acceptable for people to take the occasional day working from home.’ He also suggests that occupancy levels will return to normal – and, whilst by no means a lie, both Lloyds Banking Group is set to reduce its office space by 20% over two years after a staff survey found that nearly 80% wanted to work at home for at least three days a week.
• Goldman Sachs, dubbed the Vampire Squid by Rolling Stone magazine, has called working from home ‘an aberration.’ A rather hard-nosed description while other companies, such as Schroders, seem to have suggested they will allow remote working to a much greater extent.
• Barclays CEO Jes Staley has said that working from home was “not sustainable” – but everything’s relative and a return to 100% working from the office 100% of the time might not happen.
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 our comments above. We don’t know who pays Springboard. We didn’t get past the shock of finding out that a weekly pro membership costs £3,900. Langton’s pro email may be woefully under-priced, but we would guess that it’s multiple-retailers and, whilst everybody knows that you shouldn’t shoot the messenger, nearly everybody still does.
• Incidentally, a study of home- advantage for one made-up US sport or another, baseball or American football or some such, found that it was not home ground familiarity that led to the small but statistically significant bias towards home-team wins, but rather a mix between crowd intimidation and the desire of the ref and the other officials to please their audience (with a skew to the latter). It wouldn’t be altogether surprising if the same happened with the interpretation (rather than the raw data) included in surveys.
• 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.
• UK Hospitality has suggested that the proposed staggered reopening of the hospitality industry could put 99,000 jobs at risk. Some £9bn in sales could be lost if all restrictions are not lifted until late June. No11 has confirmed the Budget will include a £5bn scheme to support high street and hospitality firms will up to £18,000 per site.
• 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.
• Hotel Chocolat has reported H1 numbers saying revenue rose 11% to £101.9m with PBT up by 3% to £15.5m. CEO Angus Thirlwell says ‘the Hotel Chocolat brand stayed strong during a difficult period for all of us.’ He says ‘we recorded superb results in the UK, USA and Japan despite Covid-19 restrictions affecting all our physical locations. We achieved sales growth during those periods when all UK physical locations were closed, demonstrating the brand’s appeal to our loyal customers, and our flexible business model.’
• Hotel Chocolat says ‘we look forward to building the Hotel Chocolat brand further as we move closer to our goal of becoming the leading global direct-to-consumer premium chocolate brand.’
• Caffe Nero boss Gerry Ford is reported in The Times as ‘plotting a way out of the crisis engulfing Caffè Nero’ as he has ‘spent weeks hunkered down with lawyers from Linklaters, working on a plan to fend off a legal threat funded by the billionaire owners of Asda.’ A group of landlords has brought a legal action against the company. They ‘object to a restructuring process that will wipe out all but 30 per cent of rent arrears since the start of the pandemic’ says The Times.
• DP Poland has announced that it has appointed Malgorzata Potkanska to the Board of the Company as Chief Financial Officer with immediate effect. Chairman Nick Donaldson says ‘I am delighted to welcome Malgorzata to the Company’s Board. Malgorzata has a valuable history of experience in the Polish pizza market through her role at Dominium, and we look forward to working with Malgorzata as we continue to execute the growth strategy of DP Poland.’
• 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.
HOTELS & LEISURE TRAVEL:
• PPHE has reported full year results for the year to end-December. CEO Boris Ivesha says ‘despite the challenges presented over the past 12 months, our well-invested portfolio, agile owner-operator model and strong 30-year track record together provide a solid foundation for success, and we remain excited about the long-term future of the business.’
• The CEO says ‘I am confident that our high-quality portfolio and strong pipeline, together with our unique owner operator approach and the operational initiatives implemented during 2020 positions the Company very well to benefit from the anticipated uplift in domestic and international demand as the global vaccine rollout continues and restrictions ease.’
• PPHE reports that revenue fell from £357.7m to £101.8m. A PBT of £38.5m was transformed into a loss of £94.7m and the 85p of EPS recorded in 2019 was replaced by a loss of 181p per share.
• Safestay has announced ‘the agreed sale to Beds and Foods Barcelona s.l.u, of the smallest of its three hostels in Barcelona, called Barcelona Sea, a leasehold site with 96 beds, for a total consideration of €900,000, which is also the book value of the hostel in the Group balance sheet. The annual EBITDA of the hostel pre-COVID 19 was €70,000.’
• The company says ‘while Safestay’s 17 hostels continue to be temporarily closed, since the timetable for coming out of lockdown announced by the UK Government, the Company has been able to begin planning for an orderly reopening of the portfolio, in time for the summer season. With the additional expectation that European governments will start to announce similar plans for coming out of lockdown.’ Chairman Larry Lipman says ‘the sale of Barcelona Sea fits with our strategy of rationalisation of the portfolio as the business grows. It is particularly pleasing to conclude the sale during these difficult times. As we emerge from the COVID-19 lockdown, we shall continue to seek value added opportunities, whether through further disposals or acquisitions on the right terms.’
• 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
• Flutter Entertainment has reported 2020 Preliminary Results saying revenues more than doubled on its merger to £4.4bn with profit wiped out to £1m from £136m last year. The group earned 29.3p per share against 180.2p in the prior year. CEO Peter Jackson says ‘2020 was an historic year for the Group as we completed our merger with TSG, commenced the integration of our two businesses and increased our ownership of FanDuel in the US, whilst at the same time navigating the challenges presented by the Covid-19 pandemic.’
• Mr Jackson says ‘during this exceptionally testing time, we have focused on safeguarding the welfare of colleagues and contributed more to the communities in which we operate.’ He concludes ‘while the global outlook remains uncertain, our momentum remains strong and we look forward to the future with confidence.’
• Zoom says it expects revenue to rise by more than 40% this year having seen sales in the last three months of 2020 rise by 370% compared to the same period in 2019, hitting $882.5m. CEO Eric Yuan says ‘the fourth quarter marked a strong finish to an unprecedented year for Zoom. As the world emerges from the pandemic, our work has only begun.’
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.’
• Former chancellor Ken Clarke has said that Chancellor Rishi Sunak should ditch the triple lock promise to pensioners. He suggests that the young and the poor have suffered disproportionately during the Covid-19 pandemic, at least financially.
• Sterling weaker at $1.3886 and €1.1547. Oil lower at $63.08. UK 10yr gilt yield down 7bps at 0.75%. World markets better yesterday but Far East lower in Tuesday trade & London set to open down by around 11pts.
RETAIL WITH NICK BUBB:
Today’s News: Today’s Hotel Chocolat interims cover the 26 weeks to Dec 27th and the business did well to eke out a 3% increase in PBT to £15.5m, on the back of an 11% increase in revenue (with 51% of UK sales in the period coming from Direct-to-Consumer Digital). Over at the DIY and builder’s merchant giant, Travis Perkins, today’s finals for calendar 2020 show that it was harder work, with operating profits down 40% at £227m, on the back of a 11.5% fall in revenue, but the headline is “Resilient trading amidst significant uncertainty” and the company has announced that it has recommenced the demerger process for Wickes DIY, with completion expected in Q2. Today brings the first dealings in the Virgin Wines IPO, with the amusing ticker VINO (last week’s placing valued the business at £110m, at the offer price of 197p. And yesterday, the big Russian discount retailer Fix Price (which has
This Week’s News: As we move further into March, the highlight of this week will be the Budget tomorrow lunchtime, but the latest Kantar grocery sales figures are due at 8am today. Tomorrow morning also brings the Vivo Energy finals, whilst the latest quarterly FTSE Index review is out tomorrow evening (with Dr Martens and Moonpig up for promotion and Morrisons at risk of demotion, depending on tonight’s closing prices). Thursday afternoon brings the Q4 results from Ocado’s big US client, the supermarket giant Kroger.