Langton Capital – 2021-03-08 – Marston’s, beer gardens, Deliveroo, Caffe Nero, holidays, staycations etc.:
Marston’s, beer gardens, Deliveroo, Caffe Nero, holidays, staycations etc.:
A DAY IN THE LIFE:
It was the late Hans Rosling who suggested that your worldview, unless you make positive and regular efforts to update it, is likely to be 30-40yrs out of date.
This because, if you’re of a certain age, you may well have been influenced 20yrs ago by your teachers – and they themselves studied whatever they studied another 20yrs prior to meeting you in their classrooms.
They knew people who knew people who knew people who fought for Empire and then, because you have friends of the roughly the same age and social background as yourself, you might find you have a pretty effective little echo chamber going on.
And, unless you stick your head out of it from time to time, you’ll spend your life wondering why India’s GDP is higher than ours, how come China’s building skyscrapers that don’t fall down and when will it next be our turn to win the FIFA World Cup?
I think I knew, roughly, the populations of the world’s largest few countries when I was at school. But the USSR’s gone, Yugoslavia’s a distant memory, there’s only one Germany and the populations of Mexico, Nigeria, Vietnam & some other countries have trebled or more since I last got lines for throwing another lad’s shoe onto the school roof.
So, try to keep up, Brumby, keep up.
Anyway, as we passed February last week, we’ve added another Cultural Month. To see what we got up to check HERE and let’s move on to the news:
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MARSTON’S UPDATE ON SA BRAIN TRANSACTION:
Marston’s on Friday hosted a webinar to discuss its recently-announced Brains transaction and our comments thereon are set out below (this was emailed out to clients on Friday).
• This has been a critical period for the industry with the roadmap to reopening and the budget
• The group’s key strategic considerations remain a) to reduce debt below £1bn by 2024, b) to grow organically and c) to consider M&A opportunities
• The area will remain an attractive one for M&A and today was about the SA Brain transaction
• This is an opco-propco structure, a capital light mode of expansion. MARS has proved itself to be an attractive opco partner
• The company was well-positioned to move quickly, which it did, and it offered everything that Brain needed – and at short notice
• MARS already had 106 units in Wales. It now has over 200. The fit is good, SAB is 30% food (in managed)
• There are opportunities to convert some units to franchise (MARS has >500 franchised pubs in its estate), addition of space, accommodation…
The terms of the deal:
• 99 of the units are taken on long leases with a 5yr break. There are 8 sites to be purchased freehold with expansion opportunities. The core deal is therefore 107 units
• There are 30 ‘turnaround’ sites (low profits that may be sold by SAB) and 10 sites operated on a management agreement.
• The Brain’s brewery is not a part of the deal. Any decisions thereon are with Brain. CMBC is ‘not likely to want to buy it.’
• Unit EBITDA is £14m, rent £5.5m & overheads £1.5m with £2m of depreciation, leaving £5m. Upside via move to franchising, overhead reduction & synergies is perhaps £2m to £3m p.a. The return on investment is thus very good
• One year’s rent has been paid with another to be paid in April with £4m changing hands to buy the freeholds. This (£15m) will be covered by MARS normal disposals proceeds.
• For the propco, the use of its new tenant’s covenant could/should lead to a valuation uplift
The future (re infill & low-capital expansion):
• Covid could accelerate change. But good pubs (and good pub managers) will still be popular and needed.
• MARS offers what freeholders need. It is a one-stop shop (both geographically and by unit-type). Several of the questions (below) focussed on this.
• Units are more likely to be wet led. This is where the franchise opportunities are greatest.
• The SAB deal could influence the decision-making of some regional pub companies. That is, should they really be property companies?
• How many of these deals would you like to do? It will be driven by opportunities. Co is now low-80%s freehold. Could do c200 pubs & still be c70% freehold. Quality is key. MARS ‘will stay disciplined’
o MARS cannot really say how many units may become available. The money coming into the sector is looking for freeholds. The capital providers may need operators.
• Might you opco-propco some of your own properties? Co is ‘open to the idea’ of the freehold % reducing – but the low 70s has been mentioned.
• How many units will reopen on 12 April? Still running the numbers, considering the weather etc. Over 90% have outside areas. Should be ‘reasonably more than a half of the estate…’ The co has invested in ‘inside-out’ spaces.
• City centres? Less than 10% nationwide. Only two sites in central London. The suburbs are markedly less risky than city centres in the short & medium term.
• Welsh budget? The main UK points, VAT & furlough, are UK-wide. A slight difference is the 100% rates holiday (in Wales) until March 22. There is less clarity on reopening.
• Debt. Co will pay down its most expensive debt first (where possible).
• Dividend policy. It will be ‘cashflow based’. No decisions have yet been made.
• Reporting? SAB will not be reported separately but MARS will comment on progress.
• Disposals. £5m to £10m p.a. are likely. MARS ‘does not need to make major disposals’.
• Marston’s, from the point of view of a propco, is a one-stop shop, geographically and by product type.
• Valuing an estate at the reciprocal of its rent could be (and the Brain deal would suggest, is) attractive to cash-strapped estate owners.
• This note focuses on the Brain deal. See earlier and subsequent pieces for comments on reopening, the Budget, the CMBC deal and other.
• We would suggest that Marston’s debt is reduced and is set to fall further, a professional and experienced management and it has a well-financed, still largely-freehold estate.
• The hospitality industry is likely to see supply reduce going forward and Marston’s is well-positioned to prosper.
PUBS & RESTAURANTS:
• All eyes will soon be on the long-range weather forecasts.
• The BBC reports UK Hospitality as saying ‘England’s pubs have been deluged by people eager to book space from when beer gardens reopen on 12 April.’
• Certain pubs have ‘taken hundreds’ of bookings in just a few hours. The BBC reports ‘demand has been so high that scammers have even taken to advertising fake pub bookings.’
• Emphasising that the ‘pent-up demand’ often spoken about is real, UKH says ‘our members that can open outdoor areas have reported strong interest from customers, which is not surprising after such a long period of closure.’
• Communities secretary Robert Jenrick has told councils to cut red tape to make it easier for pubs and restaurants to use outdoor space. Jenrick says planning rules for al fresco dining and temporary shelters must be waived.
• CGA says its research ‘shows the very close correlation between sunshine and sales.’ This is not surprising as the beer garden, for many pubs, is ‘the largest room in the house’ (or actually out of the house).
• CGA says ‘the gap in sales is wider at weekends, when more people are able to take advantage of good weather in the On Premise. Takings on sunny Fridays and Saturdays are 6% or £38 per hour higher than the average day.’
• CGA concludes ‘there will be more reason than ever to hope for good weather when hospitality is able to open again for outside trading from 12 April. CGA’s online outlet and location targeting tool RISE reveals that just over 26,000 pubs, bars and restaurants in England have outdoor areas that could potentially host guests—43% of the total—but many will not be viable in poor weather.’
Longer term implications:
• Foodservice analyst Peter Backman has suggested that ‘foodservice demand in city centres will fall in the short term.’ He adds ‘when it returns, the composition of demand is likely to be very different to how it was pre-Covid-19; it will certainly be different to how it looks today while the virus is still very active.’
• Specifically, Mr Backman says ‘with a dramatic fall in the number of tourists and fewer commuters, demand from locals will become significantly more important, albeit within a smaller market in the short to medium term.’
• Backman also says ‘with the ongoing absence of commuters the functional, breakfast and lunchtime, food to go market will also be reduced. It will have to use its space and financial resources effectively.’
• High-spending tourists ‘will return but not for a time; mass tourism will also return, but may not reach historic levels for some years.’ Backman says ‘while the short term may be bleak, Big Ben and the Eiffel Tower will continue to attract tourists well into the future.’
• Langton comment: – See premium email.
• Clear Sight says that ‘sentiment on the COVID-19 situation is now more positive than at any time since the start of the pandemic: 46% of UK adults believe that the worst is behind us, rising to 58% among those who have been vaccinated.’ Confidence in the UK government’s handling of the crisis, driven by recentism, had risen by 10 points in the last two weeks.
• Clear Sight says ‘the outlook of UK business leaders is also recovering, with the leisure, hospitality and culture sectors recording significantly greater confidence in their prospect of surviving the crisis.’
• The NTIA says ‘the Budget is yet another statement from the Chancellor that has failed to recognise the need for additional support for the night time economy sector.’ It says ‘we welcome the extension of VAT and rates relief, and that more money is going to hospitality and the Culture Recovery Fund (CRF). But both of these interventions again reveal the Chancellor’s inability to comprehend the specific challenges faced by night time economy businesses, such as nightclubs, casinos and bars, many of which have been entirely unable to open during the pandemic and face higher costs relative to wider hospitality.’
Company & other news:
• Much Press on the Deliveroo IPO. The company is apparently giving bonuses of up to £10,000 to its delivery riders. There will be shares for customers and a lot of noise is being made. Some £50m of shares will be made available to individuals registering via the company’s app.
• Founder Will Shu says ‘I want to thank our riders who have been working with us for years, delivering great food and such a fantastic experience for our customers. They have been central to our growth and will continue to be.’ The Guardian says ‘the payout is likely to prove controversial as Deliveroo has faced heavy criticism over its couriers’ pay. It argues they are self-employed, independent contractors not entitled to the national minimum wage, holiday pay or pension contributions.’
• Langton Comment: See premium email.
• The Times reported on Saturday that six former and present staff members of Caffè Nero, who worked with the company since 2016, had confirmed that they had changed dates on produce for sale. Caffe Nero denies that this is in any way standard practise and says ‘this activity has never been tolerated in the 24 years of Caffè Nero. This has never come as an issue in the past. There is nobody in the leadership team that would tolerate such activity.’
• The Times reports that Nero adds ‘whilst Caffè Nero, like every responsible food retailer, is committed to minimising food waste and encourages employees at every level to ensure that stores are run efficiently, and not be overstocked with food that might go unsold or consumed, it is not the case that Caffè Nero employees are in any way incentivised to ‘change labels’.’
HOTELS & LEISURE TRAVEL:
• From today, travellers from England to overseas destinations will have to prove they are allowed to travel, or risk being turned away from the airport. A “Declaration to Travel” document from a government website will need filling in.
• There are slightly different restrictions in Northern Ireland, Scotland and Wales, with no declaration for travel form yet required.
• Cyprus looks set to open its borders to vaccinated Britons from the start of May.
• Former TUI and easyJet executive Chris Browne says the airline sector will take two years to recover from the “turmoil and devastation” of the pandemic, reports Travel Weekly.
• ABTA is said to ‘remain hopeful’ that the government will provide additional taxpayer cash to travel. CEO Mark Tanzer told a Travel Weekly webcast, however, that he ‘was disappointed the broader travel industry hasn’t been recognised as needing support. The industry has effectively been closed by government health policies.’
• Domestic holiday prices are reported to be rising.
MORE LEISURE SNIPPETS:
• Goose Island Brewery’s Cadbury Crème Egg flavoured beer is reported to have sold out within an hour of launch. More is being brewed.
• Five Points Brewing is to open what it says is the largest taproom in Hackney next month.
• Starbucks in the US is to roll out dairy-alternative oat milk nation-wide.
• California-based E&J Gallo reportedly produces over 70% of the US wines priced at £7 and over sold in the UK off trade
• Mike Ashley says his Sports Direct empire may have to close shops as the Budget did little to help retail.
• Sainsbury is the first supermarket to say that it will forego the business rates suspension relief announced by chancellor Rishi Sunak
• Saga aims to recommence its cruise business on 27 June
• Marriott says it will make a cash award of four hours’ pay to staff getting vaccinations.
• Accor has said it will secure sufficient vaccine to inoculate all its staff by the end of the summer.
FINANCE & MARKETS:
• The US economy added 379,000 jobs in February after two months of little progress. US unemployment fell from 6.3% to 6.2%.
• The Halifax says that the extension of the stamp duty holiday has “removed uncertainty” for house buyers. It says house prices in February slipped back by 0.1% to leave them 5.2% higher than a year earlier.
RETAIL WITH NICK BUBB:
• See premium email.
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 4 Mar 21 William Hill FY numbers
• 4 Mar 21 Entain FY numbers
• 5 Mar 21 Marston’s SA Brains transaction webinar
• 10 Mar 21 Restaurant Group full year numbers
• 10 Mar 21 Just Eat FY numbers
• 11 Mar 21 Playtech FY numbers
• 11 Mar 21 Morrison’s FY numbers
• 15 Mar 21 Carlsberg AGM
• 16 Mar 21 Gregg’s FY numbers
• 16 Mar 21 C&C pre-close trading update
• 17 Mar 21 Hostelworld H1 numbers
• 18 Mar 21 Fever Tree FY numbers
• 18 Mar 21 Gym Group FY numbers
• 23 Mar 21 DP Eurasia FY numbers
• 24 Mar 21 M&B AGM
• 25 Mar 21 Compass Group H1 update
• 25 Mar 21 TUI AGM
• 29 Mar 21 Ten Entertainment FY numbers
• 30 Mar 21 AG Barr FY numbers
• 31 Mar 21 Various Eateries AGM
• 7 Apr 21 Saga FY numbers
• 8 Apr 21 Sportech FY numbers
• 8 Apr 21 Constellation Brands FY numbers
• 13 Apr 21 Just Eat Q1 numbers
• 15 Apr 21 Pepsi Q1 numbers
• 23 Apr 21 Gear4Music results
• 28 Apr 21 Carlsberg Q1 numbers
• 4 May 21 Campari Q1 numbers
• 7 May 21 Intercontinental Hotels Q1 numbers
• 12 May 21 Compass Group H1 numbers
• 12 May 21 Stock Spirits H1 numbers
• 12 May 21 TUI H1 numbers
• 18 May 21 Britvic H1 numbers
• Est 19 May 21 Marston’s H1 numbers
• 27 Jul 21 Campari H1 numbers
• 10 Aug 21 Intercontinental Hotels H1 numbers
• 12 Aug 21 TUI Q3 numbers
• 18 Aug 21 Carlsberg H1 numbers
• 22 Oct 21 Intercontinental Hotels Q3 numbers
• 26 Oct 21 Campari Q3 numbers
• 8 Dec 21 TUI FY numbers
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