Langton Capital – 2021-03-09 – PREMIUM – Domino’s, Deliveroo, reopening, holiday plans, staycation prices etc.:
Domino’s, Deliveroo, reopening, holiday plans, staycation prices etc.:
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A DAY IN THE LIFE:
I’ve never been a fan of loose ends, maybe it’s the accountant in me.
I was told, when learning the bean-counters’ craft, to double underline totals and the satisfaction of being able to, sometimes literally, draw a line under things, has stuck with me.
Nonetheless, I have to admit, it’s sometimes tempting to let your in-tray ferment a little bit, in the hope that the contents therein will simply fade away.
However, whilst the good stuff, like invites to lunch (a chance would be a fine thing) do tend to ‘go away’ if you ignore them, the bad stuff, like bills, demands from your freeholder, the VAT man, the utility-providers, reminders to submit data to various bodies including the census people, the FCA or whatever just tend to get angrier and angrier until they turn red and explode in a shower of unpleasant consequences.
So, it’s more loose-end tidying for me, the fun will never stop. Time to fill in the latest FCA, Consequences of Covid questionnaire and move on to the news:
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DELIVEROO – INTENTION TO FLOAT:
• Deliveroo has confirmed that it will IPO on the London market.
• The group has confirmed a fund for riders, money to help get restaurants open and the intention to have two classes of shares, with one having more voting rights than the other.
• New news is the comment on 2020 trading. There is no firm timetable. Nor is there detail as to valuation, though £7bn has been mentioned
• The ‘Offer would be comprised of new Shares to be issued by the Company and existing Shares to be sold by certain existing shareholders.’
• There is no suggestion as to size (of either new stock or existing holders’ sales)
• B shares will be held only by Will Shu. His shares will have 20 votes each and they will not be traded.
• Interestingly, the company says ‘on the third anniversary of an IPO, the Class B Shares will automatically convert into Class A Shares.’
Letter from CEO, Will Shu:
• Founder Will Shu says ‘I was never into start-ups.’ He adds he had one idea and says ‘I wanted to get great food delivered from amazing London restaurants.’
• Mr Shu says ‘we operate in 12 markets right across the world. 115,000 food merchants, over 100,000 riders, millions of consumers.’
• He says Deliveroo was able to help restaurants get food to their customers during lockdown.
Current (or at least recent past) trading:
• The company, which only lodged its December 2019 accounts with Companies’ House on 6 Jan this year, has given some details of 2020 trading.
• It says platform transactions (not company revenue) were up by 64.3% to £4.1bn from £2.5bn in 2019
• The underlying loss for the year was £223.7m compared to an underlying loss of £317.3m in 2019
• As at end-December 2019, the company had an accumulated loss of £909m. The 2020 will take this up to total losses of £1.1bn
Other company comments:
• Deliveroo says that its technology sets it apart. It says ‘with our global scale, proven track record of entering and growing in new markets, we believe we can realise further growth opportunities both in existing and new markets.’
• Will Shu is CEO and Adam Miller, Chief Financial Officer, joined the company in 2019
• Deliveroo will ultimately be worth what shareholders are prepared to pay for it. A number of tech unicorns have come to the market whilst still loss-making and their shares have performed positively.
• However, there are a number of questions that should be raised with regard to Deliveroo.
• The first maybe is, if you can’t make money during a global lockdown when restaurants are falling over backwards to deal with you and the consumer has nowhere else to go, just when can you make money?
• Maybe that is ‘so last century’ but, surely, the company has to see some sort of path to profitability and it is far from clear at present.
• Because anyone can buy revenue. Koovs and others sold product for less than they paid for it hoping that any share valuation might look at revenues rather than profits.
• It could be, of course, that Deliveroo is different but here’s a question: why?
Is this a genuine sustainable market?
• Indeed, it might be argued that there isn’t a price at which the customer will buy food that will sustain profits for the bike rider, Deliveroo and the restaurant.
• Domino’s might disagree, of course (though that is a franchised model). And it may be that, when the detail is forthcoming, investors will be able to persuade themselves that much of the losses are ‘start-up’ in nature and margins will rise rapidly when expansion stops.
• But if there isn’t enough money in the model, the music will stop when capital providers stop putting in new money. At present, we don’t know how much new money there will be, what the burn rate is etc.
Other market points:
• Deliveroo has competitors. Both of the existing restaurant type and tech-driven new entrants such as Uber and hybrids such as Just Eat.
• Later this year, hopefully, restaurants will be back on their feet and they may wish to serve customers in their own premises rather than via Deliveroo
• Deliveroo looks to be moving into bricks and mortar (via Editions) in the same way that Amazon is opening physical stores
Why would you buy the shares?
• Because you believe the discounted sum of future net profits will exceed the price that you are being asked to pay for them.
• Or you believe the above is terminally boring and there is someone tomorrow who will pay more than you did today (the Gamestop principle).
• Or you have a bad case of FOMO.
• As Deliveroo says ‘the Company has engaged Goldman Sachs International and J.P. Morgan Securities PLC…as Joint Global Co-ordinators, and Merrill Lynch International, Citigroup Global Markets Limited, Jefferies International Limited and Numis Securities Limited as Joint Bookrunners…’
• There will be a lot of effort expended to persuade investors to take part in this IPO.
DOMINO’S PIZZA GROUP F.Y. NUMBERS:
• The group says it has just recorded its highest ever sales week.
• Domino’s Pizza Group has reported full year results for the 52 weeks ended 27 December 2020 saying that it has seen ‘strong trading through Covid-19’ and a ‘growth in system sales, profit and cash.’
• The company reports system sales of £1.348bn, up from £1.211bn in 2019. The company reports underlying PBT of £101.2m, compared with £98.8m in the prior year. Underlying EPS is up at 18.2p vs 17.6p last year. The proposed final dividend is 9.1p. There was no interim dividend.
• DOM says it has seen a ‘strong UK & Ireland performance, with system sales of £1,348.4m, up 11.4% with like-for-like system sales, excluding splits, up 10.3% (9.3% including splits).’ The company says it has undertaken ‘disciplined cash management leading to net debt reduced by 26% to £171.8m, driven by trading performance and actions taken to preserve headroom.’ There will be a ‘£45m share buyback programme, effective imminently, in line with new capital allocation philosophy and commitment to distribute surplus capital to shareholders.’
• DOM comments on its relationship with its franchisees saying that it has ‘maintained constructive engagement with our franchisees and have made an attractive offer to the Domino’s franchisees in an attempt to reset relationship.’ The group says its disposal of discontinued International operations is progressing. The group disposed of its Norway operation in May 2020 and contracts have been exchanged on the disposal of Sweden, completion expected in May 2021, with Iceland and Switzerland disposal processes ongoing.
• Current trading & outlook:
• Re current trading, the company says ‘trading in the current financial year has started strongly with exceptional trading over the new year period as we recorded our highest ever sales week. Our delivery business continues to perform very well, and collection remains at around 60% of 2019 levels.’
• The company says ‘the current trends and demand expectations, in addition to the investment in capabilities we have and are making, gives us confidence in delivering further operational and financial progress in the coming year.’
• CEO Dominic Paul says: ‘we have continued to invest and innovate across the business, launching exciting new products such as our vegan pizza and investing in technology, with our new App, in the supply chain and in marketing to further strengthen the brand.’
• Relationship with franchisees.
• Paul says ‘we are announcing a multi-year strategic plan which will drive growth across the business and deliver an exciting and profitable future for both our shareholders and our franchisees.’ He says ‘we have maintained an open dialogue with our franchisees throughout the development of this plan and, while we do not have an agreement yet, we have made an attractive offer to them which we believe will deliver powerful benefits to both them and the Group.’
• The company concludes ‘as the economy begins to reopen, we have invested in our capabilities to enable us to capitalise on the substantial opportunities ahead. I am confident that we can achieve our vision of being the UK and Ireland’s favourite food delivery and collection brand, and deliver great results for our colleagues, our customers, our shareholders and our franchisees.’
PUBS & RESTAURANTS:
• The 2021 Hays Macintyre Snapshot Survey has revealed “encouraging signs of confidence” amongst the sector. The company says hotel businesses are the most positive about the future, with 83% feeling confident, compared to restaurants who were slightly less optimistic at 53%. Pubs and bars were lower, with 59% still uncertain or not confident in their prospects.
• The Hays Macintyre survey reports that pubs and bars have been the most innovative with regard to the use of new technologies, with almost half of those surveyed using ordering and payment apps. The firm says ‘the hospitality industry has undeniably been hard hit by the Covid-19 crisis. However, despite the challenges, this Survey reveals that many in the sector remain positive. Even before the prime minister’s roadmap to recovery was announced, there were operators looking to the future with optimism, confident that trading will return to normal levels within the next year.’
• Hays Macintyre says ‘one of the industry’s greatest strengths has always been its resilience. Now you can add adaptability and ingenuity to that list of strengths. Combined with the announcement in the Budget of extensions to various support measures for the sector, a new recovery loans scheme and hospitality grants, the hope is that this innovation will aid the sector’s transition back to normal trading operations.’
• The BBPA has circulated the key findings of a review by think-tank Localis, which suggests that a ‘failure to support the nation’s pubs return from lockdown risks imperilling the government’s levelling up agenda for economic and social renewal.’
• The report The Power of Pubs says that the roadmap to un-lockdown cannot be allowed to slip.
• The BBPA says ‘among key recommendations, the report authors urged central government to further reduce the tax burden on the pub sector to aid the recovery and called for an extension to the Business and Planning Act 2020.’
• Localis says ‘where there’s a pub, there’s a community. As one of the biggest contributors to the UK economy, the sector has a vital role to play in the recovery and levelling up journey of the country as well as in maintaining community cohesion and social resilience well beyond the pandemic.’
• BBPA CEO Emma McClarkin says ‘the Pandemic has fractured our communities economic environment and frayed our social ties.’ She says ‘the pub is a powerful embodiment and symbol of both, woven into the fabric of our society and it is one we need to support and strengthen as we rebuild our trade as well as reconnect our communities.’
• Rebuilding urban demand.
• Foodservice analyst Peter Backman encapsulates the issues when he says that ‘there are three basic “tribes” in any city – locals, commuters and tourists.’ Asking when (rather than if) the above return to city centres does seem to be a good starting point for analysis.
• Backman says ‘it is clearly a long time until we get to see what the future for restaurants in city centres might look like, especially since until Covid restrictions are removed we are not even at the starting blocks.’
• Philip Ross Solicitors has commented on the demands by some businesses that staff get vaccinated saying that ‘this stance has been openly condemned by both trade unions and the government, with Downing Street declaring that it would be ‘discriminatory’ to force employees to be vaccinated in order to keep their job.’
• The solicitor says any demands ‘may also depend on the sector of the business. Employment law may declare it reasonable to require employees working with vulnerable groups, for example in a care home, to have a vaccination.’
• This would be less applicable if workers could work from home – but it would leave the hospitality industry, where staff work directly with customers, often involving contact with food & drink, somewhere in the middle.
Company & other news:
• Topical, given the Deliveroo news above. Punch Pubs announces that a new ‘virtual’ pub brand, Bull & Bird, created in partnership with Deliveroo, is ‘bringing lip-smacking burgers to homes up and down the country – providing local Punch pubs with a critical income stream in the process.’
• The brand was first launched in three pubs in November 2020. Punch says ‘the new ‘dark kitchen’ concept saw immediate success, selling out in 2 of the 3 trial venues.’ It adds ‘encouraged by the sales, response from customers (average 4.7/5 rating on Deliveroo), and the pub’s ability to adapt to this exciting new food offer, Punch expanded the trial base to a further twenty pubs stretching from Swindon to Macclesfield.’
• Filipino fast food chain Jollibee is reported set to open 10 new restaurants in the UK this year. The company is said to have earmarked £30m for expansion. A further 15 to 20 openings are pencilled in for next year
• Pernod Ricard is rumoured to have made a takeover approach to Australia’s Treasury Wine Estates. Shares in the latter jumped by more than 7%
• Admiral Taverns reports that it ‘has once again achieved the highest overall score amongst the regulated, national pub companies for its licensee-centric approach in the annual independent UK licensee survey, in a year which has seen the pub industry face unprecedented challenges.’
• Admiral CEO Chris Jowsey says ‘community pubs are an integral part of the UK’s social tapestry. They are hubs which bring people together, provide a forum to combat loneliness and are significant fundraisers for charity causes, raising raise over £100 million pounds for charity each year. From the onset of the pandemic, we have worked hard to ensure our licensees received the support needed to emerge from the crisis energised, motivated, and not weighed down by debt.’
HOTELS & LEISURE TRAVEL:
• A poll undertaken by LEK Consulting has found that a half of would-be holidaymakers people do not expect to return to normal levels of leisure travel even after the completion of the vaccination programme. LEK says ‘this shows that recovery in personal travel habits is likely to be prolonged and may take some time beyond the vaccination programme’s conclusion in autumn this year.’
• TTG has picked up on PM Boris Johnson’s comment yesterday that Michael Gove was looking at the concept. He said ‘vaccine passports as an idea are not new when it comes to international travel, there have been certificates for things like yellow fever and other diseases in the past and I’m sure that will be a feature of our lives in the future.’
• ABTA chief Mark Tanzer has told Travel Weekly that the travel industry can realistically hope for travel to restart from May 17
• The Canary Islands hopes to welcome British tourists back to the islands. No dates are mentioned but the islands’ tourism minister Yaiza Castilla says ‘we want to be at the same level at the UK and also be ready with the same health protocols so that we can guarantee their safety, so that they can enjoy their holidays in the Canaries.’
• The UNTWO says a third of global tourism destinations are still closed.
• Entain reports that it ‘has received necessary regulatory approvals regarding the recommended public cash offer to the shareholders of Enlabs.’ It says ‘consequently, the condition for the completion of the Offer regarding the receipt of all necessary regulatory approvals has been fulfilled.’ The acceptance period under the Offer will expire on 18 March 2021’
MORE LEISURE SNIPPETS:
• The BBPA reports that Wetherspoon, Loungers, The Oakman Group and Drake & Morgan have joined the trade body.
• Mitch Tonk’s Rockfish restaurant chain is reported to be opening a new location, its ninth, in Salcombe, Devon
• Bubble Tea brand Gong Cha is to open a new site in Newcastle
• Rooftop bar The Green Room is set to open offering plant-based food to customers this summer
• Hero Brands is reported to have invested in Island Poke in order to fund the grab and go brand’s international expansion
• Travel shares performed strongly yesterday on renewed hopes for a return to normal.
• Club Med has said that next year’s ski season could be its busiest ever.
• TikTok is reported to have agreed a deal on a new office building in London
FINANCE & MARKETS:
• Governor of the Bank of England, Andrew Bailey, has said there is ‘light at the end of the tunnel’ with regard to Covid.
• Mr Bailey told The Resolution Foundation that some working from home was likely to continue. He says ‘reduced travel time is a positive, but there may be lower innovation and creativity which would otherwise come from people being together more.’
• Bailey adds ‘I see reasons to believe that the longer-term negative economic effects of the COVID shock will be smaller than we have seen in the past, particularly in the 1980s and early 1990s.’
• Savills predicts that property prices in Yorkshire and the north-west could rise by almost 30% over the next five years, over double the rate to be seen in London.
• Sterling stronger at $1.3841 and €1.1670. Oil lower at $68.42. UK 10yr gilt yield unchanged at 0.76%. World markets mixed to better yesterday but London set to open down by around 26pts as at 7.15am.
RETAIL WITH NICK BUBB:
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