Langton Capital – 2021-03-10 – PREMIUM – Restaurant Group, Just Eat, consumer spending etc.:
Restaurant Group, Just Eat, consumer spending etc.:
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A DAY IN THE LIFE:
Well, we might be cold and miserable, but at least we’re a few pennies richer as the oil for the boiler has run out and we’re consequently not using any.
And it’s my job to get up a ladder and have a peak in the tank every few weeks so I’ll be wearing this one for a while as, when the heating went off and I was despatched into the drizzle to have a look what had happened, the only thing where 2,000 litres of heating oil should have been, was an echo.
So, it’s no heating, no hot water, no showers, no shaving…
Meaning that we’ll look like smelly, bearded hermits within a few days. Only the chaps among us, of course, but our pleas to hurry up with the delivery were met with the response that ‘we’d love to but you didn’t pay your bill for a month last time…’
Also, it has to be said, my job. Oops and on to the news:
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RESTAURANT GROUP – FULL YEAR NUMBERS:
The Restaurant Group has this morning released FY numbers and our comments thereon are set out below:
• RTN is to raise a further £175m via an equity issue
• The company says it has seen encouraging trading when allowed to open with its Wagamama and pubs businesses ‘particularly strong’
• Revenue for the year is £459.8m, down from £1.07bn last year
• Adjusted EBITDA is £53m (2019: £137m) and the adjusted loss for the year is £87.5m, against a profit in 2019 of £74.5m
• The group is reporting a loss before tax of 13.4p on an adjusted basis against a profit per share of 11.9p last year.
• There is no dividend and the group is announcing that it is to raise £175m via a firm placing and placing and open offer
• The group says that its long-term financing has been secured post year-end, with £500m of new debt facilities in place and a flexible covenant package
• The group will host a webinar for analysts at 8am. For further details, see premium email
• Regarding current trading and the outlook, the company says that ‘the short-term outlook is uncertain whilst restrictions are in place’
• It says ‘average standalone delivery and takeaway sales in Wagamama and Leisure at c.2.5x and c.5.0x pre-Covid-19 levels respectively during the current national lockdown.’;
• RTN adds ‘the Group has strong capability to deliver an accelerated reopening plan, once the current restrictions for hospitality businesses end’
• It adds that it believes it is ‘well positioned across its diversified brand portfolio to benefit from the sustained removal of restrictions over time and to deliver long-term shareholder value’
• CEO Andy Hornby says ‘the Covid-19 pandemic has presented enormous challenges for our sector but the TRG team has responded decisively to re-structure our business whilst preserving the maximum number of long term roles for our colleagues.’
• He says ‘TRG is operationally a much stronger business than 12 months ago.’
• Mr Hornby goes on to say ‘the Capital raise announced today, alongside the debt re-financing announced last week, represents the last important step in our re-structuring process and provides TRG with the long term flexibility to invest in growing our business.’
• The CEO concludes ‘whilst the sector outlook remains uncertain, and we are mindful of continuing restrictions across the UK, we are confident that the actions announced today will allow us to emerge as one of the long term winners.’
The group updated further on 1 March:
• Last week, the group updated on its debt financing & the impact of Covid saying, as mentioned above, that it had agreed £500m of new long-term debt facilities. For details, see our not of 1 March.
• RTN pointed out at the time that the coupon was c7% with no formal amortisation requirements. It said ‘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 added last week 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.’
• Regarding trading, RTN last week said 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’
• RTN said on 1 March it ‘currently has approximately 200 sites trading for delivery and takeaway across its Wagamama and Leisure businesses.’
• It concluded last week ‘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.’
• With little to talk about (other than delivery) with regard to trade, it is worth repeating that 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.
• RTN has followed JDW in tapping shareholders a second time.
• Last week, it concluded negotiations with banks and now it is turning to equity holders.
• We said last week, and were proved rapidly wrong, that ‘RTN has issued equity once and, it would appear, it hopes not to have to do so again.’
• It is entirely possible that the debt extension required additional equity. The company will host a webinar for analysts at 8am.
• We believe that 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. It has now proven that it is up with events when it comes to tapping equity markets more than once.
• The group’s shares will continue to be impacted by Covid-19 and vaccine news, both good and bad, but, as the company says, it is in a much better position to cope than it would have been in the past and than many of its peers are at present.
JUST EAT TAKEAWAY – FULL YEAR NUMBERS:
Just Eat Takeaway has this morning released FY numbers and our comments thereon are set out below:
• Just Eat reports revenue of €2.398bn, up from €1.557bn in the prior year.
• Adjusted EBIDTA is €256m (2019: €217m) and the loss before tax on an IFRS basis is €147m, up from €88m last year
• The company says ‘2020 was an exceptional year for Just Eat Takeaway.com.’ See premium email for more detail
• The company says ‘right before the completion of the merger between Just Eat and Takeaway.com, the world was hit by Covid-19. ‘
• This brought unprecedented challenges to our restaurants, consumers as well as to our organisation and staff, but it also created tailwinds for our business.’
• ‘In the second half of the year, we increased our investments into the legacy Just Eat business significantly, building on our position as one of the largest food delivery companies in the world.’
• The company says ‘on the back of Just Eat Takeaway.com’s proven growth strategy, the Covid-19 tailwinds and the significant investment in the legacy Just Eat markets, the Company reported three consecutive quarters of order growth acceleration in 2020.’
• Just Eat Takeaway reports that the Covid 19 pandemic created ‘tailwinds’ for the company and helped drive sales up by 54%.
• The company says ‘we achieved a step change in our scale and performance through excellent organic growth and the combination with Just Eat.’
• In the UK, the company says it ‘processed 179 million orders in 2020, representing a growth rate of 35% compared with 2019, with strong growth in both marketplace and Delivery.’
• It says ‘delivery orders more than doubled year-on-year. The growth was supported by our partnership with McDonald’s, as well as an exclusive partnership with Greggs, the UK’s leading bakery.’
• The company adds ‘in the second half of 2020, Delivery order growth reached 260% and the growth of marketplace business was 31% compared with the second half of 2019.’
• The company is growing at an impressive rate – albeit with tailwinds that most of us hope will be one-off. The company must be aiming to make a reportable profit at some point and, until that becomes more visible, we find it challenging to attempt a valuation.
PUBS & RESTAURANTS:
Reopening plans – the consumer:
• It takes two to tango. Fortunately, KAM Media reports 1-in-3 customers will return to hospitality while it is ‘outdoor only.’
• The snap poll found that Generation Z and younger Millennials are least likely to be put off by the prospect of ‘outdoor seating only’ with 43% of 18-34 year olds saying they’ll return, compared with 24% of over 55 year olds.
• KAM’s Katy Moses says ‘it’s positive that such a large proportion of potential customers are happy to dine and drink outside.’ She says ‘this reflects what we saw last July too when hospitality first re-opened. The weather will obviously have a huge impact too.’
• The research found that a further 26% of UK adults intend to wait for pubs and restaurants to re-open with indoor seating and service before they visit them. And a further 33% said they are not planning on visiting pubs or restaurants at all for the foreseeable future due to Covid-19. This figure was 42% for the over 55s
• KAM says ‘most of our research throughout the pandemic has pointed to the fact that older customers are being more cautious, for obvious reasons. It seems that despite the vaccination programme, these customers are still less likely to return to hospitality right away. It is likely that many have also got used to staying at home, helped along by all the fantastic new ‘hospitality at home’ options, operators will not only need to make them feel safe but also remind them what they’ve been missing.’
• KAM says consumers are much more frustrated and bored than they were coming out of Lockdown 1.0, ‘which is a huge opportunity for hospitality to be a saviour in the eyes of its customers and give them something to smile about once lockdown measures lift again.’
The consumer, historic data:
• Barclaycard comments on historic spending saying that consumers spend 13.8% less in February this year than they did last. Barclaycard says ‘spending on essential items grew 5.3 per cent year-on-year as online grocery shopping surged. Food and drink specialist stores, which includes butchers, greengrocers and fresh food box services reached a record high of 63.3 per cent growth.’
• Spending on non-essentials dropped 22.1 per cent, as much of the high-street remained closed. Barclaycard manages to say ‘despite a very challenging environment, it’s inspiring to see many retailers remaining resilient and doing what they can to maximise online sales while physical stores remain closed. In addition, as we all spend more time at home, we’ve seen home subscription services, fresh food boxes and meal-kit services become a popular mainstay of life in lockdown.’
• Barclaycard reports that confidence in the wider UK economy in February rose to its highest point in the past 12 months
• A few features. Food spending is covered above. Spending at discount stores was up 32.3 per cent, takeaway spending was up 30.0 per cent and DIY spend was up 10.3 per cent. Less good news for leisure. Spend on hospitality & leisure was down 68.9 per cent, travel spend was 82.3 per cent lower and spending with airlines was down by 86.3 per cent.
• Barclaycard reports that confidence in household finances held up at 68 per cent, with more than two fifths (42 per cent) of consumers saying they have saved more money than usual since the pandemic began.’ See comments on saving below.
• Langton comment. See premium email.
• The survey says 20 per cent of those who have saved more than normal want to ‘take a big holiday with the extra money they have saved and 13 per cent are planning to treat themselves to something nice.’
• The problem here is that a pizza foregone, is lost, whilst a new sofa, car or carpet, could be ‘caught up on’. There may well be catch up spending in the latter areas but this may be less of a thing with everyday treats. Nonetheless, one would hope and expect to see something of a sharp bounce, perhaps followed by steadier trade.
The consumer’s ability to spend:
• Former Bank of England deputy governor Charlie Bean has said that there may not be a spending boom once lockdown measures have been removed.
• Mr Bean says that much of the £180bn in extra savings has been accumulated mainly by retirees and higher-paid workers during the crisis – and these demographics may not be amongst the most keen to spend.
• Langton comment: See premium email.
• It’s fair to say that, just because a large amount of money has been saved up, doesn’t necessarily mean it will be spent in a hurry.
• Indeed, if less affluent demographics and younger people, who have a higher propensity to spend, have had a financially ‘bad’ lockdown, then things may go in the opposite direction.
• Bean says ‘the idea that people will make up for lost consumption by spending it all over the next few quarters once the economy has reopened, I find implausible. It is much more likely it’ll be spread out over several years.’
• If wealthy people become more wealthy, they might be tempted to spend their additional funds on a villa in Spain or a cottage in the Cotswolds rather than on everyday consumables. Bean says as little as 5% of the additional savings could be spent per annum.
• The opposite view has been put by the Bank’s Andy Haldane, who said last month that there may be a benefit from the ‘enormous amounts of pent-up financial energy waiting to be released, like a coiled spring’. That does seem a little optimistic.
• Bean concedes that ‘there may be a sort of euphoric post-pandemic effect for people… pleased to get out the other side and treat themselves whether to special holiday or more expensive meals or some fancy car or whatever it is, there may be a bit of that. But it’s reasonable to assume that the bulk of it will be saved.’ Although it might not benefit the hospitality industry in the short term, this does seem to be intuitively reasonable.
The consumer – where will they be (physically):
• BP has told 25,000 office-based staff that it expects them to work from home for two days a week post-pandemic.
• Langton comment. See premium email.
• BP says it hopes the hybrid approach will offer staff a “flexible, engaging and dynamic” way of working. This it may well do, but, for the coffee and sandwich shops, for the railway station newsagents, for the lunchtime pubs and for the after-work bars, the implications are not entirely positive.
• Peter Backman earlier this week said that the three groups that combine to make urban demand what it is, locals, commuters and tourists, are absent in many cases at present and the latter two groups may be slow to return.
• Measures to prevent the eviction of non-rent payers in Wales have been extended to end-June.
• Angus Steakhouse is reported to be asking its landlords for help as the Covid lockdown closures threaten trade. KPMG are reported to be attempting to negotiate rent concessions. The Telegraph says KPMG had written to its landlords requesting a rent holiday until lockdown trading restrictions come to an end. While some have agreed to the plan, without unanimous support the company risks running out of money. KPMG declined to comment.
• Brewdog President & COO, David McDowall, talks to Casual Dining saying that ‘there has been more change and challenge over the past 12 months, than at any point in our history. Just like most businesses, our strategy became very simple – survive, and protect livelihoods.’
• Regarding changes to the industry, Brewdog’s McDowall says ‘there will be a raft of M&A activity for sure, but for me the biggest opportunity is that this past year has reminded consumers how deep a connection they have with their favourite hospitality spaces.’ He says ‘we are not anywhere near out of the woods yet. Without the correct medium to long term business support, we are unfortunately facing many more business failures, and countless hospitality jobs lost.
• Hawthorn reports that it has teamed up with Vianet ‘to gain estate-wide insight.’ Vianet’s iDraught system ‘enables pub companies to intelligently monitor all aspects of their bars to ensure the very best in returns.’
• The Oakman Group has confirmed that it has acquired ‘six high quality public houses from the administrators of Seafood Pub Company Holdings Limited. In addition to the restoration of some 150 jobs the deal provides good news for suppliers including the UK’s sustainable fishing industry. The new acquisitions will strengthen Oakman’s aspirations to have 40 pubs in their portfolio by the end of 2021.’
HOTELS & LEISURE TRAVEL:
• TUI has suggested that there will be aircraft overcapacity in the wake of the Covid-19 pandemic. CEO Fritz Joussen told a Berlin event ‘we have used the crisis to massively scale down our aviation capacity.’ He says ‘we should serve the essential and strategic routes but not all the routes available. We can purchase air capacity in the market.’
• EasyJet has put its summer 2022 flights on sale early and has increased the range of package holidays on offer
• Domestic cruises may be allowed to recommence from 17 May says MP Robert Courts.
• Greece is reported set to reopen its tourist facilities from 14 May. The country’s tourism minister says ‘all tourists will be subject to random testing similar to last year. We can use rapid testing and isolation will take place immediately without the hassle of moving 24 hours after you have settled in your room.’
• Aviation bodies hope that APD could be halved on domestic flights.
• Carnival has announced that Holland America Line, Princess Cruises and Seabourn have all extended cruise cancellations to the end of June or to 3 July in the case of Seabourn.
• Audley Travel reports that the use of expert travel advisors has risen in popularity compared with peer reviews over the last year.
• The NBER in the US says that the average workday has got 48 minutes longer over the last year, with 13 per cent more meetings. The need for holidays may have likewise increased.
• Sky reports that Virgin Active is attempting to ‘cram down’ on landlords and make them accept the terms of a restructuring deal, even if they vote against the plans. Sky says the measures are designed ‘to make restructurings easier to implement for companies facing financial difficulties. The mechanism’s prospective use by Virgin Active is understood to be the first time it will have been used to “cram down” landlords.’
MORE LEISURE SNIPPETS:
• Hull based sandwich shop Relish is to offer product nationwide.
• PayPal is to buy Curv, a cryptocurrency startup based in Tel Aviv.
FINANCE & MARKETS:
• The OECD has increased its forecasts for economic growth both for the UK and globally. The OECD expects world growth of 5.6% with 5.1% in the UK.
• Sterling mixed at $1.3850 and €1.1665. Oil lower at $66.64. UK 10yr gilt yield off by 4bps at 0.72%. World markets better yesterday but London set to open down by around 54pts as at 7am.
• DOM. Says transformed management, in talks with franchisees, disposing of geographies, looking for 200 more stores, medium term system sales target £1.6bn to £1.9bn. Quite a few tasks to be getting on with there. Aim to ‘turbo-charge’ collection etc.
• WH Smith update. Bank facilities extended, cash burn reduced. Sales last month, High Street down 16%, Travel down 67%. Arguably, both numbers less bad than might be expected. But a visit to the High Street; you’re not exactly spoiled for choice, are you?
• Nick on ‘embattled West End landlord CapCo’ this morning. Brave face. Co says ‘we are optimistic about the enduring appeal of Covent Garden & London’s West End.’ Right. But when? Oxygen to a drowning man in 2hrs time isn’t much use. Just saying.
• Domino’s (strong trading, profits) & Deliveroo (£1.1bn of accumulated losses). Compare & contrast business models. Single prod vs one-stop shop, high vs variable margins (for the restaurant), engaged suppliers vs resentful ‘partners’. Are both models sustainable?
RETAIL WITH NICK BUBB:
• Today’s News: Hot on the heels of the news that its rival Deliveroo is planning to flat, the highly acquisitive Online delivery marketplace Just Eat (which is still listed in the UK General Retail sector for some reason) has announced its finals for 2020 and the focus is, of course, on EBITDA rather than “real profit”…The headline numbers look good, with revenue up 54% to €2.4bn (on the back of a 42% increase in orders to 588m) and adjusted EBITDA was up 18% to €256m. Jitse Groen, the CEO of Just Eat Takeaway.com says that “we expect a further acceleration of our order growth in 2021 compared with last year”, but the big event this year for the business will be the completion of the acquisition of the US rival Grubhub in the next few months. On the IPO front, the Russian discount retailer Fix Price sees unconditional dealings start in its shares today, but it has not been a licence to
• Grocery Market Share Watch: The latest monthly Nielsen grocery market share figures (for the 4 weeks to Feb 27th) came out at c8.30am yesterday morning and covered the same period as the BRC-KPMG survey, which ended a week later than that of the rival survey from Kantar last week. The Nielsen survey was, pithily, headlined “Online grocery sales soar to £1.5bn, and British consumers signal another change in shopping behaviour as sales of cupboard necessities decline for the first time since pandemic began”, noting that the Online share of grocery sales edged up from 16% to 17% in February (up 132% overall) and that overall Total Till sales in the four weeks grew by 10.6%. That is exactly the same rate of growth as in the previous 4 week period, even though Kantar said that growth accelerated to 15.1%. The Kantar figures tend to be on the high side, but part of the difference between the
• This Week’s News: Tomorrow brings the Morrisons finals and the John Lewis Partnership finals, whilst the Hammerson finals and Mothercare’s move of listing to AIM follow on Friday.