Langton Capital – 2021-03-17 – PREMIUM – Hostelworld, Stonegate, Hawthorn, Nightcap, P&O & other news:
Hostelworld, Stonegate, Hawthorn, Nightcap, P&O & other news:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Not entirely coincidental with it being Mothers’ Day, I was in a garden centre over the weekend.
Delightful, I’m sure.
And I can just about manage it once in a twelve month but, if I wanted to see a bunch of weeds in a shop, some of which were admittedly ‘flowers’, I could always put a till in our garden and have a cheaper cup of coffee into the bargain.
But, perhaps, that’s a little unfair.
I was suffering a bit of kick-back after the Covid jab – if you’ve had the illness and then the jab, your antibodies apparently work themselves up into a righteous state of outrage and muscle-aches and a cracking headache are the result – and visiting on a windswept and chilly March day during lockdown wasn’t to see the place at its best.
It might look charming in May. Some of the flowers might even be in bloom and the visitors, namely me, might be a tad less grumpy.
Anyway, let’s move on to the news:
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PUBS & RESTAURANTS:
Covid. More lost trade.
• The BBPA points out that ‘pubs will miss out on 14 million sales of pints this St Patrick’s Day due to the fact they are required to remain closed due to the lockdown.’ It says some £54m in revenue will be lost.
• CEO Emma McClarkin says the closure over yet another drinking occasion is ‘a real disappointment for our pubs too, who will miss out on what would’ve been a big boost to their trade and at a much-needed time too.’ Ms McClarkin says ‘we urgently need to get the pub reopen and operating without restrictions so the recovery can truly begin.’
• The BBPA is lobbying against backsliding, saying the loss of another big day ‘made it all the more important that pubs do fully reopen on June 21st as stated in the Government’s roadmap for reopening.’
• Langton comment: It’s not clear when ‘sufficient’ protest will become ‘too much’. Making clear that pubs are losing revenue every day is a good thing. But MPs and rule-makers are arguably already fully aware of this. Or maybe that’s naïve. They (the MPs) may need top-up information, which could help stiffen their resolve if the health lobby demands sustained social distancing regulations and maybe the number of complaints is like the MPs’ postbags, it’s the volume that matters.
Covid. Coiled spring? Catch up spend? Revenge spending?
• This is a big topic with a number of moving parts. Experience last summer suggests a sharp bounce in hospitality spend. There will be no EOTHO this year, but the betting is still on the consumer being keen, very keen even, to get out to the UK’s pubs & restaurants. But this spend will not be evenly spread. Suburban units will perform better than those in city centres and the provinces may outperform London (certainly Central London, at any rate).
• However, revenue lost to hospitality may not be ‘caught up on’ as a pizza forgone in February or March is unlikely to mean the consumer eats twice as many of them in April or May. And spending on drink in the on-trade, which has been replaced by spending in the off-trade in real time, will not be doubled up on. That said, beer gardens will be busy. We are hearing anecdotally that it’s difficult already to get tables later in April.
• Scotland’s first minister, Nicola Sturgeon, has said that pubs and restaurants will be allowed a phased reopening from next month. She says she hoped food will be served outdoors and indoors from April 26th. There are no promises yet and it is likely that there will be no alcohol sold inside hospitality venues until a later stage in the reopening.
Use of Tech:
• Zonal & CGA’s latest GO Technology report concludes that ‘Covid-19 has fundamentally transformed the relationship both consumers and hospitality operators have with technology.’ The report finds since summer 2020, 76% of consumers have pre-booked to eat or drink out in a hospitality venue and 45% are now ordering food and/or drinks on mobile devices when eating out. It says 56% of 18- to 24-year-olds would prefer to order online even after the country has been safely vaccinated.
• Langton comment: Tech (alongside delivery) is one of the pre-existing ‘trends’ that has likely been accelerated by Covid. Again, like delivery, the use of it is unlikely to subside back to pre-pandemic levels.
• The major questions will be: how much of the existing usage will hold up, what will it cost and what will it do to margins?
• If ‘demand-pull’ is at work here (that is the customers want it) then, hopefully, they will pay for it. If the use of it lowers margins, then it’s a win-win. The customer is happy and it hasn’t cost the operator anything (or they have passed only a part of – or none of – the benefit on).
• If it’s ‘supply-push’, where the attitude is ‘we have the tech, you should learn to use it’, then there may be some push back. JD Wetherspoon was an early adopter when it came to table ordering, so this may be a complicated issue that can’t be decided simply on a pub type or customer type basis.
• Zonal says ‘our new research shows that customers’ expectations now are that tech will help to enhance their hospitality experiences even further.’ This is great. We’re not statisticians or pollsters but we would just caution that it will be very important to ask the right people the right questions the right way.
• CGA says ‘there is no doubt that a lot of the change we have seen over the last 12 months is here for good. Businesses that can identify the technology that is genuinely beneficial rather than gimmicky, and weave it together with the best traditional elements of hospitality, should feel confident about bouncing back when hospitality returns in the spring.’ We agree completely.
Company & other news:
• The Stonegate Pub Company has reported 52wk numbers to 27 September 2020 to Companies’ House. Following its purchase of EI Group during the period under review, Stonegate is the largest pub company in the country by pub numbers, with some 4,708 pubs at the financial year end. EI Group was owned for a part of the year (from 3 March). Revenues for the year, which was greatly impacted by Covid, down to £707m (even including the impact of the EI acquisition) from £853m in the prior year. The underlying loss before tax is £207m and the reported loss is some £746m (after £539m of exceptional items). The retained loss since incorporation is £763m. The company issued shares during the year and shareholders funds, back at the end of September, were £437m (2019: deficit £12m).
• Langton comment: The accounts were signed on 19 Feb 2021. The group is subject to Cayman Islands corporate law. There is no auditor’s report. The purchase of EI Group, just before Covid became a major concern, has impacted the figures. The board has adopted the Going Concern principle saying it has reviewed cash flow forecasts and believes the Group ‘has sufficient liquidity in order to service its debt and meet its other liabilities as they fall due such that it remains appropriate to prepare the accounts under the going concern basis.’
• Stonegate does outline a number of scenarios (a delay to reopening, a fourth lockdown later this year etc), in which case it would have ‘insufficient liquidity’. Good luck to all. These are complicated accounts and we have left it this point. If anyone would like to discuss this in more detail, we would be prepared to undertake more work.
• Hawthorn Leisure, which is the leased & tenanted pub opco owned by NewRiver, has reported accounts to 29 March to Companies’ house. The numbers are now very historic as they are essentially pre-Covid, but the accounts were signed on 24 Feb this year, so there is some comment on Covid. The company reports revenues of £13.7m (against £16.7m in the prior year) with an underlying loss before taxation of £162k. The reported loss before taxation is £4.7m. Retained earnings slipped, as a result of the loss, and total equity is £56.4m.
• Langton comment. Hawthorn is not an insignificant player. It had 197 leased and tenanted and 39 managed pubs at its year end. The accounts, which are effectively those of a subsidiary, is not very forthcoming on trading. The company says its ‘trading ability has also been impacted by the Coronavirus pandemic.’ It outlines the periods of closure and says ‘the Directors have continued to take all available measures to mitigate the disruption to the business caused by the pandemic, however, they expect Covid-19 to impact the results of the Company for the financial period ended 28 March 2021.’
• Hawthorn Leisure Holdings, which is owned by Pub REIT, a part of NewRiver REIT PLC, and is not an operating company, has reported full year numbers to 29 March 2020 to Companies’ House. The company reports a loss before tax of £5.3m against a profit before tax the year earlier of £23.2m. Retained earnings fell to £56.3m from £61.6m in the prior year.
• Nightcap, which recently bought London Cocktail Club and listed on AIM, has commented on interim numbers for the period to 31 December 2020 (during which it was a cash shell). It says it is making good progress in building a property pipeline. The group had £3.75m in cash as at 28 February 2021. Nightcap CEO Sarah Willingham says ‘we believe that drinks-led hospitality will come back stronger than ever during the second half of 2021.’ She says ‘the opportunities for Nightcap are enormous.’ Nightcap intends to grow from 10 to 40 units over the next 5yrs. Properties are now more reasonably priced. Nightcap will reopen five units on 12 April with the other five due to reopen on 17 May.
• Meatless Farm may manufacture lab-grown meat
• Beijing has reportedly told Alibaba to sell off its media assets including Hong Kong’s South China Morning Post
HOTELS & LEISURE TRAVEL:
The medium term upside:
• The state of demand for the peak season remains to be seen. The leisure travel industry is very optimistic by nature and there are certainly some reasons to be cheerful.
• Jet2.com and Jet2holidays have reportedly seen bookings for Turkey double since the country said it would welcome UK visitors without the need for a vaccine certificate. Whilst possibly indicative of a deeper demand, this is likely only a one-day snapshot. CEO Steve Heapy says ‘Turkey has continued to be a popular choice, and the welcome news that UK holidaymakers can enjoy the Turkish sunshine this summer has translated into an immediate rush of bookings.’
• Portugal has been taken off the UK’s travel ‘red list’. Mauritius, for those with deeper pockets, has also come off the list. Four countries have gone on the list, Ethiopia, Oman, Somalia & Qatar.
• Analysing the Spanish hotel industry, STR has said the Spanish industry noted that UK travellers’ ‘reservations for the 2021 summer season skyrocketed after British Prime Minister Boris Johnson announced the current ban on non-essential foreign travel by British citizens would be lifted on May 17.’ The number of British visitors to Spain fell from 18m in 2019 to just 3m last year. STR says ‘Spanish hoteliers said they are now more optimistic because of the U.K. opening up international travel, the rollout of vaccines and efforts by governments to come up with a safe travel system for fueling the jump in bookings reported by tour operators and travel agents.’
• First minister Nicola Sturgeon has suggested that non-essential international travel from Scotland is unlikely to resume from May 17. She says a restart on that date ‘may well not be possible for a further period.’ She said it was likely that testing would be required ‘for some time to come’.
Ongoing short term downside:
• Norwegian Cruise Line Holdings has said that it will not resume sailings until at least 30 June. It says it ‘will continue to work in tandem with global government and public health authorities and its Healthy Sail Panel expert advisors to take all necessary measures to protect its guests, crew and the communities visited.’
• Langton comment: In leisure travel, as in many other industries, there is a slant to the upside, which is influenced by the optimistic nature of the people involved in the trade. There may therefore be a slant to the positive with regard to news-flow, but there are still problems out there, not least, that holidays are currently illegal.
• That’s a bit of an argument-ender when it comes to deciding whether the current environment is ‘good’ or ‘bad’. As we move towards reopening, issues may focus on demand (how much is there, do passengers expect distancing on planes, will facilities be open in resort, etc) and on logistics (what are the queues like in airports, can operators get capacity back on in a timely fashion etc).
Company and other leisure travel news:
• P&O has announced that passengers cruising around the British Isles this summer will need to have received both of their coronavirus jabs. Saga has made similar statements. Passengers will also have to have travel insurance that covers Covid-19. It’s not clear just now how available that actually is.
• Carnival brands Princess Cruises and Holland America Line have extended their pauses on cruising. There will be no departures from Seattle to Alaska until at least the end of June. There is a No Sail Order in place at present. This should be replaced by a new Framework for Conditional Sailing Order at some point.
• Uber has announced that it will give its 70,000 UK drivers a guaranteed minimum wage, holiday pay and pensions. It says it does not think this should lead to higher fares. The company lost a court case on the issue last month.
• Hostelworld Group has announced full year numbers to 31 December 2020 saying that the results were in line with expectation and adding that the group is ‘well positioned for a recovery in travel.’ It says full year bookings were down by 79% after a fall of 6% last year.
• Langton comment: The group says that it has been busy improving its systems etc (a new ‘promotional configuration platform’ and consolidating its ‘tracking, attribution and bidding tools within Google’s product suite’ etc) but the headline numbers reflect the scale of the problems caused by Covid.
• Net revenue is €15.4m, a decline of 81% compared to 2019 (2019: €80.7m). The company has dealt with cancellations and cut its marketing costs by 72%. It has cut other costs but still has to report an EBITDA loss of €17.3m, down from €20.5m profit in 2019. The loss before tax is €50.5m (compared with a profit in the prior year of €3.0m) and the group lost 20.8c per share. Unsurprisingly, there is no dividend.
• Hostelworld CEO Gary Morrison says ‘2020 has been an extremely challenging year for both Hostelworld and the entire global travel industry.’ He adds the co still ‘delivered significant improvements in marketing capabilities, user experience and inventory competitiveness’ and says ‘as vaccination programmes continue to be rolled out in our key geographies across the world, I am confident our loyal customer base has a strong desire to travel once restrictions allow, even more so after a prolonged period of confinement.’
• Hostelworld says it is ‘confident that Hostelworld will emerge from the pandemic stronger than before and able to seize market opportunities when normal travel patterns resume.’ Re the outlook, it says ‘while the near-term outlook for the travel industry remains challenging and highly uncertain, we continue to expect the pace of recovery to be driven by changes in travel guidance in individual markets, which we hope to see accelerate as vaccination programmes are rolled out across our key geographies. Given the continued uncertainty relating to the timing of the recovery, the Group is unable to provide guidance for FY2021.’ It says ‘we remain convinced that when travel restrictions are lifted, we will be well positioned to benefit from the recovery in demand, driven by our improved platform and loyal customer base.
• The Gym Group has undertaken an analysis of its ‘social impact’ and concludes that it has ‘created £1.8bn in social value since 2016.’ It quotes research by Sheffield Hallam University as saying that ‘using the gym reduces the likelihood of developing diseases such as diabetes, heart disease, cancer and depression, and also increases life satisfaction, improves educational attainment and reduces the rate of crime among young men.’
FINANCE & MARKETS:
• Bank of England governor Andrew Bailey has said that there are ‘upside risks’ to his growth estimates for the UK economy. The Bank’s governor has been criticised recently for the failure of the FCA, where he was boss, to effectively oversee the Woodford funds and for failing to declare a potential conflicts of interest in a scandal that saw thousands of bank customers mistreated,
• Bailey says the UK economy could be back to its pre-Covid size. Mr Bailey has access to more stats than we do, but that sounds a little optimistic. The Bank’s MPC will set UK interest rates at its monthly meeting tomorrow. Bailey said inflation will rise but he did not agree with suggestions that the Bank and the Treasury’s borrow and spend policies could push it to 4-5% by the end of the year.
• Sterling higher at $1.3890 and €1.1668. Oil up at $68.74. UK 10yr gilt yield 1bp lower at 0.79%. World markets mixed yesterday. London set to open down about 13pts.
RETAIL WITH NICK BUBB:
• Today’s News: The final results from the embattled funeral services business Dignity today show that last year was not a licence to print money, with revenue only up 4% and operating profits down 65%…Interestingly, the number of deaths was only up 14% in the UK in 2020 (up 1% in Q1, up 47% in Q2, -2% in Q3 and +8% in Q4). The business is still looking for a new CFO and CEO, but the acting Executive Chairman Clive Whiley still says that it is an “unwelcome distraction” that “our largest shareholder Phoenix Asset Management Partners, with whom we believed we were having a constructive dialogue in relation to the future strategy of the business, has chosen this moment to seek to assert what would, in effect, be executive control at Board level”. Nevertheless, Dignity has agreed to convene the required general meeting of shareholders and allow them “to decide on the merits of the Phoenix
• This Week’s News: Tomorrow brings the Ocado/M&S Q1 update, the MPC meeting news and the Nike Q3 and the Signet Q4 results in the US. Friday then brings the widely followed monthly GFK Consumer Confidence survey for the UK.