Langton Capital – 2021-04-13 – PREMIUM – Just Eat, RBG, reopening, private co accounts, Deliveroo etc.:
Just Eat, RBG, reopening, private co accounts, Deliveroo etc.:
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A DAY IN THE LIFE:
The fondly-remembered Easter weekend already seems like a long time ago.
It created two, four-day weeks and, though that’s a good thing, it did mean that my alarm went off at stupid-o’clock on the Friday morning and, twenty minutes after that and when I was well and truly asleep again, my super-safe, super-loud, backup alarm also went off.
This made me as popular as you would readily imagine and I secured my place in the doghouse when, despite heartfelt and truly meant (at least the time) promises that I would deal with the matter promptly, the same thing happened on the Monday.
And, whilst there’s a certain satisfaction to being able to go back to sleep, that was little more than a dream because the dog had other ideas.
Dedicated foodie that he is, he knows that, 99% of the time, the alarm heralds me staggering down the stairs ten minutes later to feed him and, if he howls and whines loudly enough, he can infill the remaining 1% with more of the same.
Which is what he did but, anyway, the pubs opened yesterday to snow storms in the south and four degrees of frost in the north. Minus four tonight but no precipitation. On to the news:
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PRIVATE COMPANY ACCOUNTS – BREAD HOLDINGS:
Bread Holdings has reported very historic full year numbers for the year to 29 Feb 2020 to Companies’ House. It had been suggested that the company was for sale but the process, if indeed there was one, was overtaken by the Covid-19 pandemic.
• The company reports revenue up to £116.4m from £100.8m in the prior year. Operation profit is up to £6.8m from £4.3m and PBT is up to £3.5m from £2.3m.
• The company reports retained earnings of £11.8m (up from £9.6m) and shareholders’ funds are £14.8m, up from £12.6m. There are intangible assets of £21.5m, meaning that tangible net assets are negative £6.7m.
• The numbers are old but, as the audit report was signed on 11 December last year, the company does comment on the Covid-19 pandemic.
• Bread says ‘the wholesale market is very competitive and growth can only be achieved by continuing to offer existing customers the highest levels of service and quality at reasonable prices, whilst attracting new customers with an unparalleled quality of ingredients and products.’ It says ‘the retail bakery market also remains very competitive and the Group recognises that to be able to grow it must continue to provide innovative world-class food in attractive neighbourhood bakeries with the highest levels of service, at reasonable prices.’
• The company says ‘while the coronavirus has caused considerable disruption to our group since March 2020 both the wholesale and retail businesses have successfully adapted to this new environment and are now trading well.’
• It says it has evolved its products and says it has seen ‘considerable changes to our wholesale customer base, bought on us by the very unusual market conditions affecting the wider Food Service industry.’
• Bread says ‘we expect the Food Service sector to recover quite gradually in 2021 from the shock of Covid and this will directly impact [our] ability to grow its sales in the year ahead, though this will be mitigated by our growth in sales to the retail sector.’
PUBS & RESTAURANTS:
• Snow in the south of England, minus three and frost in the north. But, in both cases, it faired up and pubs and restaurants were able to serve food and drink for consumption outside. This, at least, is something. There’s no 10pm curfew but, as it’s forecast to be minus four overnight up here, customers frequenting venues that haven’t invested in a number of walls, a roof and space heaters, will need to be both dedicated and well-wrapped-up if they’re going to stay out late.
• There was a lot of news rehashed during the day yesterday with little extra to add. We were reminded that only two in five pubs were forecast to be reopening with perhaps half that proportion of restaurants – the latter excluding delivery-only, which will still be possible and occasionally profitable from venues without outdoor space. We were also told that queues formed outside Primark at 7am on Oxford Street, to which the obvious response has to be: why?
• The Morning Advertiser reports that customers turned up in ski-jackets and hats in order to brave the cold. It also points out that the crowds outside Primark & other retailers supports the suggestion that hospitality is being discriminated against in that it cannot let customers into its premises (other than to use the loo or pay the bill). A number of operators have reported being fully booked for a considerable period. Certainly, capacity will be reduced (not all pubs are open, relatively few restaurants are open and those units that have opened have less space than usual) but this has to be good news.
• There are some notes of caution. The Telegraph reports that, though there were queues outside some well-known shops, ‘many consumers remained apprehensive about indulging in retail therapy.’ It says that ‘visits to high streets, retail parks and shopping centres were still down 16.2pc compared with pre-pandemic levels.’ It adds ‘high street footfall was down by almost a quarter in the afternoon, according to data from Springboard, but retail parks, which have larger stores, fared better with a 1.7pc increase in visitors from 2019.’
The bigger picture:
• A number of operators and trade bodies have said, rightly, that 12 April is just one step in the right direction. Foodservice analyst Peter Backman reports, ahead of reopening, that his numbers ‘show a bad situation getting better.’ Mr Backman says ‘I expect sales to grow quite fast this year, to reach about 55% of 2019 levels (and bear in mind trading in some commercial sectors will have been broadly non-existent for the first four months of this year). Next year I expect sales to be at about 80% of pre-covid levels with the most problematic sectors being workplace and hotels.’ He says ‘the market will probably get back to pre-covid levels in 2024 or 2025.’
• Langton comment: The reopening is to be celebrated but outlets will not all benefit in the same way. Peter Backman above points out that, within foodservice, institutional demand has remained strong but hotels, leisure operators and those units working in anything to do with travel, have suffered mightily. Even as units reopen, many of the same factors remain in place.
• Arguably pubs have now joined the party. Whilst some restaurants have done well from delivery, pubs have not, but they benefit from a) having more outside space than most restaurants and b) having a strong presence away from city centres and c) being underrepresented in travel hubs. The opposite may be true for some coffee shop chains and for Pret, etc. True (and at last) shops may be a draw into some city centres but commuters are still staying away. This could and perhaps should change over time but telling a drowning man that he can come up for air in an hour or two isn’t much use.
• Peter Backman also points out that the ‘absence of overseas tourists and businesspeople will have a significant impact on hotels, especially those in central London, while staycationing Brits will have a reverse (and very positive) effect in rural and seaside locations (even if they choose to stay at an Airbnb rather than in a hotel).’ This is true both for the accommodation providers that Backman references and for the West End restaurants, city centre coffee shops and the like that will suffer the lack of overseas visitors.
• Backman references the US, saying figures from across the pond show that demand has been spiky. He says the figures ‘show that growth in the trade during the Easter period this year was about 20% higher than it was in 2019. This is probably the same “surge” that early indications (based on forward bookings, consumer intentions etc) seem to be suggest will happen in this country.’ Backman suggests a ‘short term surge of perhaps 20% (compared with 2019) leading up to mid-May.’ We may be starting from a somewhat lower base. Work pulled together by Bloomberg (which seems to be behind a firewall and I can’t reference it) shows that, although the UK is leading the world in vaccinations, its citizens have been slow to travel (including to work).
• One of the charts is HERE:
Other Covid news, working from home & vaccine passports:
• There is still very much of a two way pull going on. The ICAEW points out, on a practical level, that ‘employees working from home due to the coronavirus pandemic can continue to claim tax-relief on costs not reimbursed by their employer, but a new claim will need to be made for the 2021/22 tax year, HMRC has confirmed.’ It says ‘employers can pay a tax-free allowance of up to £6 per week/£26 per month to employees required to work from home. During the coronavirus pandemic, employees can claim tax relief for this amount when employers do not reimburse costs.’
• A survey of UKH members has suggested that Covid passports could increase costs by 16% and reduce pub profits by as much as a quarter. UKH says that passports ‘would be a big imposition. It is not as if routinely these venues will have door supervisors. Attendance at pubs, bars, restaurants, hotels, nightclubs is often a spontaneous act. It is not always pre-planned. It is very different from planning to go to a football event or concert or big conference, when you are used to checks before entry.’ This is in line with our comments that, where intrusion is taken for granted, e.g. getting on a plane, passports could be accepted more readily. Not so much when it comes to buying a newspaper or a pint.
Company results, Just Eat and Revolution Bars:
• Just Eat Takeaway.com has updated on Q1 2021 saying that orders grew in the quarter by 79% on the same period last year to 200m trades. The CEO Jitse Groen, says ‘the first quarter of 2021 marks our fourth consecutive quarter of order growth acceleration. Our fastest growing segment was the United Kingdom, and we are especially pleased with the roll-out of our UK Delivery network, which has reached an impressive 695% order growth rate year-on-year. We are also very proud of the acceleration in two of our highly profitable markets, with 77% order growth in Germany and 53% in the Netherlands. Just Eat Takeaway.com is in excellent shape and the start of 2021 has been very strong.’
• The company says that ‘order growth accelerated’ and says ‘Marketplace and Delivery contributed almost equally to order growth. Just Eat Takeaway.com’s Marketplace Orders are highly profitable, while the Delivery Orders are priced very competitively following the Company’s price leadership strategy, allowing for future adjusted EBITDA gains.’
• It repeats that ‘the UK was the fastest-growing segment and the Company’s main growth driver. Just Eat UK processed 64 million Orders in the first quarter of 2021, up 96% compared with the same period of 2020. New partnerships were signed with household brands such as Leon, Tortilla and Chipotle, as well as coffee chains Starbucks and Costa, adding to Just Eat’s growing restaurant supply. Delivery Order growth was 695% in the first quarter of 2021 compared with the first quarter of 2020, multiple times faster than the growth rate of its UK competitors. In London, Just Eat achieved triple digit Order growth.’
• The Revolution Bars Group plc has reported unaudited H1 results for the 26 weeks ended 26 December 2020 saying that the company is ‘well positioned to emerge [from the pandemic] stronger.’ It says it is ‘excited and ready to bounce back, beginning by trading from 20 bars from 12 April 2021 and the remainder from 17 May 2021.’ The company says ‘we have taken advantage of the reduced trade periods to fine tune our brands and strengthen the engagement of our teams’ and adds ‘our young guest base is keen to start living again, and we cannot wait to welcome back our guests and teams to create the fun and memorable experience that they know and love us for.’
• RBG reports that H1 sales were £21.6m (down from £81.2m in the comparative period last year) with adjusted EBITDA loss of £1.2m (2020: profit £7.6m) and an adjusted loss before tax of £11.5m against a profit last year of £3.5m. The loss per share is 12p versus a profit in 2020 of 4.5p. The company says it has secured its liquidity position via increased debt facilities including a term loan of £16.5 million and a net equity fundraising of £14.1 million. It says it secured amortisation waivers from Nat West this month on a scheduled £2m payment.
• RBG believes that ‘customer demand remains strong.’ It says ‘destination cities such as Liverpool, Brighton and Newcastle-upon-Tyne, are fully booked throughout July 2021 for Cocktail Masterclasses and 11,969 guests booked with us in the first week we reopened the booking system for 17 May 2021 onwards.’ CEO Rob Pitcher says ‘prior to the pandemic the business was outperforming our peer group.’ He adds ‘this year has provided us with the opportunity to advance the business across multiple areas which will allow us to maximise our future performance and capitalise on growth opportunities as we move towards more normalised conditions.’ The CEO concludes ‘we are excited and ready to bounce back and as we move on from the pandemic, I look forward to our brilliant teams being able to create amazing memories for our guests as we open our bars and all come back together to celebrate life and
Company & other news:
• Deliveroo’s shares flirted with positive territory (albeit from much lower levels than when they attempted this last week) before succumbing and falling another 4p (or around 1.5%) to 251p. We have pointed to the myriad ‘reasons’ for the sustained drop but remain of the opinion that the business model is unproven.
• Langton comment: Not a tech stock, not profitable and not proved its business model. The major issue is that scaling up, once fixed costs have been covered, isn’t the get-out-of-jail card for Deliveroo that it is for some true tech stocks. Costs will rise in line with (although perhaps marginally more slowly than) revenues. But there will be step increases in fixed costs meaning that they are not as fixed in the long run as they may first appear and, in any case, they will soon be dwarfed by variable costs – and there’s no getting away from them, however much you grow.
• Foodservice analyst makes the same point using different words when he says ‘the root cause goes back to the original sin(s) of restaurant delivery: there is the very near impossibility of running last mile restaurant delivery profitably. It’s an inherently unprofitable one-to-one delivery model (one supplier delivering to one customer at a time) with minimal economies of scale (unlike say, Amazon’s delivery model or Tesco’s, which are one-to-many models – and even they struggle to make money).’
• Backman also points to ‘then there is the need to rely on low paid riders to provide even a small possibility of eventually evolving into a profitable last mile delivery model.’ Paying low wages without employment rights is perhaps a) necessary if you want to get to profitability but b) it will lead to ESG problems. The flip side of this is that the operator must charge very high commissions to restaurants who don’t like this and, on reopening, will do everything they can to migrate delivery customers back into their sites (where they can upsell and encourage drink sales etc).
• There will be a ‘right price’ for Deliveroo. For a start, it has £1bn of cash, a big footprint and a lot of bicycles. Beyond that, we’re not so sure. Backman says that Deliveroo’s shares have fallen to the same kind of discount suffered by Door Dash in the US. He says ‘this doesn’t mean that the Deliveroo performance is OK. It means that something’s systemically wrong with delivery.’
• Drinks Business points out that ‘the share prices of the four European-based spirits companies, Pernod Ricard, LVMH, Remy Cointreau and Davide Campari Milano, are all at or near record highs, despite much of Europe remaining in lockdown but with loss of trade in restaurants and bars being partially replaced by flourishing off-market sales and burgeoning e-commerce.’ The companies have been supported by the fact that their Far East markets, which a year ago we thought would be their Achilles’ Heel, have bounced back strongly.
• The Adventure Bar Group has announced the opening of its first site outside London. The unit, in Birmingham, will be followed in May by a second site, also in the city.
• Hot Dinners is running a tracker of what it says are the major dining options in London, looking at ‘terraces, rooftops and more’. It says that, of necessity, ‘alfresco dining is once again going to be a very big thing in London.’
• Domino’s in the US has begun testing driverless pizza delivery with Nuro, a self-driving delivery company, in Houston. The company says ‘there is still so much for our brand to learn about the autonomous delivery space. This program will allow us to better understand how customers respond to the deliveries.’
• Sky reports that Goldman Sachs ‘is placing a big bet on the growth of Soho House’ via a $770m loan.
• Brew By Numbers is in planning to open a new taproom and brewery in Greenwich.
• Brewdog has reiterated that it has plans to open a beer-themed hotel in Edinburgh’s Old Town.
• Molson Coors is reported to have secured exclusive distribution rights in Western Europe to Jimmy’s Iced Coffee, Lixir Drinks, and Tarquin’s Gin and Twin Fin Rum.
• Contract catering operator Elior has reportedly bought French start-up company Nestor for an undisclosed sum.
• The Guardian reports that winemaking regions in France have just suffered some of the most severe spring frosts in decades.
HOTELS & LEISURE TRAVEL:
• Travel Weekly reports trade bosses as saying that there was no immediate boost to bookings after the report of the government’s Global Travel Taskforce last week.
• Royal Caribbean says it hopes to recommence cruising in July.
• HVS reports that total European hotel transaction volume fell by 69% in the year of the pandemic following a record high the previous year when €27.1bn-worth of hotel deals were struck. It says that ‘the UK retained its position at the top of the transaction table, posting the highest level of investment volume across Europe with a total of €2.1bn (£1.8bn). Some €1.6bn-worth (£1.4bn) of UK transactions were London-based.’
• Accenture has reported that 87% of travel consumers approached would support Covid passports. This is broadly in line with the finding of other operators. It varies by geography and there is limited depth (as in, what would you pay for it, etc). Accenture finds 58% plan a trip in the next six months, but 53% expect to spend less on travel in the next six months than they did in the same period in 2019.
• Skyscanner says 49% of consumers have a positive outlook viz travel with only 20% believing that the situation is “getting worse”.
• Travel Weekly reports Andalucia’s tourism minister Juan Marin as saying re the UK’s travel review that ‘we are saddened to hear that major airlines such as Jet2 have taken the difficult decision to postpone their operations given the lack of clarity around likely start dates or requirements.’
• Heathrow has reported passenger volumes down 82.6% in March this year versus March last. The comps are about to get much easier.
• The French government is considering banning short haul flights where trains are available in a move designed to reduce carbon emissions.
• Travel Weekly reports that a number of London hotels are discounting rates from late-May in order to boost trade. The question will be ‘discounted from what original price?’ A spokesperson for the promotion said: ‘The last 12 months have been an incredibly tough time for the UK tourism industry and in particular the London hotel sector.’
• HVS reports that ‘total European hotel transaction volume fell by 69% in the year of the pandemic following a record high the previous year when €27.1bn-worth of hotel deals were struck.’
• Destination Analysts in the US reports ‘over 86% of American travellers currently have at least tentative leisure travel plans and 72.8% expect to travel for leisure within the next three months alone.’ US consumers have been quicker to return to their travelling habits than have consumers in the UK.
• The Guardian outs Ladbrokes’ owner, Entain, as not paying back furlough cash despite a) a surge in online betting and b) the fact that rival William Hill has paid back the cash. William Hill previously said ‘in light of this positive trading environment, the board feel it is appropriate to repay the furlough funds received, amounting to £24.5m, and we will not be claiming the job retention bonus.’
• There has reportedly been an ‘explosion’ in the number of drive-in events, including outdoor cinemas, planned for this summer.
• The UK’s Vitec Group has announced the acquisition of video software developer Lightstream for £26m and LED solutions company Quasar for £4.4m.
FINANCE & MARKETS:
• US government debt has risen to an all-time high of $1.7trn
• Sterling up at $1.3727 and €1.1547. Oil higher at $63.50. UK 10yr gilt yield up 1bp at 0.79%. World markets heading lower on Monday and London set to open down around 14pts.
RETAIL WITH NICK BUBB:
• Today’s News: Along with the incredibly strong JD Sports finals and the predictably strong Just Eat Q1 trading update, we have had a gloomy trading update from the struggling fashion chain QUIZ and a reasonably confident update from the Online womenswear business Sosandar, plus the amazing news that mighty Boohoo has ploughed £72m into buying a London office in Soho! But none of this should overshadow JD’s achievement in retaining its sales and profitability in y/e Jan despite the unprecedented challenges of the past year: group sales (despite all the various temporary store closure periods) were actually slightly up at £6,167m and the headline PBT of £421m was only slightly down on the year before, which is impressive testimony to the strength of the brand and its multi-channel abilities.
• BRC Retail Sales survey for March (the 5 weeks to April 3rd): We flagged yesterday that last month was likely to be flattered by the earlier fall of Easter and by the weak comps last year, as the first lockdown began on March 23rd, but the BRC-KPMG survey confused things by focusing on the comparison with 2019, rather than 2020, even though Easter Sunday in 2019 fell late, on April 21st…Total sales were up by 8.3% on 2019, but since March 2020 was down by 4.3% in total terms we assume that means that year on year sales were up by c13%. The exact Food/Non-Food split of total sales growth last month is buried within the 3-month moving averages and the 2-year comps, but both sectors were up last month, thanks to Easter, even though Food faced very strong comps (up by c13% LFL a year ago, vs Non-Food down by c17% LFL). Online penetration of all Non-Food sales last month reaching c58%,