Langton Capital – 2021-04-16 – PREMIUM – Deliveroo, outside trading, R rates, confidence, Entain etc.:
Deliveroo, outside trading, R rates, confidence, Entain etc.:
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A DAY IN THE LIFE:
These frosts are getting a bit persistent, aren’t they?
It’s meant to be minus two up here again overnight and the birds and the bees are getting a bit confused though perhaps it’s nothing out of the usual for April, that most schizophrenic of months.
Indeed a lot of bedding plants (I’m reliably informed, I try to stay away from them) say don’t plant out until the end of May in the north of England but surely it’s time for the little beggars to look after themselves rather than sit around expectantly and expect to be fed.
Yes, that’s plants I’m talking about rather than recalcitrant human beings, but I’m thinking a bit of tough love might be called for in the plant department, leaving the greenhouse doors open, changing the locks on the doors, that sort of thing.
Anyway, a big weekend for the pubs and the weather should be OK. Good as far as it goes so, before the weather forecast changes, let’s move on to the news:
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DELIVEROO – Q1 CONFERENCE CALL:
Following its Q1 update, Deliveroo’s shares slid somewhat and were testing new, post IPO lows of around 259p late in Thursday’s session. The company hosted a conference call for analysts and our comments are set out below:
Trading & balance sheet:
• Will Shu made clear at the outset that the company would discuss sales and orders but not costs or other issues
• The CEO says monthly active users are up to 7.1m (from 6.4m) with greater usage per customer
• Orders up 77% in Q4 and up 114% in Q1 this year. The ‘active monthly user’ base is up 91% on Q1 last year. Both the UK&I and International are in strong growth.
• London up >120% (on a big number to begin with). Editions improves retention & grows the market. Co says it has a clear no1 position & this has been extended in the last year
• Co has around £1.5bn in cash and equivalents. It has secured debt
Outlook and guidance:
• The Company ‘does not know what will happen to sales post Covid’ but points to Hong Kong, where the company remained in Q-on-Q growth
• Sainsbury business. Offer 500-1500 SKUs. Focused and quick. An ‘on-demand’ model. Twenty five minute delivery. These are the same customers that order restaurant meals from Deliveroo. Focused on food, rather than non-food.
• Dark store model. Capital intensive.
• The Rider Model. Says they are self employed because that’s what they want. Flexible. Some have more than one delivery job (but no stats on this). He believes the riders should be allowed to accumulate rights.
o Do riders ‘rent’ out their jobs? Riders ‘do have a right to substitute’. Not clear if these substitutes are vetted. Will Shu says he doesn’t know and will find out. He will follow up offline.
o What would going to an employed model cost you? The co says it has been upheld in the UK several times and the same has been found in Italy and France. Will Shu says he is only wedded to what riders want.
• Experience on reopening. HK & Singapore. Have been in & out of lockdown. You see a boom in restaurant visits, then people drift back to delivery. UAE has also remained in growth.
o So why cautious for other markets? Will Shu expects restaurants to be ‘flooded for quite some time’. But Roo will ‘keep some of its newer customers’.
o There won’t be another EOTHO. Even during that, Deliveroo didn’t see a hit.
• France & Italy still in lockdown & seeing strong growth. Roo is ‘rolling out grocery delivery in these markets’.
• Spain is looking to legislate & co says it will adapt. No further comment at this stage. In Italy, there has been an investigation into its ‘old’ model. The new model includes signing a collective bargaining agreement in Italy (based on a self-employment model).
• Ireland? Co won’t break this number out. But ‘the UK is the vast bulk’. Don’t split out lunch v dinner (lunches are mostly in office-areas) or give monthly rather than quarterly revenues.
• Use of funds? Grocery, Editions, Signature & Plus. All on a hyper-local basis. Not sure quite how clear this answer was.
• Merger with Door Dash? Have just undertaken the IPO so no thoughts on this front at the moment.
• Working capital. The co gets paid before it has to pay its suppliers. This is a) helpful but b) would be an issue if sales slipped (although there is little sign of that at present)
• See earlier email for initial observations.
• Several issues were not covered. Profitability and the IPO share price reception being chief amongst them. We would like to know, at some point, whether the model is profitable or not. People want their food to be delivered – but will they pay the right price to get it?
• Sales are clearly strong. What will happen in the next few months is unclear.
• The business model is still moving around a little. There is arguably some pivoting going on in real time. Perhaps this is understandable. New geographies, Editions, Plus, Signature, grocery deliveries etc.
• There are potential legislative issues re employment in a number of markets including the UK, Spain and Italy.
• On the labour issue, a point that was picked at by analysts was that if riders can use substitutes, how (or are) criminal record checks etc enforced for riders turning up at people’s houses, often at night-time?
• We may have misread it, but this seemed to be a sore (or at least an unprepared for) point. It may be easy to resolve (perhaps at some extra cost) but the management was unclear on whether there were checks and no details were given. They wanted to talk to the analysts who asked the questions, and there were several, off line.
PUBS & RESTAURANTS:
Current trading post outdoor reopening:
• Operators only opened their beer gardens and outside spaces on Monday and feedback needs to be interpreted with that in mind. Comparisons with 2020 and not meaningful and comps with 2019 are influenced by the timing of Easter & the novelty value this time around. The weather is also an influence and any pent up demand has to be judged for its length and width, not just for its impact on a sunny Monday. That said, trading has been good and the trade has welcomed reopening with a gentle, fingers-crossed, hurrah. We hope to have something more substantive feedback after the weekend when the weather looks set to be fair.
• CGA has spoken positively about trading – but it was only looking at Monday (when trade was up 60%). One needs to be careful with the maths as many units are closed. A company that has both open and still-closed units could record ‘excellent’ numbers for pubs that are open, but this will not tell the whole story. The Guardian quotes one pub boss as saying that it was ‘like Christmas’. There have been photos of busy outdoor spaces and the like. The BBPA says ‘whilst many have gone back to their local for a pint, it’s not all roses in the pub beer garden. Even though they seem full, the reality is pubs are operating with just 20% of the space they’d usually have.’
• S4Labour says that sales were up 0.5% compared with 2019, with a 5.4% increase in drink sales making up for a 4.75% decline in food. Again, it is unclear whether this is just a measure for open pubs. The MA quotes Young & Co as saying ‘pubs with large outside spaces and gardens were in high demand after the roadmap announcement on the Monday 22 February with many south west London pub gardens booking up with 24 hours for the first weekend.’
• Langton comment: As mentioned above, we would like to see a bit more data. And we need to know what it means. Because ‘like-for-like’ sales don’t pay the bills. If a large estate of pubs is 40% open (in line with the perceived national average) and 60% shut, then its open pubs could be up 60% in LfL terms (per CGA) and its shut pubs, which were level with 2020 (when they were also shut) but down 100% on the 2019 comps. Hence, it will depend very much which figures are taken. Ultimately, it is the total sales that make it into the P&L account.
The R Rate:
• The NIESR has once again updated on the R rate saying that this was between 0.80 and 0.95 in the week to 9 April. This is up marginally on the previous week. In Northern Ireland, it was 0.95 to 1.10. These are total disease numbers but, with the over-50s now vaccinated, hospitalisations and deaths are lower than would otherwise be the case – though the potential for mutations is a function of total rather than deadly infections. The NIESR says the data ‘indicates that there has been some upward pressure on cases since the relaxation of the 29th March. Hospital admissions and deaths due to Covid-19 continue their steady decline.’
• CGA has reported that delivery and takeaway sales ‘continued to rise in March as consumers filled the void left by restaurant, pub and bar closures.’ It says its ‘monitor of at-home sales from the UK’s leading hospitality groups shows that orders in March were 9% up on February. As well as deliveries and takeaways, orders include at-home food and drinks kits, which have soared in popularity in lockdown.’ CGA says March’s sales were 346% higher than in the same month in 2019, when the sector was fully operational for eating out. Growth has been fuelled especially by deliveries, accounting for more than 62% of operators’ sales.’
• CGA’s Karl Chessell says ‘consumers who have been kept at home for so long have embraced hospitality at home to make up for lost eating and drinking out experiences, and orders have been a lifeline for many brands while their venues are shut.’ He adds ‘the big question now is the extent to which habits of lockdown have become engrained in consumers’ behaviour, as venues reopen and they start to return to eating and drinking out. For all brands, understanding the balance between out-of-home and at-home preferences, and adjusting marketing and operational activity accordingly, is going to be a key consideration in the months ahead.’
• Langton comment: The question very much is, what will happen post reopening? This is a first for everyone and there are a number of variables. Deliveroo yesterday was able to say that it had increased the number of active users and that they had spent more and more often.
• There are three numbers there. Total active users, spend per head and spend frequency. The total number of users is unlikely to go down – why would they delete the app? – but the frequency of use will likely go down. Why wouldn’t it when customers simply have more places in which to spend their money? The spend per head is also likely to go down as consumers, as above, will be spending their money in more places.
• There appears to be a demand for delivery. The big issue is, will the consumer pay enough to leave sufficient in the value chain for the rider, the restaurant and the delivery company.
• The UK equalities watchdog has warned that Covid passports risk discriminating against some groups.
• Confidence. Clear Sight says ‘the last six weeks have seen little lasting change in the nation’s optimism.’ It adds ‘more than half of Brits do not expect normality until next year’ but says ‘a majority of 56% are confident in the Government’s handling of the crisis.’
• The Gig Economy. The ICAEW has considered the Supreme Court’s ruling that Uber’s drivers should be considered as employees and quotes law firm Eversheds Sutherland’s comments thereon. Uber said that it was a platform, simply putting drivers in touch with passengers. But, Uber set the fare, set the contractual terms without negotiation and restricted the communications between the drivers and the customers. This has implications elsewhere for Gig Economy operators.
• Eversheds says Uber also monitored to what extent drivers accepted jobs or cancelled jobs, which impacted the amount of work a driver got. Drivers were also reviewed, which fed back, ultimately, into their ability to use the platform. The solicitor says ‘drawing all that together, you’ve got someone who is subordinated to you and economically dependent on you.’ This ultimately tipped the relationship into an employer / employee situation rather than this being a self-employed relationship. The situation has not extended (so far) to Uber Eats. This will be watched closely by Deliveroo, which also has a very real interest in how the relationship between Gig Economy companies and their riders / drivers or employees, plays out.
• PepsiCo yesterday evening reported Q1 numbers and said that organic revenue growth in the second quarter should accelerate due to the gradual reopening of restaurants and bars and the rollout of Coronavirus vaccines in the US and elsewhere. Pepsi said ‘we had been losing market share in the beverage space in the past… It’s getting better. We are gaining share right now.’ CEO Ramon Laguarta reported ‘the consumer will show us more as we go along in the next, I would say, 6 to 9 months.’ Sales in the snacks business were up 4% in Q1. The group as a whole drove revenues up 6.8% to a huge $14.82 billion, ahead of market expectation of $14.55 billion. On an adjusted basis, Pepsi earned $1.21 per share (versus expectations of $1.12).
• Rockfish and Salcombe Brewery Co. have expanded their existing collaboration and launched a new bar and dining area in Sutton Harbour, Plymouth. This follows a recent announcement by Salcombe Brewery Co. of a major investment at a new additional production site which will house their own bottling, canning and kegging lines and triple their brewing capacity.
• Copper Rivet Distillery in Chatham, Kent is to open a new restaurant beside the River Medway.
HOTELS & LEISURE TRAVEL:
Travel but don’t travel. But travel. Clear?
• The government has been accused of opening the door whilst holding it shut. Vaccine passports, six hour queues, quarantine and traffic lights stuck on red might allow freedom without allowing travellers to exercise it. At least that is the allegation. Heathrow reports travellers are facing six hour queues for Covid checks and officials are warning this may be the case for returning holidaymakers later this year. Volumes are currently a fraction of normal levels.
• TUI boss Friedrich Joussen has told the BBC that successful vaccine programmes should help to rescue the summer. He says ‘we are optimistic about the summer,’ saying ‘we are still confident that we will have a decent summer.’ He hopes that the price of tests will continue to fall. He says ‘the cheaper it [testing] gets, the better it works and the less harmful it is for the general economy.’ He says that he hopes to pay back loans to the German government as quickly as possible.
• MSC Cruises is to base at least 10 ships across Europe this summer.
• Uber has been told to reinstate five British drivers who were struck off its rosta by robot technology. The Guardian reports that one of the drivers had worked in London for the company for six years and had completed more than 7,000 trips for the company before being summarily dismissed in September.
• STR reports that Europe is the only world region showing increased hotel construction activity in comparison with the end of Q1 last year. It says that Germany (51,785 rooms) and the U.K. (36,919 rooms) lead Europe in total rooms in construction. STR comments on the US market saying that the hotel industry there ‘posted its highest demand and occupancy levels since the beginning of the pandemic’ in the week to 10 April with occupancy now back up to 58.7% and daily rates of $112.22. REVPAR was $66.99.
• Sky reports that Music Magpie will announce its intention to float this morning. Sky quotes city sources as saying the IPO could value the company at around £200m
• Firehouse Fitness is to open its third site in Sheffield.
FINANCE & MARKETS:
• The Chinese economy grew by18.3% in the first quarter of 2021. This is a record rate of growth, albeit against soft, Covid-impacted comps. The number was still slightly below economists’ expectations of around 19%.
• Sterling a little better at $1.3762 and €1.1502. Oil higher at $67.24. UK 10yr gilt yield down by 10bps at 0.72%. World markets mostly better yesterday with London set to open up around 7pts.
RETAIL WITH NICK BUBB:
Today’s News: After yesterday’s bumper bundle of news, today has gone quiet and it turns out that the John Lewis event for analysts at the Oxford Street store this morning is just about the recently announced “Anyday” budget homewares launch…but Ocado has stepped up to the plate and announced that it has invested £10m in the autonomous vehicle software company Oxbotica (which is based in Oxford) and that it plans to develop a range of vehicles that will be integrated into the Ocado Smart Platform.
BDO High Street Sales Tracker: Given the impact of the first lockdown on “non-essential” stores a year ago, today’s BDO High Street Sales Tracker for medium-sized Non-Food chains was bound to paint a strong picture for w/e April 11th, as the comps were very soft…And the outcome was very strong, but our usual warning, that it should be remembered that the BDO index is just an unweighted average of percentage changes in the sales of their reporting retailers and that it shouldn’t be taken too literally, needs to be reinforced again, as the outcome was again very silly! BDO Fashion LFL sales were up 83%…and Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were, laughably, said to be up by no less than c675% (up c1718% in Store sales and up c50% in Online sales)…………..
Next Week’s News: Tuesday is the deadline for the wretched CMA to decide what to do about the Asda/Issa brothers deal…and Tuesday also brings the ABF (Primark) interims and the Card Factory finals. The Dignity EGM is on Thursday, whilst the ONS Retail Sales for March and the monthly GFK Consumer Confidence Index come out first thing on Friday.