Langton Capital – 2021-04-21- PREMIUM – Trading, Just Eat, Shepherd Neame, football, Time Out, Wm Hill etc.:
Trading, Just Eat, Shepherd Neame, football, Time Out, Wm Hill etc.:
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A DAY IN THE LIFE:
We re-watched Chernobyl at the weekend so arriving back in the London office on Monday for the first time since Christmas wasn’t such a shock.
We were expecting the slew of dead plants, abandoned and now wizened fruit and a pile of bills. There were, as feared, no inbound cheques. However, the fridge was a hazard, one of the clocks had stopped and its battery was a furry nightmare and the other was an hour wrong.
The pot noodles were out of date, our emergency beer stash likewise and the wobbly chair had not fixed itself. Nor had the modest amount of washing up washed itself up and, given what it looked like, it was deposited in the bin.
We had an electricity bill and four reminders, a rates demand followed, a week or two later, by a letter telling us that our small company deduction was 100% and bountiful correspondence from our landlord pleading, threatening and cajoling us into giving them some money.
All of which had been successfully ignored whilst in York because, truly, out of sight is out of mind but, as I’m now sitting surrounded by the fruits of my ignorance combined with the threat of an immediate cessation of electricity services, I’d better do something about it.
So we’ll be ‘busy bad’ rather than ‘busy good’ for a little while and, to add potential physical injury to insult, the hoarding has come down on the next door building, they’ve prettified the pavement and they’ve put in a 40cm or 50cm high kerb, which will have the injury lawyers setting up cameras because many is the broken ankle…
Anyway, enough of that, on to the news:
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SHEPHERD NEAME H1 NUMBERS:
Shepherd Neame has reported H1 numbers for the 26wks to 26 December 2020.
• The group says that ‘the period under review included strong trading during the summer months, followed by ever changing levels of restriction and finally enforced closure again from November. The disruption had a significant impact on the financial results.’ The group says that turnover was £55.3m vs £79.0m in the prior year. It says there was an underlying operating loss of £7.2m (vs a profit of £8.0m in the prior year) and the underlying loss per share was 32.6p (2019: profit per share 33.1p).
• Sheps says that increased sales of bottled beers and ‘tight cost control have restricted underlying monthly cash burn to c.£1.5m to £2m while pub estate was closed.’ It says net debt rose to £96.5m as at 27 March this year with headroom of £36.0m. It says it has agreed new waivers with lenders on 20 April 2021 and normal covenant tests have been ‘relaxed through to September 2022, replaced with minimum liquidity covenant.’ There is ‘ample liquidity for foreseeable [the] future.’
• As regards reopening, Shepherd Neame says it opened over 200 pubs’ gardens last week and says all pubs will be open on 17 May 2021. It confirms that ‘initial trade levels are encouraging.’ CEO Jonathan Neame says ‘we are delighted and excited to have opened over 200 pub gardens on 12 April and look forward to reopening the rest of our pubs in May with increasing confidence. There is significant pent up demand in the economy and the desire to go out for a drink or a meal is as strong as ever. Initial trade has been most encouraging.’ He cautions ‘there are still many challenges to face and a long road to full recovery, but the balance sheet remains strong and we have ample liquidity.’ Mr Neame concludes ‘the relationship with our licensees is excellent and our reputation for beer and pubs is strong. We look forward with confidence to returning Shepherd Neame back to growth.’
• There is no dividend. Chairman Richard Oldfield says ‘our immediate focus is to welcome back our customers as restrictions are lifted and to resume the delivery of best in class hospitality. We are ready. We have a high quality estate of managed and leased pubs and well-loved beer brands. Our management team and our people, our greatest asset, will be even more determined to delight our customers on their return. Given the strength of the Company’s management, assets and people throughout the organisation and the prospects for recovery and growth in its heartland, the Board is confident in the future.’
• Shepherd Neame will have benefitted (at least relative to some other operators) from its ownership of a well-invested, largely freehold, estate.
• It is geographically well-positioned, often catches the best of the weather, has a lot of beer gardens and has a strong off-trade business for its brewery.
• Despite the fact that the group has swung into loss, it is well-positioned for the future.
PUBS & RESTAURANTS:
Reopening – levels of trade. Operators, trade bodies and analysts continue to feed back information on the first week’s trade.
• S4 Labour reports that ‘hospitality like-for-like sales up 9.1% but 45% of sites remain closed resulting in total sales decline of 25%.’ The plus 9.1% is impressive, particularly as it should include some units that are making very low sales but have chosen to open rather than remain closed. S4 touches on this when it says ‘the analysis of the figures reveals a mixed and complex picture, with 45% of open sites trading at 90% or worse than 2019 of sales in same week in 2019.’
• S4 says ‘operators able to open, benefited from significant pent-up demand and weather conditions that, despite starting with a scattering of snow Monday morning, were generally dry and mild. The research suggests that the general public in England were keen to return to the beer garden for a drink, with open wet-led sites boosted by a 13.2% uplift in sales compared to the same week in 2019, while open sites that are food focused seeing an uplift of 7%.’ It adds that, because the industry as a whole remains down on 2019, ‘these figures on re-opening week are far from a waving flag of success for current restrictions, rather an indicator of significant lost potential for operators.’
• Langton comment: The numbers illustrate that it has been better to open than remain closed. Most units will have had a binary choice rather than a difficult decision to make. Restaurants with no outside space will not have been allowed to open and pubs with a yard full of dustbins may have come to a similar decision, albeit, they theoretically had a choice. Why some decisions were made to stay closed despite having outside space is a little more puzzling.
• The closures may need to be looked at on a case by case basis but, as S4 and others are pointing to buoyant trading where open, more units, pubs especially but also restaurants, may reopen over the next few weeks. There’s a payday and a bank holiday weekend coming up and, hopefully, the weather should be on an upward rather than a downward curve. S4 says that the numbers suggest there was (and is) some pent up demand. It says ‘achieving 9.1% growth under trading restrictions that significantly reduced capacity to outside only, as well as the length of the trading day, is an indicator of what could have been for the industry. Those with outside space were able to capitalise on pent-up demand and many had a very successful week, but this will naturally dissipate as time goes on, further hitting those penalised for not having outside space.’
• CGA reports that ‘hospitality venues that were able to open in England last week enjoyed a stronger bounce in sales than they did after the first national lockdown in July 2020, despite being limited to outdoor service.’ It says ‘like-for-like sales at pubs, bars and restaurants that were trading in the seven days from last Monday (12 April) were 45% higher than in the week from 4 July 2020, when they were able to resume both inside and outdoor service.’ It says, however, that ‘like-for-like sales at venues that were open last week were 21% down on the equivalent week in 2019—though that period did include the Easter weekend. But when compared to the previous week in April 2019, like-for-like sales were 1% higher.’
• Langton comment: There are a lot of statistics here. But the main takeaway point seems to be that units that were open did well and units that did not open, unless they had a very good reason for the decision, had made a mistake. Drink sales continued to outperform food and the temptation may be to scale back the food offer to snacks, pizzas and pub grub where there is a chance of driving wet trade. CGA says there is less trepidation than there was on 4 July last year.
• There are necessary caveats. CGA says ‘however, with less than a quarter of outlets in England accepting guests last week, this demand has been spread over fewer venues which is driving performance for those that have reopened. So, whilst this is a good start for the sector, it’s clear that hospitality’s recovery still has a very long way to go.’
• We would make the point that, whilst three quarters of units (including restaurants) were shut, three quarters of each individual company’s units will not have been shut. Some operators will have remained 100% inactive whilst others, say chains of pubs with beer gardens or certain pizza operators, will have been virtually 100% open. As we have mentioned before, we are all in this together – but some are more in it than others. Those that are 100% open may be making out like bandits whilst those that are 100% shut will be hoping that the timetable suggesting unfettered opening from 21 June, will be adhered to. The trade bodies below are singing from that hymn sheet.
• Referring to the CGA stats, CEO executive Kate Nicholls said: “It is wonderful to see busy venues again, as people can at long last meet with friends after three months of lockdown, albeit only outdoors. Trading in such circumstances was always likely to benefit from a welcome initial spike but the return of limited trading cannot overshadow the fact most venues remain closed.’ Ms Nicholls says ‘it is crucial that the Government delivers on its commitment to dropping all restrictions from 21 June. If that milestone lapses, then the Government will need to be poised to provide further support for the sector—an investment that would be fully justified, given our ability to drive economic recovery.’
• Also commenting on the above stats, CEO Emma McClarkin said: “These sales figures are very encouraging for our sector and show just how much we have all missed our pubs these last few months. Despite the positive news, it is imperative we remember that whilst they still have restrictions our pubs remain unviable and the many are still to open. Only when all our pubs can fully reopen as normal will they be viable businesses and in the green once more.’
• Wireless Social looks at last week and says ‘the data reveals how footfall recovered to 28% of levels seen in the same week in April 2019, despite fewer than one quarter of licensed venues choosing to open due to the outside only trading rules, suggesting that consumers were confident and excited to visit pubs and restaurants for the first time this year.’ It says the Friday was the busiest day of the week. Wireless Social believes it has detected evidence that older consumers are becoming more active. Founder Julian Ross says ‘for operators fortunate enough to have outside space, the last week has been a much-needed and well-deserved boost. People are desperate to get out and support their favourite pubs and restaurants and our data, along with the fact that sales were up 60% on 2019 levels, proves this, with footfall hitting the highest levels our high streets and venues have seen in
• Tenzo has commented on sales over the first weekend of reopening, saying that ‘Saturday saw sales numbers 29% higher than the same Saturday in 2019.’ This presumably just for units that were open rather than the industry as a whole. Tenzo adds ‘the week (Monday through Friday) saw sales average at 14% lower than the same week in 2019 despite only outdoor dining being open.’
Longer term trends – delivery:
• Just Eat referred to Covid tailwinds and HIM UK agrees. It says ‘2020 was the year that food delivery exploded.’ It says it grew by 48% or £3.7bn during the pandemic and the delivery industry has added 4.3m new users since the appearance of Covid-19. HIM says it has provided ‘a lifeline to hospitality businesses across the UK.’ It adds ‘what’s more, there is +10% growth forecast for delivery by 2024. The pandemic might be (hopefully) drawing to an end, but the opportunities that foodservice delivery offers certainly are not.’
• Langton comment: Whether delivery will grow from a high base has yet to be seen. It may be rather a big ask. Delivery may have provided a ‘lifeline’ to restaurants – but it has charged a high price with commissions of 30% or more common. Indeed, restaurateurs may conclude that the bit of the chain supplied by delivery – taking the food from the restaurant to the customer – is the least value-added.
• But, arguably, they would, wouldn’t they? However, as Mark Twain said ‘if you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and man.’ Restaurants are not dogs. They may wish to take more of the chain back for themselves, encourage customers into their units, upsell them olives, bread and drinks and save 30% commission into the bargain. I mean, after all, wouldn’t you?
• HIM says ‘consumer demand for delivery has been relentless since the explosion of the market from 2017 with aggregators including Just Eat, Deliveroo and Uber Eats expanding partnerships with household brands and reaching new territories. The roll out of delivery of foodservice brands including fast food giants McDonald’s and KFC has meant that for many segments in the total eating out market, delivery now commands a higher share of total sales. Independent restaurants and traditional fast food segments have been leading growth in the market which is set to continue. The former is benefiting from sheer number of outlets whilst the latter through players offering relatively low-cost, quick to produce and portable propositions.’
• Langton capital. The above may be true where it relates to the past but it is conjecture where it refers to the future. Deliveroo, which finished yesterday up a little bit, has used the tailwinds referred to by Just Eat to allow some holders to take money off the table and raise £1bn of new money into the bargain. Understandable that they should so want to do but, as the shares are now around 40% below their IPO price, it is clear who has got the better end of this bargain, at least in the near term.
• Super League considerations. We won’t go into this too deeply because it’s been overtaken by events but, with the PM and others ‘committed’ to stopping it from happening, it may be stillborn. However, here’s a question. Will a Super League suck more money out of would-be pub & restaurant goers’ pockets (as money flows to the ‘content providers’, i.e. the clubs) or could it put more money back into the UK economy as fans in the far east funnel money to Alderley Edge and parts of Hampstead?
• Unemployment stats released by the ONS show that younger people are bearing the brunt of job cuts across the country. It says in the year to March, 811,000 payroll jobs were lost in the UK, with under-35s accounting for 80% of these cuts. The rate of unemployment has dipped to 4.9% as many individuals who have lost their jobs may have left the country or left the workforce.
• News from Netflix (see Other Leisure below) may give some comfort to those who feared that the consumer would be stuck to the settee permanently. Although subscriber numbers still grew, the rate of growth has slowed.
Company and other news:
• Wagamama, owned by Restaurant Group, has reported on 2020. CEO Emma Woods reports ‘while Q4 2020 and the early part of 2021 have proved challenging for the hospitality sector as a whole, we are extremely positive as we reach the first phase of reopening our eat-in business. Our teams have worked tirelessly to ensure that the business is well set up to emerge strongly from the pandemic and we look forward to resuming our growth strategy for the business both in the UK and internationally.’
• Wagamama reports ‘UK revenue decreased 37.8% to £219.9 million in YTD Q4 2020.’ It says ‘Covid-19 restrictions significantly impacted the ability to trade with periods of full closure and out of restaurant only trade. Where possible to trade for eat in dining, sales recovered strongly.’ It says it saw ‘strong sales performance in the first 8 weeks of Q1 2020 delivered 8.4% UK like for like sales. Our reopening for eat in dining together with the Government’s ‘Eat out to help out’ scheme significantly benefited the business with 7.4% UK LFL sales in Q3 2020.’
• The group has seen a ‘strong performance in delivery and click and collect sales channels with significant outperformance on 2019 sales. Adjusted EBITDA (pre-IFRS 16) decreased to £31.2 million in YTD Q4 2020 with an EBITDA uplift in periods of full trading being offset by the significant impact of Covid-19. The business has maintained a strong focus on cost management during the year in order to mitigate the effect of reduced trading as far as possible.’
• Just Eat is to create some 1,500 takeaway courier jobs in Liverpool. The Guardian says it will offer them ‘minimum pay, sick pay and holiday pay by the end of the year as it shifts away from using independent contractors.’ Just Eat boss, Jitse Groen, said he wanted to end gig-working across Europe at his company, reports The Guardian. This may put some pressure on rivals such as Deliveroo to follow suit. Just Eat says ‘we recognise our responsibility to provide couriers with the best possible opportunities and we’re delighted that almost 2,000 jobs have already been created as part of our worker model. We’ve reached this milestone significantly ahead of schedule and following a positive response in London and Birmingham, we’re excited to roll this out to Liverpool, creating 1,500 more roles this year.’
• In the US, NRN reports that a larger number of restaurateurs are now paying rent. It says 63% were unable to meet their liabilities a year ago (March 2020) but only 35% cannot pay their rent now. Alignable has conducted a poll of nearly 9,000 restaurants, saying ‘many small-business people are feeling better about their prospects as expedited vaccine distribution is taking effect across the U.S..’
• The Access Group is to acquire CPL Learning, a provider of learning and development resources for the hospitality and retail sectors. The latter will be incorporated into The Access Group’s specific Hospitality division.
• Hammerson has updated on rent collection saying that 40% of rents due for Q2 have been collected (48% in the UK, less in France & Ireland)
• Time Out announced yesterday that, as a result of the Firm Placing and Retail Offer announced in March, a total of 28,320,000 New Ordinary Shares were issued at the Issue Price, raising gross proceeds of approximately £9.9 million. Time Out has also announced that ‘it will issue 16,251,404 New Ordinary Shares to Lombard Odier at the Issue Price of 35 pence, to raise approximately £5.7 million.’
HOTELS & LEISURE TRAVEL:
• The Immigration Service Union has warned that border delays could worsen after (or if) international travel resumes next month. Turning the suggestion on its head, it seems fair to say that putting more people through a creaking system is unlikely to make it operate faster.
• Moneysupermarket has blamed (in part) what it says is negligible travel demand for a drop in its profits.
• Willie Walsh, now boss of IATA, has criticised what he has called “profiteering” by Covid test providers. He cautions that ‘to come to the UK for three days, you have to buy a package in advance to test on days two and eight, even though you won’t be there on day eight. It’s a scam.’
• Tunisia is to allow travellers on packages into the country on receipt of a negative Covid test from this week.
• RCL has said it is making progress in agreeing a resumption date with the US health authorities.
• STR reports that the U.S. hotel industry reported its highest levels of performance since the start of the pandemic in March this year. It says ‘both occupancy and RevPAR were the highest for any month since February 2020.’ Comps have clearly become much softer in the last few weeks.
• Netflix yesterday reported Q1 numbers including a slowdown in subscriber growth. It reported c3.98 million people signed up for its service in Q1, well short of the projected 6 million. Netflix said it had fewer new shows but says that sequels to existing hit shows are shortly to be released. The group’s shares fell 11% in after-hours trading to $489.28, wiping $25bn off the company’s market capitalization. Netfilx added 15.8 million new subscribers last year as Covid-19 forced people to stay indoors. Netflix says ‘these dynamics are also contributing to a lighter content slate in the first half of 2021, and hence, we believe slower membership growth.’ Netflix has reported revenues of $7.16bn and net income of $1.71bn.
• Ten Entertainment has announced that Adam Bellamy is to be appointed as Non-Executive Chairman effective from the AGM date on 5 May 2021. It says ‘the Group has conducted a rigorous and wide-ranging selection process to ensure that it appoints the strongest possible candidate to lead the business through its next stage of growth. Adam is currently Senior Independent Director and has served on the TEG Board since 2018 as Audit Committee Chair and latterly Remuneration Committee Chair. His extensive knowledge of our business, as well as his wealth of experience in high-growth consumer-facing companies, make him ideally placed to oversee reopening and a return to growth.’
• William Hill reported yesterday that its £2.9bn takeover by US casino group Caesars Entertainment had been cleared by a UK. Caesar’s says ‘the opportunity to combine our land based-casinos, sports betting and online gaming in the US is a truly exciting prospect.’
• All six Premier League teams have now withdrawn from the proposed European Super League. Manchester City was the first to pull out followed by Chelsea. The Super League said it would reconsider “the most appropriate steps” before it reacted to the news. UEFA said ‘the important thing now is that we move on, rebuild the unity that the game enjoyed before this and move forward together.’
• The UK government had previously said it was be “exploring every possibility, including legislative options” to stop the proposed football European Super League going ahead. It is likely that the Super League has done at least some homework. This could leave its opponents playing catchup for some time. Indeed the BBC reports that ‘the European Super League has filed injunctions against Fifa and Uefa to try to stop them from banning clubs or players from future tournaments such as the Champions League.’
• Festivals this summer have not yet been cancelled. And they may not be, but what’s the betting?
FINANCE & MARKETS:
• The unemployment rate in the UK fell to 4.9% in the three months to March. This is the first decrease since Q4 2019.
• The NIESR has considered the ONS’s wages statistics and says that it ‘predicts that average weekly earnings growth will grow at 5.2% in the second quarter of 2021, after increasing by 4.5% in the three months to February. Forecasts for private and public pay growth for the second quarter are 5.5% and 3.5% respectively.’ Unless productivity picks up sharply, these figures seem to be consistent with a return to levels of modest price inflation.
• The NIESR says ‘the number of furloughed workers is estimated to be around 5 million in February, similar to January. We forecast that number to steadily decline from the end of March until September when the furlough scheme is planned to end.’
• Sterling weakened yesterday to $1.3920 and €1.1573. Oil slipped to $66.12. UK 10yr gilt yields fell to 0.73% (down 3bps). World markets were sharply lower. London is set to open up around 10pts.
RETAIL WITH NICK BUBB:
Today’s News: Yesterday’s deadline for the wretched CMA to decide what to do about the Asda/Issa brothers deal was met with an announcement at mid-day, rather than 7am (which the CMA does for non-price sensitive news). The CMA, to its credit, saw right through the mechanism the Issa brothers used to the deal, via a vehicle called Bellis Acquisitions, backed by TDR Capital, rather than through their EG garages group and focused straightaway on the overlap between Asda’s petrol stations and EG. And, needless to say, it found 36 areas where there was a risk of a significant lessening of competition post-merger, calling on the companies to make undertakings on future petrol prices, to avoid a lengthy Phase 2 inquiry. And, needless to say, Asda and the Issa brothers have agreed to cooperate and enter into “constructive” discussions, so the matter is likely to be resolved by the end of the