Langton Capital – 2021-04-29 – PREMIUM – Trading, staycations, City Pubs, WFH, YUM, Starbuckss, Carlsberg etc.:
Trading, staycations, WFH, YUM, Starbuckss, Carlsberg etc.:
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A DAY IN THE LIFE:
Sometimes we take things for granted.
Houses, for example. They’re man-made caves and, even if they had no running water, electricity, even no doors, windows or a roof, they would still be 100x as good as the caves our ancestors lived in for maybe 10,000 generations before we came along and decided that we wanted more.
Not that I want to sleep in a ditch from time to time, just to ground myself but, every now and again, it might be an idea to stand in the rain for half an hour and thank your lucky stars that you don’t have to do it for fifty years before you die of accumulated misery with a few leaves as clothing and a dead rabbit as an umbrella.
Just saying. On to the news:
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PUBS & RESTAURANTS:
Current trading – Much to agree on but plenty of uncertainty.
• Points of little contention. Demand was there, wet sales outperformed food, the provinces outperformed London, suburbs traded more strongly than did city centres etc. The Daily Mail reports that Heineken has been rationing beer deliveries, table service apps have been overworked and the weather has held. But ‘most’ units remained closed (more so restaurants than pubs) and there is a general feeling that momentum (towards 17 May and 21 June) must be kept up, Covid passports are a potential major nuisance and more government aid (lower VAT & business rates etc) may need to be retained.
• Areas of uncertainty. Comps are skewed by the novelty factor, the Wall of Money and the good weather. Also, 2020 comparatives are meaningless and Easter Sunday in 2019 was 21 April – so it impacted comps (made them tougher) in the week after pubs reopened this year. Near term, the weather has reverted to average but it’s pay week and there’s a Bank Holiday coming (and another a month later). The major question is, how long will good trading last?
• Langton comment: So are there more grounds to be optimistic or pessimistic? On a positive note, job losses have been less severe than might have been feared, money has been saved by consumers and much of it is likely to be spent. Cash saved by not going on holiday in 2020 (and possibly 2021) will not lead to a treble spend in 2022. Certainly, some of it will have gone to staycations (no bad thing for pubs & restaurants) and some on home furnishings & one-off items. But there are grounds to hope that some of the money has been earmarked for domestic hospitality.
• On a negative note, consumers’ money, though hoarded in some quantity, is finite. Wallet fatigue is a risk. Job losses could kick in when the furlough scheme ends. Consumers could find they are running out of financial steam at the same time as more units are reopening meaning that demand could slide at the same time as supply rises. That’s not helpful. Structurally, accrued rent and debts run up to government and banks might need paying. VAT on food will go back up and business rates will be reintroduced.
• The MA reports AB InBev as saying ‘we’re now busy producing all our brands, including Stella Artois, Corona and Camden, to meet surges in demand from our pub partners. This includes extra production over last weekend, when we saw especially heightened demand.’ Unlike Heineken, AB InBev says ‘we haven’t seen significant shortages of our brands but we keep in close contact with our customers daily to support them in this dynamic reopening period.’
• Alix Partners says that ‘Covid-19 anxieties are driving significant changes in consumer behaviour’. Speaking of the US, it says ‘our ongoing study of changing consumer priorities has found that two-thirds of consumers are optimistic about a vaccine. But while many will go back to spending through familiar pre-pandemic mechanisms, others will not abandon behaviours learned during this period anytime soon. It is imperative for consumer companies to understand what has and is continuing to cause these permanent shifts.’ It says ‘people have been riddled with anxieties about finances and physical as well as mental health over the last year. Our study has found that consumers who have felt the most vulnerable are more likely to exhibit permanently changed habits. Significantly, the survey found that these consumers span all age groups, genders, income levels, and locations.’
• KAM Media reports that ‘at-home hospitality’ is likely to persist post reopening. It says ‘consumer demand is significant with 9-in-10 wanting the brands which they’ve had in their homes during lockdowns to continue offering these ‘at-home’ solutions even when restrictions lift. 62% want their favourite restaurant brands to start selling ‘cook at home’ meal boxes nationwide.’ KAM in partnership with eCommerce platform Slerp says that ‘UK adults are so excited to finally meet up with friends and family that a larger than normal amount of socialising ‘at home’ is predicted; 36% said they will have friends/family over more often vs pre-pandemic.’ It says ‘41% of UK adults said they are planning on having picnics with friends and family, 31% are planning garden parties and 39% will invite friends and family for BBQs. And it’s not all happening in the garden, when restrictions allow 28% are
• KAM’s Katie Jenkins says ‘‘at-home’ solutions will soon hit the mainstream as we move towards a future of multi-channel hospitality. That means that where consumers may have been forgiving of the kinks in new delivery services during initial lockdowns, brands now really need to up their game. Competition is already pretty fierce and now is the time for operators to cement their brand as a ‘go to’ for their target customers and/or target ‘dine at home’ occasions.’
• Working from home:
• JP Morgan has told its US bankers that they should be back in the office, albeit on a rotational basis, by early July. UK flexible office company IWG has said that the bottom of the market has passed. It says the last three months were an “inflection point” in the pandemic. It hopes to be a beneficiary if employers downsize offices and move to more flexible solutions. Whitbread, which owns Premier Inn, said on Tuesday that the 50% of its business customers who are white collar rather than tradespeople, may not be back in force until September.
• This is a travel story but it clearly has implications for UK pubs & restaurants. Travel Weekly reports that ‘more UK travellers are looking at holidays in September, October and November than in 2019, with delayed demand lengthening the summer peak season.’ This per Skyscanner. If consumers stay in the UK for the period including the children’s summer holiday, then pubs & restaurants should benefit.
• Langton comment: Consumers, understandably may be playing for time. Uncertainty as to which destination country is which colour of the traffic light alongside the potential for these to shift between categories may put many would-be holiday makers off from being too hasty. Headlines re 6hr queues and potentially the requirement to quarantine may also encourage reticence.
• This will be music to domestic operators’ ears. Both those who are in the business of providing holiday accommodation in the UK and those in the wider food and drink industry. Because a ‘good summer’ is right up there with Christmas when it comes to the potential to make or break a year. Hence, if consumers can be persuaded to spend July and August in the UK, the industry should be a beneficiary.
• Skyscanner also says that the average holiday booking amount is running at 13% less than pre-pandemic as flight prices have fallen. The money saved by consumers could be spent in overseas resorts but domestic operators will be hoping that some of it is spent here. Skyscanner says ‘our analysis reveals travellers’ preferences are changing compared to pre-pandemic.’ It says that ‘travellers are adept at adjusting to new measures, however, we are entering a period where the importance of clear, straightforward and timely information is vital, especially relating to restrictions, quarantines and testing requirements.’ Any uncertainty re overseas travel could be positive for the domestic industry.
Company & other news:
• Deliveroo making back some ground at 256p.
• City Pub Group has announced the acquisition of a 49% stake in Kensington Park Hotel and announces that it has increase in shareholding to 24% in Mosaic Pub and Dining. See premium email. City Pub Group says the Kensington Park Hotel ‘is a leasehold pub located 200 metres from Ladbroke Grove tube station. It has large trading areas on the ground and first floors, benefits from seven hotel letting rooms and has potential for a further four letting rooms on the top floor.’ The company will have a management contract and has an option to buy the freehold for £5.5m up until March 2024. Re Mosaic Pub and Dining Group, City Pubs says it ‘has increased its stake to 24% in certain companies within the Mosaic Pub and Dining Group.’ It adds ‘the Mosaic Companies own nine prominent pubs, predominantly in London and Birmingham, of which 7 are freehold. Mosaic has a strong balance sheet with over
• TOCA Social is to become the world’s first social entertainment venue with a football twist when it opens at The O2 London this summer.
• Brinker International in the US has reported high demand for restaurants with off-premise dining options. CEO Wyman Roberts says ‘we believe all along, the consumers’ increased demand for convenience would continue post pandemic and it’s playing out that way.’ The company owns the Chili’s Grill & Bar and Maggiano’s Little Italy chains of restaurants.
• Yum! Brands yesterday reported Q1 numbers, saying that it was up against two-year-ago comps. It says system sales were ‘over $5bn’ with ‘accelerated off premises growth’. CEO David Gibbs says ‘first-quarter results reflect encouraging momentum across our business, including solid 2-year same-store sales growth and a meaningful uplift in unit development, underpinned by the focus and collaboration of our franchise partners and restaurant teams around the world.’ YUM says ‘while uncertainties remain due to the ongoing impact of COVID-19 in many geographies, with our iconic brands, world-class talent and a healthy franchise system we are poised to enter a post-COVID world with a long runway of growth ahead of us.’ YUM says worldwide system sales were up 11% in total and up 9% LfL.
• US company Tao Group Hospitality has bought the Hakkasan Group for an undisclosed sum. The enlarged company has 61 entertainment, dining and nightlife venues in 22 markets across five continents. Tao CEO Jason Strauss says ‘despite the challenges caused by the pandemic, we know there’s a real desire by people around the world to gather once again. As indoor dining and other hospitality experiences start to return to regular operations, we believe our newly combined company will be well-positioned to take advantage of this pent-up demand, setting the stage for long-term growth.’
• Starbucks, covered in yesterday’s email, now says that its U.S. sales have fully recovered from the impact of the pandemic by the end of Q2 this year. Digital sales has been an area of growth. Restaurant Dive suggests that traffic will rise further as consumers are vaccinated. It points out that AI has been helpful in driving digital sales. Restaurant Dive says ‘as American consumers look to spend their stimulus checks and engage with restaurants thanks to widespread vaccinations, transaction frequency could also improve. But growth in at-home coffee consumption, driven by pandemic conditions, could be an obstacle.’
• Langton comment: This is one of the major questions – how much of the behaviour adopted during the pandemic will stick. Nestle has been a winner from at-home consumption whilst Starbucks, Costa, Nero and Pret etc have been losers. The US could be recovering more rapidly than the UK. Jobs and capital is being bet on the outcome. There appears to be a quicker move back to ‘normalised’ office-based working in the US than in the UK. Restaurant Dive points out that other behaviours ‘exacerbated by the COVID-19 crisis could help this recovery as well. Starbucks is catering to diner interest in convenient, contactless restaurant experiences by increasing the throughput of its drive-thru restaurants with new operational standards, handheld ordering devices and more efficient kitchen equipment. Out-the-window sales represented more than 50% of net sales for the quarter, rising more than 10%
HOTELS & LEISURE TRAVEL:
• There are some concerns that the UK Covid testing system will be overwhelmed when overseas travel recommences. Magazine Which? Has warned that the travel test system is already struggling.
• PPHE Hotel Group has updated on trading for the three months ended 31 March 2021. See premium email. The group says that ‘with the vaccination programme well underway in the UK (the Group’s key market) and measures subsequently being eased, the Group is getting ready to reopen all its UK properties on 17 May.’ It says the ‘current focus is on re-engaging and training team members and the continued implementation of contactless services, which include online check-in and check-out and digital key solutions.’ PPHE adds ‘demand across the Group’s continental markets, where re-opening plans have not yet been announced, is subdued.’ CEO Boris Ivesha says ‘we have started re-engaging and training team members’ and adds ‘we have also continued to progress against the Group’s long-term growth strategy, advancing our planned repositioning programme and further driving our development pipeline
• Re trading, such as it has been, PPHE says ‘the first quarter results of the financial year were in line with the Board’s expectations, with performance subdued due to property closures and restricted capacities and against a strong year-on-year comparative.’ Re the present and the future, Mr Ivesha says ‘we look forward to the anticipated reopening of our properties in England from 17 May and cannot wait to welcome back our guests to our hotels. As restrictions are eased across our other operating markets in Europe, we will capitalise on consumer demand and other potential opportunities, underpinned by our strong track record, well-invested properties, and unique approach to drive long-term success.’
• A YouGov poll of c1,400 people has found that 63% of respondents were not comfortable with the idea of travelling internationally when restrictions are lifted.
• Transport secretary Grant Shapps has told Sky that the NHS app will be used as a digital pass for overseas travel this summer. He also says the green list of countries will be published in the next ‘couple of weeks’.
• Spain hopes to reopen to foreign tourists in June under a digital health certification scheme.
• TUI says there is increasing demand for “greener and fairer” holidays
• Global Data has reported that the growth in interest for long haul holidays is sharper than that for shorter trips. It says its data ‘shows how general fatigue created by the pandemic has left travellers adamant that they need a radical change of scenery and may be willing to put considerable concerns aside to achieve this.’ Or maybe just at least research it on the internet.
• STR reports that ‘hope is in the air for the United Kingdom hotel industry.’ It says there are great hopes for 17 May but, for the moment, demand is sluggish. It says ‘occupancy now retains the same pattern it has since the beginning of the year, with weekday peaks of approximately 40% and weekend troughs of approximately 20%.’
• STR says that demand in the US for travel from larger groups is growing. Talking about sports, it says ‘teams that might have only played a few tournaments a year in the past are packing a tournament schedule to make sure that their players get exposure and get development to make up for lost time.’
• Willerby Caravans in Hull is to add over 100 jobs due to buoyant demand.
• Flutter has announced Q1 trading numbers saying that total revenue was up by 32% at £1.49bn. See premium email. CEO Peter Jackson says ‘2021 is off to a strong start for the Group. We continued to significantly grow our global player base which in turn drove a 42% increase in our online revenue.’ He says ‘as restrictions begin to ease and retail reopens across a number of markets, we remain confident that our diversified business leaves us well placed to deliver sustainable growth going forward.’
• Gaming Realms has commenced trading on the OTCQX Market in the United States. It says ‘upgrading to the OTCQX Market is an important step for companies seeking to provide transparent trading for their U.S. investors.’ Chairman Michael Buckley says ‘whilst the Company continues to expand in the European regulated iGaming market, our principal focus is on increasing our foothold in the U.S. and building on the success of our hugely popular Slingo games in New Jersey.’
• Facebook & Apple. Facebook has beaten Q1 estimates with its monthly active users up 10% to 2.85 billion and net income for the first quarter of $9.5bn compared with $4.9bn in the same quarter last year. Total revenue was up 48% to $26.17bn. Apple has also beaten Q1 forecasts with iPhone sales strong, particularly in China. Profit for the quarter was $23.6bn, up from $11.3bn for the same period last year.
• Google owner Alphabet has reported a 162% increase in net profits to a record $17.9bn in the three months to March.
FINANCE & MARKETS:
• Job numbers have been robust to date but Nestle is to make around 600 people redundant in the North East as it closes a factory to move production to Europe. The BBC reports ‘hundreds of car parts jobs are set to be axed after a firm [Toyoda Gosei] announced it was pulling out of the UK.’ The BBC reports that ‘production at Oxford’s Mini plant will be suspended for three working days due a shortage of computer chips.’ It says ‘Jaguar Land Rover has suspended production at its Castle Bromwich and Halewood factories this week for the same reason.’
• Sterling stronger at $1.3956 and €1.15. Oil higher at $67.54. UK 10yr gilt yield up 2bps at 0.80%. World markets broadly better yesterday with London set to open up by around 11pts.
RETAIL WITH NICK BUBB:
• Today’s News: The Apple Q2 results last night in the US beat expectations and the shares were trading 2.5% up after hours. Back in the UK the Howden Q1 update looks strong, with LFL revenue up by c46% in the UK over the 16 weeks to April 17th (up c9% on 2019), but apart from the usual raft of store opening plans, all the company says is that “The Board remains confident that the Group is on track with its plans for the year”. Inchcape has also announced that Q1 trading was ahead of expectations, as does the recently floated In the Style Online fashion group (in its update for y/e March). And after a disappointing debut for the demerged Wickes yesterday, with the shares trading at only around 265p (versus hopes of more like 400p), Travis Perkins has announced that the share price consolidation, designed to keep the price as close as possible to the pre-demerger level, will be 0.8925 for
• WH Smith: Today’s interims (for the 6 months to end Feb) were pre-announced after hours yesterday evening, given the launch of a £325m Convertible Bond fund-raising plan by WH Smith, dressed up as the financing for the opening of another 100 new Travel stores, but in reality designed to re-finance existing debts and avoid a covenant breach next year should trading stay weak. Not surprisingly, the tone of the statement was bullish, pointing to the recovery in the key North American Travel operation and the potential to take on space vacated by other airport retailers. But the 65% slump in overall Travel revenue in the first half drove a move into overall loss for the group and even in Q3 to date Travel sales are 57% down on 2019 levels (13% down in the High Street), so some investors may take the comment below from the new WH Smith boss Carl Cowling with a pinch of salt: “We are an