Langton Capital – 2021-05-18 – PREMIUM – Britvic, DPEU, supply chains, overseas holidays, Hollywood, ESC etc.:
Britvic, DPEU, supply chains, overseas holidays, Hollywood, ESC etc.:
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A DAY IN THE LIFE:
Bit busy with meetings yesterday and today. On to the news:
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THE ELEPHANTS IN THE ROOM:
• In the UK, if not in large parts of the wider world, Covid may be past its worst (in the absence of malign variants, that is).
• There are justifiable caveats, but it makes sense to look to the future, ask what the new normal will look like, etc.
• On the balance of probabilities:
o There is some pent up demand.
o Supply (the number of outlets) will be reduced and,
o There will be limited overseas travel this year meaning that it should be a good year for staycations.
• Which is great. But there are some elephants in the room. We’ll consider over the next few days (and not in any particular order of importance):
a) Labour shortages,
b) Cost and price inflation
c) Accrued debt (banks, bonds, landlord, VAT, supplier etc) and,
d) Other issues (supply chain problems etc)
SUPPLY CHAIN PROBLEMS & OTHER:
• The roadmap to reopening was laid out some time ago. That said, we still have some issues with regard to beer supply, labour sourcing and other supply-side concerns.
Supply – product:
• The warm weather during April, which seems like some time ago now, led to a shortage of beer for some hospitality operators.
• This brought to the fore the benefits of having a vertically integrated model. This has existed for centuries and, though periodically unfashionable, it has its benefits when the retail side of the operation wishes to secure product.
• Meanwhile third party suppliers, let’s call them brewers, favoured some customers over others. Particularly those that a) could be relied upon to pay their bills and b) those that were large enough to move the dial.
• This meant the large pub companies (or at least those with secure financing) and those with their own breweries were able to secure product when some smaller, less secure operators, may not have been able to do so.
• The latter could have recourse to bottled beers and other products – and they could maybe make up for in enthusiasm what they lacked in actual choice of drink for sale – but it does underline the importance of maintaining a good relationship with suppliers who, ultimately, you will rely on.
• We covered this in some detail last week. But it may be worth saying that not a day goes by but we don’t hear how this is becoming a problem.
• Chefs seem to be in short supply. The common themes are that EU labour is harder to source, staff on furlough weren’t really available when asked to come back and efforts are being made to secure staff from other sources – but this will take time and cost money
PUBS & RESTAURANTS:
• Day One: English hospitality venues have reopened for indoor trade. Feedback is coming in but, given that it’s one day and the weather was variable (generally cool with periodic torrential showers), we do not yet have much of an indication as to how things are going. Marston’s and M&B report H1 numbers tomorrow and Young & Co report full year’s numbers on Thursday. All three companies will doubtless be pushed for updates.
• Indian variant. There are concerns that the variant B.1.617.2, which is “more transmissible than the previous one” (presumably the Kent variant), has the capacity to spoil the party but, as yet, there is little data and plentiful speculation. The spectre of local lockdowns has been raised. This would be unwelcome but, if it helped prevent a wider lockdown or slippage in the un-lockdown timetable, it may be the lesser of two evils.
• Langton comment: We’re all becoming familiar with the ideas of surge testing, local lockdowns, variants, R-rates, hospitalisation stats and all the rest – but this is the world we live in. We may be edging towards more normal trading but, as mentioned on a number of occasions, the new normal may be quite different from the old normal. Critics of the government have pointed out that, in saying that the public should be cautious etc, the authorities may be lining up the public for blame should anything go wrong. But hopefully it won’t. Greater Manchester in particular seems concerned. Sacha Lord points out ‘Greater Manchester has been in a state of lockdown for longer than most of the UK and we now find ourselves with the very familiar feeling of uncertainty about what the next few weeks hold.’
• Non-governmental calls for caution. The Guardian quotes former director of the Wellcome Trust, Prof Sir Mark Walport, as saying that people ‘should ignore Monday’s easing of lockdown and avoid socialising indoors in pubs and restaurants to prevent the new Covid-19 variant first detected in India sparking a third wave of the disease.’ Although not an official position, this is reminiscent of the ‘non-closure but closure’ stance that the government took (when it said don’t go to pubs but didn’t order them to close) in the middle of March last year. Sky News quotes the professor as saying, when asked should you hold back from going inside a pub, ‘for the moment, yes.’ The BMA amongst others has also advised people to meet outdoors rather than indoors for the time being.
• The BBC reports Springboard as saying there was no surge onto the High Street yesterday. This is a) very early to comment and b) any single day will be greatly impacted by the weather. The BBC says ‘so far, at least, the relaxation of the rules does not seem to have benefitted retailers by persuading more shoppers through the door.’
• Langton comment: When reading around the subject of forecasting, one of the most common errors is to extrapolate from too small a data sample. Springboard is too experienced to do this but, in providing a single day’s data, they are tacitly inviting non-statisticians to do exactly that. There is often a ‘prize of being first’ in getting a forecast out. The ‘prize for getting it right’ may be – and often is – awarded to a different person or body.
• This is getting more acute. We hear chefs are in short supply. Staff, who may have returned to their country of origin during furlough, are not coming back in sufficient numbers to match demand. Recruitment firm and the CIPD say employers wish to bring on new staff at the fastest rate in eight years. But they say there has been a fall in the numbers of EU workers. Wage inflation may not be inevitable but it is certainly possible.
• Langton comment: We would normally put this in the travel section below but, in the US, we note that Hot Stats has picked up on the labour shortage in the hotel industry. It says ‘hotels are facing a labour crisis. After major furloughs and layoffs last year due to the pandemic, properties now need to staff up to be prepared for the return of business. But they are facing a drought of workers, which some call the worst recruiting climate in the industry’s history.’ Although the linkages as to why this should be so are weak, this looks to be a common theme across the UK hospitality industry as well.
• Hot Stats quotes an operator as saying ‘the million-dollar question is how do we entice people back?’ Well, there may be more to it than this but how about paying them more money? This may well be the answer in the short term and, as we mention above, wage inflation is looking increasingly likely. Hot Stats warms to this theme when it says ‘if hotels can’t fill vacant positions, the result will be employers having to pay more to entice prospective employees to take those jobs, which will increase labour costs.’
Working from home:
• There may be a drift back to the office going on but staffing levels in traditional offices may not get back to prior levels. The ONS says that 25.9% – or 8.4 million people – were working from home recently compared with 12.4% in 2019. This does not include people on furlough – as they are not permitted to undertake work. Sky says ‘the data showed that 46.4% of people employed in London said they worked at home at some point in 2020.’
Other covid and company news:
• New Look Landlords have won leave to appeal to the Supreme Court over their treatment in the CVA. The landlords had been seeking to overturn the CVA, which saw the switch to turnover rent “fundamentally rewrite” the leasing agreements (in their opinion). This has a read across to a number of operators considering a similar course of action.
• DP Eurasia has updated on trading for the four months ended 30 April 2021 saying that ‘Significant System Sales Growth [has been] Achieved.’ The company reports that system sales in the period were up by 65% to 469m TRY. The number of stores has risen from 757 to 776. Growth of 49% was achieved group-wide with 62% in Turkey and 13% in Russia. Online delivery system sales are now at 77.3%. CEO Aslan Saranga says ‘the first four months of 2021 have been very encouraging.’ There will be no change to group expectations for the full year. Langton comment: He says ‘trading performance has continued to significantly improve in Turkey and Russia since our preliminary results release in March. Our Turkish operations have maintained their strong start to the year with a March/April like-for-like growth rate of 76.8%, driven mainly by delivery and, also, tailwinds from a temporary reduction in
• DPEU adds ‘in our Russian operations we have continued to see an improving trend with a March/April like-for-like growth rate of 21.2% and we have surpassed the sales per store levels of pre-Covid 2020 in the first four months of 2021. However, it is important to note that these rates follow significantly depressed 2020 comps due to the initial Covid-19 outbreak in both countries.’ The company says it is adding new products. It says ‘the strong performance in Turkey is continuing to generate a very robust franchisee demand. Whilst we have opened two new stores in Turkey during the first four months, we remain on target for our store opening guidance of 30 – 40 stores for the year with a further 16 stores leased, all of which are franchised. We have also added two new stores in Russia.’ It says ‘our first half performance will be the determining factor in the outlook for
• DPEU concludes ‘whilst the Board is conscious of the potential continued risks posed by the pandemic, we remain on target for our 2021 guidance in our markets and the Board expects the full year adjusted EBITDA for 2021 to be in line with expectations.’
• Britvic plc has reported H1 numbers to end-March saying that revenue fell by 6.3% to £617.1m and EBIT fell by 15.4% to £60.1m on an adjusted basis. The group says that PAT fell by 14.7% to £33.2m. EPS was 15.2p and the group is reinstating its H1 dividend with a reported pay-out of 6.5p. Langton comment: The group, unsurprisingly, has done well in its ‘at-home’ channels and poorly in the on-trade. The company says ‘pandemic restrictions heavily impacted performance in hospitality sector and on-the-go consumption’ but adds that ‘significant progress against our strategic objectives’ has been made.
• Re current trading, Britvic says it has seen ‘encouraging trading in the first weeks of H2 as lockdown measures begin to ease in the UK.’ It says it is investing into H2 growth and adds ‘going forward we anticipate positive mix impact as At-Home growth moderates, socialising increases and on-the-go consumption regains momentum.’ CEO Simon Litherland says ‘in challenging circumstances, we have delivered a robust first half performance, demonstrating the resilience and agility of our business. We have continued to win in the channels open to us and have gained share in our key growth markets of GB and Brazil. Our cash management has been particularly strong, and I am pleased to reinstate our interim dividend.’
• Litherland says ‘we have also made good progress on our strategic opportunities, such as simplifying our Irish business, entering the mainstream energy category in GB and Ireland by relaunching Rockstar with PepsiCo, and acquiring Plenish, a leading natural premium brand in the fast growing plant based drinks category.’ Re the future, he says ‘as lockdown restrictions have started to ease in some of our markets, early trading has been encouraging. Although some uncertainty does remain, I am confident that our strategy and focus on People, Planet and Performance will ensure we deliver growth for all our stakeholders, both in the short and long term.’
• Operators in Glasgow have reacted with frustration to the decision to keep the city in Level 3 of Scotland’s five-tier system.
• Foodservice analyst Peter Backman comments on what early pandemic trends have persisted. He mentions (as having persisted) contactless ordering and payment, sanitiser stations, online menus, physical menus being wiped down after each use and surface cleaning several times an hour. Langton comment: Mr Backman goes on to speculate as to what will disappear. He alights on social distancing, physical barriers between tables and one-way systems.
• Manchester night-time economy advisor Sacha Lord was ‘punched and attacked over his views on the reopening of hospitality’ he has said in a tweet.
• Constellation Brands has bought a minority stake in Donae Burston’s La Fête du Rosé for an undisclosed sum
• Morrison’s has said that it invested £16m into in-store cafe upgrades ahead of reopening yesterday. on Monday. It says the money has been spent on updating the decor across all 406 of its cafés, refreshing the menu, introducing new technology, and increasing Covid safety measures.
HOTELS & LEISURE TRAVEL:
• Foreign holidays (basically to Portugal) are now legal. There are plenty of stories re 6am getaways with some airlines, such as British Airways and Ryanair suggesting that confidence is returning. The government has cautioned that travel “will be different this summer.” Holidaymakers have been told to expect longer border checks.
• Matt Hancock has maintained that people “should not travel to amber countries.” He told parliament there must be “an exceptional reason” for travel to an amber list destination and “people should not travel for a holiday”. He added ‘we will assess countries that might go on to the green list every three weeks. If a country is not on the green list you should not be travelling there unless you have an exceptional reason.’
• Langton comment. The illusion of freedom? We suggested a while ago that, whilst the traffic light system was almost certain to be introduced (it has been), it would be perfectly possible that most lights would be stuck at red (and that few countries would be green). The move to dissuade travel to amber countries, though perhaps the right thing to do, is a part of the same process.
• The EU is expected to approve the use of ‘vaccine passports’ to allow visitors to enter into Europe. The Telegraph reports that a final decision will be made this Thursday.
• Sky News reports that PE house CVC Capital is in talks about a takeover of Away Resorts, the holiday park operator, with sites such as Whitecliff Bay on the Isle of Wight and Sandy Balls in the New Forest. The company caters for around 200,000 holidaymakers in a ‘normal’ year.
• PPHE announced yesterday that ‘its free float has marginally decreased to be below the required threshold for FTSE UK All-Share index inclusion of greater than 50%. The Company estimates that its current free float as of the date of this announcement is approximately 47%.’ The company says it ‘would like to express its continued efforts to, and focus on, satisfying the FTSE All-Share eligibility criteria and accordingly will review options available to achieve this.’
• Amazon is reported to be in talks to buy MGM Studios for $9bn. The sale would add content to Amazon’s Prime streaming service. The BBC has been unable to get a comment from either company.
• US telecoms company AT&T Inc is reported set to spin off its entertainment assets into a new venture. Assets will include with cable programming company Discovery, HBO and other channels acquired via the Time Warner purchase only some three years ago. AT&T said the new business would have a content library of nearly 200,000 hours of “iconic programming” bringing together the likes of HBO, Warner Bros, Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, and Eurosport.
• Escape Hunt has reported full year numbers to end-December saying that, as a result of the various lock-downs, revenue fell to £2.7m from £4.9m in the prior year. The EBIDTDA loss was reduced to £1.4m (2019: loss £1.7m) ‘despite COVID-19 restrictions.’ The company says it saw more than ‘25% like-for-like sales growth on a 12 week rolling basis in the two months prior to lockdown.’ The group operating loss was £6.4m (2019: loss £5.9m). Langton comment: The company goes on to say that revenue from digital and play at home products partly replaced in-store game revenue. The group points out that it raised £4.0m net of expenses in July last year and says cash at year end was £2.7m (2019: £2.2m) and £3.3m on 31 March 2021.
• ESC grew its estate by 56% to 14 sites (2019: 9 sites) during the year. It says it is cutting the cost of games. Covid caused the loss of 40% of available trading days. Post the year end, the UK went into lockdown again but the group raised a further £1.3m from investors. The estate has expanded to 17 units and a £1.0m convertible loan note facility has been put in place ‘to provide further flexibility to continue UK roll-out in the event of further lockdown restrictions or continued adverse impact on trading from COVID-19.’ CEO Richard Harpham says ‘Escape Hunt is in a much stronger position today than it was twelve months ago, and subject to reasonable assumptions on demand returning, we are confident that we now have a platform established capable of supporting a profitable business.’ He says ‘we have significantly grown our owner-operated estate, launched our digital and
FINANCE & MARKETS:
• Sterling mixed at $1.4169 and €1.1648. Oil higher at $69.72. UK 10yr gilt yield unchanged at 0.87%. World markets broadly lower yesterday but heading better. London set to open up around 50pts.
RETAIL WITH NICK BUBB:
Today’s News: The “Checkatrade” business Homeserve has reported a very good performance in y/e March, with revenue up 15%, with acceleration expected in FY22: “We see demand for high quality tradespeople continuing to grow, as more and more people seek to make their homes better and greener. We are well set up for continued strong growth”. And continuing with the DIY theme, little Topps Tiles has reported resilient interims (for the 26 weeks to 27 March), despite the impact of the Q2 lockdown, and a strong start to Q3: “The re-opening of our stores to all customers on 12 April has once again been received very positively and we have seen a strong recovery in sales and gross margins, with Retail like-for-like sales 16.8% ahead of the same period in 2019 in the five weeks since re-opening”. Less happily, the loss-making discount footwear retailer Shoe Zone has reported a slump in first
This Week’s News: After the reopening of pubs and indoor hospitality (including restaurants, cinemas and museums etc) yesterday, the footfall figures from Springboard will be released at 10am today. In terms of company news, tomorrow brings the Pendragon AGM. On Thursday we then get the Kingfisher Q1 update, the Next AGM, the Watches of Switzerland Q4 update, the N Brown finals and the McColl’s AGM. Friday then brings the ONS Retail Sales figures for April and the monthly GFK Consumer Confidence Index. Over in the US, Wall Street has a string of earnings reports from leading retailers to delve through over the next few days, including Walmart, Home Depot and Macy’s today; Target, TJ Maxx and Lowes tomorrow; Kohl’s and Ralph Lauren on Thursday and Foot Locker on Friday.