Langton Capital – 2021-06-17 – PREMIUM – Whitbread, Lounger’s, inflation, WFH, delivery & other:
Whitbread, Lounger’s, inflation, WFH, delivery & other:
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A DAY IN THE LIFE:
A bit rushed at the moment but, last night, as I was catching up on a couple of BBC documentaries, prof Brian Cox reminded me that I was an insignificant bunch of carbon and hydrogen atoms sitting on a tiny rock, one of many billions and that, in the scale of things, I meant absolutely nothing.
I must write to thank him for that. On to the news.
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WHITBREAD – AGM & Q1 TRADING UPDATE:
Whitbread has updated on Q1 trading and our comments thereon are set out below.
• Whitbread has updated saying that it is seeing ‘continued market outperformance in the UK [with] strong leisure demand post 17 May.’
• It says that, versus 2019, accommodation revenue is down 60.5%, food spend is down 85.9% and total revenues are down by 69.8%.
• The LfL numbers, which are a little worse (reflecting the fact that the group now has more units open), are down 62.2% in accommodation and down 86.2% in food to give a total LfL down 71.0%.
• Further comment: WTB says ‘98% of its UK hotels and restaurants now open, with Premier Inn UK’s total accommodation sales performance 11.0 pp ahead of the M&E market1 in the quarter’
• The group says it has ‘very strong forward booking trends in tourist locations throughout the summer, and improved forward bookings across the majority of the rest of the estate, with the exception of airport locations and central London.’
• The company is seeing ‘continued gradual increase in business demand’
• In Germany, the group has 19 of its 30 hotels open
Balance sheet & capital issues:
• WTB says it plans to ‘return to pre-COVID-19 levels of hotel refurbishment capex for FY22’ and it has ‘3 new organic hotels added to the pipeline in Germany, taking the open and committed pipeline to 73 hotels and over 13,500 rooms.’ Some 10 hotels were opened in the UK during Q1.
• The group reports the ‘cash outflow for the quarter was in-line with previous sensitivity guidance. At the end of the quarter, net debt was £70.6m, benefitting from the build up of customer deposits for the summer.’
• Whitbread announced a 1 for 2 rights issue to raise £1.009bn gross in May. The Rights price was 1500p and the Theoretical Ex-Rights Price at the time was £22.69, considerably below today’s share price
• The company said at the time that ‘the purpose of the Rights Issue is to ensure that Whitbread emerges from the COVID-19 pandemic in the strongest possible position to take advantage of its long-term structural growth opportunities and win market share in both the United Kingdom and Germany.’
• WTB says its ‘outlook and guidance remain unchanged from 27 April 2021.’ CEO Alison Brittain says ‘the Group traded significantly ahead of the market during the quarter.’
• She adds ‘trading in the UK since May 17, when overnight leisure stays were permitted, and when our restaurants fully reopened for indoor service, has been encouraging.’
• Forward bookings ‘continue to improve, benefiting from the anticipated post-lockdown bounce in leisure demand, and a continued gradual improvement in business bookings.’
• WTB says that, in both Germany and the UK. ‘our financial strength will enable us to capitalise on the enhanced structural opportunities that will exist, and drive long-term value for all stakeholders.’
• Re very recent trading, WTB says ‘total UK accommodation sales improved to down 27.3% in the 30 day period from 17 May to 14 June 2021 versus the same period in FY20, with occupancy levels at 74.2%.’
• WTB says ‘we expect leisure demand in coastal and other tourist locations to remain very strong throughout the summer, while the full recovery of leisure demand is dependent on the final release of lockdown, and the return of unrestricted events.’
• The company also says that ‘trades business demand remains resilient, albeit at prices some way below pre-COVID levels, and our expectation is that office-based business demand does not start to recover in earnest until the Autumn.’
PUBS & RESTAURANTS:
Commercial eviction moratorium extended:
• The government has confirmed the Sky News story that the moratorium on the eviction of commercial lessees will be extended to 25 March 2022 (the day on which Q2’s rent is due next year). The ban was due to end on 30 June, only two weeks hence. Retail and hospitality debt accrued could be as high as £5bn, with half of that due from hospitality tenants. Treasury Secretary Stephen Barclay said ‘existing measures will remain in place, including extending the current moratorium to protect commercial tenants from eviction.’ Barclay also announced plans for a binding arbitration scheme to resolve disputes between landlords and commercial tenants. The scheme should be in place by the time that the eviction ban is lifted.
• UKHospitality says that it ‘has unreservedly welcomed the Government announcement of new rules to ringfence Covid-19 commercial rent arrears and the extension of measures to protect commercial tenants from evictions to March next year.’ It says ‘these measures are wholly welcome and will banish a grim shadow that has hung menacingly over hospitality since the Covid crisis began 15 months ago.’ It says ‘thankfully, many landlords and tenants have managed to come to an amicable arrangement over rent arrears, but many could not and the Government’s announcement brings in an equitable solution where there is a sharing of the pain.’
• Further comment: Steven Barclay says the measures “strike the right balance” between protecting landlords and supporting businesses. However, that is hard to judge as we don’t know what the intended consequence of the measures is. Hopefully, these will ensure reasonableness and balance. Some mischievous tenants are doubtless withholding rent simply because they can and some intransigent landlords may be threatening eviction because they believe they can a) re-tenant their units relatively easily or b) find a new tenant who would pay a higher rent.
• The British Retail Consortium says that the extension comes “in the nick of time”. It says ‘just as retailers feared a wave of legal action by landlords, the government has stepped in to offer both landlords and tenants more time to negotiate. Retailers need time to trade their way out of debt; this announcement does exactly that.’ UKH adds ‘these are unprecedented measures but wholly merited and justified in these unprecedented times, bringing some stability back to an uncertain and unsettled property market. At last, this existential crisis for hospitality looks like reaching a fair conclusion, easing a path to recovery for a sector that can help the national economy back to prosperity.’
• CGA reports that foodservice prices rose 5% in April as inflationary pressures began to mount. It says the latest CGA Prestige Foodservice Price Index highlights the global challenges being faced by operators in dealing with cost increases and it ‘forecasts more increases.’
• Further comment. Prestige Purchasing adds ‘we have been predicting the return of food price inflation for some time, and the April Index confirms that the upwards trend is now in motion and is likely to continue. Amongst many competing pressures operators must focus extra attention on the management of their supply chain now if serious margin damage is to be avoided.’ CGA adds ‘signs of inflation are unwelcome at a time when the hospitality sector is just beginning the long road to recovery from COVID. International economic issues and micro supply and demand problems will pile more pressure on businesses that are already battling a wide range of challenges, and they will need to closely monitor inflation and find ways to mitigate it.’
Working from home:
• Representatives from rail operators, Network Rail and unions have formed a group called the ‘Rail Industry Recovery Group’ to cut £2bn of costs across the network. The group will aim to reduce the £800m-a-month subsidy currently paid by taxpayers.
• In a further sign that there could be too much office and retail and transport capacity out there, Oxford Circus plans to develop into two pedestrian-friendly piazzas as part of plans unveiled by Westminster City Council and the Crown Estate, will begin as early as this summer.
• Additional comment: Some retail and office space is being converted into residential use. We hear that Lothbury Investment Management has converted the upper floors of 31 James Street in London’s Covent Garden to residential occupation, for example, and the Oxford Circus development will include “significant improvements” to the public spaces in and around the area. Clearing out the cars, buses and taxis would be an initial step in that direction. Westminster City Council says ‘these new bold plans to reinvent Oxford Circus will see the first significant redesign of the nation’s favourite high street in decades.’
• The council adds ‘we hope the creation of these pedestrian-only piazzas at Oxford Circus, surrounded by newly planted trees and large seating areas, will instil much needed confidence in the West End and support local businesses severely affected by the pandemic. We want to bring the excitement and buzz back to these famous streets and make Oxford Circus London’s front door.’ Crown Estates adds ‘we’re delighted to be working in partnership with Westminster to deliver a transformation of what I think we all recognise as one of the most iconic locations in the world. It is essential, as we rebuild our capital, that we create places that better serve all those who use them – improving air quality, reducing congestion, prioritising safety and delivering a world class visitor experience.’
• CGA has reported that ‘May’s delivery and takeaway sales at Britain’s leading restaurant and pub groups were 273% higher than in May 2019.’ Further comment: CGA says that ‘the figure is down on the Tracker’s 2021-on-2019 growth of 345% in April, following the reopening of hospitality for inside service in the second half of May. However, it indicates that deliveries and takeaways are certain to remain a much more significant element of groups’ operations than they were before COVID-19.’ CGA says ‘while many consumers seized the chance to eat out again, hospitality’s reopening for inside service isn’t diminishing the appeal of deliveries and takeaways.’ It adds ‘with the quality and convenience of at-home ordering rising, the lockdowns of the last 15 months have firmly embedded it in people’s habits. It will be fascinating to see where the balance of eating-out and ordering-in settles
Company & other news:
• Loungers has updated on trading saying that it finished its year (to 18 April) with 168 sites. It adds, re recent trading, that ‘in the period following the initial relaxation of Covid-19 related restrictions on 12 April 2021, Loungers opened 88 sites to trade outdoors only. Whilst the weather made this challenging at times, outdoors trading allowed for a phased and controlled re-opening of the estate.’ Moving on to indoor trading, Loungers reopened all of its sites on 17 May and says ‘like for like sales over the four-week period from 17 May through to 13 June 2021 were +26.6%, using the period 20 May to 16 June 2019 as the comparator.
• Further comment. Whilst these are still early days, and trading has benefitted from significant pent-up demand and the VAT reduction, we are encouraged by the initial strength of our trading performance and remain confident the Company will emerge strongly from this period. CEO Nick Collins says ‘I am really pleased with how the business has re-opened and our trading performance has once again demonstrated the resilience of both the Lounge and Cosy Club brands. Customers have returned with confidence and our team have performed amazingly.’ He adds ‘whilst the Government’s recently announced decision to leave the remaining restrictions in place for a further four weeks is disappointing for the hospitality sector as a whole, we look forward to a return to normality on 19 July.’
• CGA Research commissioned by Access Hospitality shows that 87% of consumers with serious food allergies or intolerances will feel more confident in trusting the content of pre-packaged food out of home once Natasha’s Law is in place.
• The US will suspend tariffs on $7.5bn worth of EU goods for 5 years after coming to an agreement with the EU.
• In the US, alcohol consumption increased by 2% according to data from IWSR Drinks Market Analysis. The rise in consumption in the US last year was driven by at-home drinking fuelled by the pandemic.
• Hostmore Plc will become Electra Private Equity’s new parent company for its hospitality brands including TGI Fridays, and 63rd+1st. Robert B. Cook will be appointed as CEO with Alan Clark as CFO.
• Black Box in the US reports that restaurants there posted their third consecutive month of LfL growth in May. These numbers are compared with 2019 and the analyst says that sales are now better than they were before the pandemic. Further comment: Footfall is still under pressure but spend per head is up. National Restaurant News in the US says ‘the optimism in the industry is shared by restaurants guests. A larger percentage of restaurant experiences in May were rated more positively than two years ago.’ NRN singles out pizza as a strongly performing product. It says burgers and chicken also remained popular. No surprises there.
• Politico reports that Perspex screens have been found to serve little purpose in preventing the spread of viruses. It says ‘while social distancing laws are going to be lifted, ministers are considering bringing in new rules for businesses to help keep workplaces safe, including the possibility of requiring minimum standards of ventilation.’
• African restaurant chain PAPA L’s KITCHEN and coffee house is to take a site from The Crown Estate in its St James’s portfolio.
• In the US, Diageo was named as the NFL’s first Official Spirits Sponsor. Ed Pilkington, Chief Marketing & Innovation Officer, Diageo North America said ‘We are energized about bringing new and exciting programs and experiences to the NFL’s passionate adult fan base’.
• Nespresso has started a €146.8m expansion of its production centre in Romont, Switzerland. A second production hall will help double the production capacity, with 10 new lines dedicated to Nespresso Vertuo and Professional coffee ranges.
INFLATION – BEAST FROM THE PAST OR BUSTED FLUSH?
• See Finance & Markets below for the raw data. The CPI rose to 2.1% in May from 1.5% in April. The ONS reports ‘this month’s rise was led by fuel prices, which fell this time last year but have jumped this year, thanks to rising crude prices. Clothing prices also added upward pressure as the amount of discounting fell in May.’ Fuel prices are pervasive, as they impact virtually everything. The ONS said motor fuels saw a 17.9% price rise year on year. Prestige and CGA comment on food prices in Pubs & Restaurants below. There is some disconnect with the ONS data here as the latter says that the increase in fuel costs was partly offset by year on year drops in food and drink prices.
• Further comment: Some economists are suggesting that inflation will drop back again. It may do but Prestige & CGA suggest there are more price rises to come and empirical evidence would suggest that operators are ‘taking price’ where this is possible. And those who believe it is temporary say that prices are only recovering from Covid drops but it’s hard to remember prices shooting down just over a year ago. Sky points out that the cost of haircuts is up 7.9% year on year and Langton maintains some pub staples are up 20% plus and it’s this sort of thing that the customer notices (and potentially factors into wage negotiations when the time comes).
• The NIESR says ‘we have seen some transitory upside effects in clothing due to the effects of lockdowns and the recent opening-up. We expect these transitory effects to continue putting upward pressure on consumer inflation in the short term and will be closely monitoring underlying inflation to gauge whether the fundamental drivers of inflation imply a more persistent upside risk amid the expected recovery in consumption.”
HOTELS & LEISURE TRAVEL:
• Labour leader Keir Starmer has said that the traffic light system is not fit for purpose. He said it “doesn’t work and won’t stop other variants coming in”. Starmer told the House of Commons ‘after so many mistakes and with the stakes so high, why doesn’t the prime minister do what Labour is calling for: drop the traffic light system, get rid of the amber list, secure the borders and do everything possible to save the British summer?’
• The EU is expanding its white list by adding eight countries including the US. The UK is not yet on the list. “There are serious concerns about Delta and surge of numbers,” an EU diplomat told the Guardian.
• The travel industry is calling on the government to ‘save the summer’. HMG is said to be considering relaxing restrictions on international travel travellers who have had both coronavirus vaccines per Sky.
• Ryanair and Manchester Airports Group have joined together to mount a legal challenge against the government over its travel traffic light system.
• Carnival-owned Cunard has announced that it is resuming operations from 19 July, 2021 ‘as Queen Elizabeth welcomes guests on board for a series of UK voyages from Southampton and beginning 13 October, 2021 sailing internationally with new voyages including to the Iberian coast and the Canary Islands. Queen Elizabeth will then leave the UK in mid-February to resume her previously scheduled season in Japan from 13 April, 2022.’
• Research for Travel Weekly suggests that barely one in 10 UK consumers are keen to take a foreign holiday as soon as possible or reassured they will be able to travel abroad before the end of the year.
• The Royal Society for Public Health (RSPH) has cited a nationwide poll that suggests that most of the public support a total ban on gambling adverts, while three-quarters think restrictions should be tighter than they are now.
• App Annie reports that users worldwide downloaded 30% more games in the first quarter of 2021 than in the fourth quarter of 2019, and spent $1.7bn per week in mobile games in Q1 2021, up 40% on pre-pandemic levels.
FINANCE & MARKETS:
• The ONS reported yesterday that UK inflation jumped to 2.1% in the year to May from 1.5% in April. Analysts had been looking for around 1.8%. This leaves inflation at its highest level since the pandemic began. The NIESR says this is the ‘highest level since July 2019.’ It says ‘our measure of underlying inflation, which excludes extreme price movements, displayed a smaller rise to 1.2 per cent in May from 0.9 per cent in April, suggesting that consumer prices are rebounding after the lengthy winter lockdown.’
• Further comment: The NIESR says ‘we have seen some transitory upside effects in clothing due to the effects of lockdowns and the recent opening-up. We expect these transitory effects to continue putting upward pressure on consumer inflation in the short term and will be closely monitoring underlying inflation to gauge whether the fundamental drivers of inflation imply a more persistent upside risk amid the expected recovery in consumption.’
• House prices in the UK fell 1.9 per cent in April reports the Land Registry.
• Research by Santander suggests that around half of first-time buyers last year delayed plans to buy a home. Younger consumers were hit harder financially by the pandemic than were some other groups of house-buyers.
• Sterling mixed at $1.3998 and €1.1663. Oil lower at $74.15. UK 10yr gilt yield down 1bp at 0.75%. World markets heading down yesterday and London set to open some 34pts lower.
RETAIL WITH NICK BUBB:
Today’s News: The Halfords finals (for y/e March) are good, with underlying PBT up 72% to £96m, on the back of a 13% revenue increase, whilst the new year has got off a strong start (with “cycling demand remaining elevated and staycation products popular in Retail motoring”), but investors may be disappointed to hear that Halfords are guiding for PBT to drop back to £75m, with talk of pricing/gross margin pressure in Retail Motoring. The Dr Martens finals for y/e March are also good and the statement is headlined “Brand Custodian Mindset Delivering Strong Results”, with sales up 15% and EBITDA up 22%, but new year guidance is unchanged. There is a Sainsbury ESG event/presentation to investors and analysts today, beginning at 9am, but we can’t see any news so far. And, in case you were wondering about the IPO debut of the much-vaunted Online furniture retailer Made.com yesterday, the