Langton Capital – 2021-07-02 – PREMIUM – Gym Group, NHS app & staff shortages, inflation, Jet2 & other:
Gym Group, NHS app & staff shortages, inflation, Jet2 & other:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: Cats give the impression of being intelligent in a way that dogs, in all honesty, do not because, though a cat can be aloof, picky, arrogant and dismissive, you can rely on a dog to be, well, a dog. But various tests have suggested that, at the end of the day, cats are irredeemably thick. What passes as intelligence is a form of laziness as, rather than try (or indeed be able to) figure things out, they let 4m years of evolution make all of their decisions for them. And having ten kittens, three times a year builds in a lot of slack meaning that mistakes, like climbing up a tree and not being able to get down again, though potentially fatal at the micro level, don’t present a possible extinction event in the way that forgetting to eat for a month most certainly would. Not sure where we’re going with this so, at this point, it’s best to day have a great weekend and good luck to England on Saturday. On to the news: ADVERTISE WITH US: Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details. CHANGED EMAIL FORMAT: The Premium Email is unchanged. The Free Email is written and pre-sent the evening before. It may not include breaking stories nor Langton comment. See Twitter for in-day comment. Let us know if you would like an example of the Premium Email. PUBS & RESTAURANTS: Trading: • Data from OrderPay shows that football fans have given pubs a total sales growth of 166% since the beginning of the Euros. During the England v Germany match drink sales at pubs increased 176% with the average spend at £21.70 per customer. • Fullers’ boss Simon Emeny tweeted about bottlenecked capacity at venues due to ongoing coronavirus restrictions, saying ‘Great quote from a GM of one of lovely West End pubs: ‘I have a full pub for the game, I’ve got 26 booked in’’. One can only imagine that normal capacity, vertical and drinking, would be several multiples of that figure. • Mims Davies, minister for employment, held a virtual roundtable with 25 hospitality sector employers discussing the Kickstart Scheme and wider Government efforts to support hiring in the industry. Davies also spoke about a partnership with UKHospitality to better promote jobs in the sector via a nationwide network of Jobcentres, the DWP’s Sector-Based Work Academy Programme, and the government’s expanded apprenticeship and traineeship offers. • The British Beer & Pub Association has said that pubs are set to lose over £5 million in sales during the quarter-final UEFA EURO 2020 knockout match against Ukraine, because of the impact of restrictions which will mean over 1.5 million fewer pints will be sold during the match than if there were no restrictions. It says ‘recovery remains in the balance for the beer and pub sector with many pubs across the country having to close or significantly reduce their opening hours due to staffing issues, caused by staff shortages and NHS Test & Trace ‘pings’ resulting in pub staff having to isolate, despite testing negative for Coronavirus on lateral flow tests.’ CEO Emma McClarkin, adds ‘restrictions on pubs are continuing to bite and because of this any boost pubs had hoped for from the Euros has been greatly weakened.’ Unintended (but foreseeable) consequences: • Per the MA, pubs are being forced to close as the NHS Test and Trace app will tell a whole shift of workers to self-isolate after one team member reports a positive test. UK Hospitality has called on the Government to change rules to introduce a ‘test and release’ system similar to that for international travel. • The BBC has picked up on the point quoting a number of operators that have had to shut or scale back their operations. It says it ‘only takes one case [of Covid-19} on site, and the NHS Test and Trace alerts come thick and fast, instructing staff to isolate. Without them, venues can’t open.’ Ian Payne, chairman of the nationwide Stonegate group of pubs, wrote on social media that the chain has around 1,000 people off, because they had been alerted by NHS Test and Trace, and 15 sites closed, because the management team were self-isolating. • UKH says it has ‘called for the Government to immediately review and amend its test and trace guidelines on self-isolation, which are proving massively disruptive for hospitality businesses across the UK and leading to venue closures and reduced operating hours.’ It says ‘the current system forces already struggling hospitality businesses to shut their doors, and can result in whole teams needing to self-isolate. The trade body also warned of the damage that any similar approach would wreak on wider society, triggering mass isolations.’ CEO Kate Nicholls says ‘for some weeks we have been telling Government about the severe staff shortages at venues, compounded massively by the absence of staff members who have been told to isolate despite not having shared shifts with colleagues who tested positive.’ • UKH says ‘if the system remains as it is, there’s a threat of mass isolations, which would hugely damage trade, putting many companies at risk of failure.’ The BBPA says the ‘NHS Test & Trace is becoming a huge issue for our pubs. Already pubs are closing or greatly reducing their opening hours due to staff shortages caused by app pings – despite staff testing negative on lateral flow tests.’ It adds ‘reports that anyone with both jabs will not have to isolate from a NHS Test & Trace ping so long as they test negative on a lateral flow test will not work for our sector. 43% of pubs staff are aged 18 – 25, meaning they are at the back of the queue for vaccines and will not have their second jab for months. We urge the Government to work with us to find a sensible solution to this that still ensures staff and customer safety.’ • Further comment: Hospitality has, arguably, been through enough. But here it is, once again disproportionately impacted by Covid, in this case, the need for large numbers of staff to self-isolate if they are in contact with a friend, work colleague or other person who has tested positive. • Younger people are less likely to be vaccinated, more likely to work in hospitality, more likely to have the Bluetooth turned on all the time on their phone and are gregarious by nature. This means that, as covid regulations have been partially lifted (and given they are not vaccinated), they have been catching the coronavirus in large numbers – and have been bringing down their friends into the bargain. • The story that double-jabbed people will not have to self-isolate if they are pinged by the NHS app (but take daily tests instead) is helpful but, once again, younger people are those least likely to have already had their second vaccination. Infections on Wednesday were up to 26,000 and, if each person brings down with them four or five colleagues & family members, these sort of numbers will make a noticeable dent in the workforce (and in the numbers of potential customers) quite quickly. • CEO of UKH, Kate Nicholls, says the body is ‘being contacted by lots of businesses reporting blanket notifications of entire teams, meaning no option but to fully close for 10 days with no revenue.’ She says ‘we urgently need a test-to-release-and-test-to-remain approach to allow hospitality to continue operating.’ Alex Reilly, chairman of Loungers, says ‘asking whole teams of people who don’t have Covid to isolate for 10 days will very quickly result in a lockdown of hospitality in all but name. We can’t go on like this – urgent action is required.’ The outlook for 19 July: • Public Health Scotland has said that nearly 2,000 Covid cases in Scotland have been linked to people watching Euro 2020 football matches at either Wembley or at fan-zones in Glasgow or at Hampden. Some 1,300 of the fans who travelled to watch Scotland’s 0-0 draw with England tested positive for Covid. National clinical director, Prof Jason Leitch, concedes that ‘some of them may have taken it to London with them, some of them may have got it when they came home.’ • Further comment: The focus will very shortly be on 19 July and whether, with infections still rising, it is right to open the economy up further. Advocates of greater freedom (but aren’t we all, really?) will say that younger people are falling ill and they are recovering rapidly whilst more cautious observers will say that some additional victims will die and that potentially dangerous mutations can occur in a group of young disease-positive population just as easily as they can in any other group. • The NIESR has commented on the R rate saying ‘the advancing pattern is consistent with a race between, on the one hand, local surges that spill over geographically due to higher transmissibility of the now dominant Delta variant, and on the other, the vaccination programme that reduces the susceptible pool.’ • Further comment: The NIESR estimates that the R rate is between 1.2 in some UK areas, such as the North West of England, and 1.5 or thereabouts in a larger number of areas, including the North East, Scotland and Wales. The NIESR says ‘as the unvaccinated proportion of the adult population diminishes the incipient wave is more likely to be contained.’ It says ‘the current picture is one of localised outbreaks that have spilled over geographically due to the higher transmissibility of the Delta variant. As vaccination coverage becomes universal, shrinking the susceptible pool, local surges will tend to peak quickly and die out.’ Working from home. • Apple has told employees in June that they would be asked to work from the office on Mondays, Tuesdays and Thursdays from early September, refusing to give in to a backlash from employees. A joint letter was sent by a considerable group of employees saying ‘Many of us feel we have to choose between either a combination of our families, our wellbeing and being empowered to do our best work, or being a part of Apple’. Inflation: • Andrew Bailey, Bank of England governor, has said people should has warned against an over-reaction to rising inflation. Bailey says rising inflation is expected to be a “temporary feature” of the UK economy’s “bounce-back” from Covid. This comes a day after former colleague and chief economist at the Bank, Andy Haldane, said that inflation could hit 4% and was on the verge of becoming a big deal. Bailey, who remains at the Bank, says it’s ‘important not to over-react to temporarily strong growth and inflation, to ensure that the recovery is not undermined by a premature tightening in monetary conditions.’ Haldane had recently been the ‘1’ in the 8:1 vote not to raise interest rates. • Further comment: See our tweet on incentives. We don’t want to make this a treatise on economics, not least because we’ve forgotten most of what we’d learned. But it probably is important to consider why people are saying what they are saying as well as looking at the words themselves. • A cynical observer could suggest that, with Central Banks having borrowed trillions of pounds collectively over the last year or so, a bout of inflation that helped to bring down the real cost of the debt would be rather helpful. If this could be achieved without raising interest rates (and thus having to pay more coupon on debt being issued now) would be a doubly positive outcome. • Ultimately, if something walks like a duck and quacks like a duck, it is probably a duck and, in an industry where ingredient prices, labour costs and the costs of other supplies right through from oil and energy to audit services are rising, it’s tempting to conclude there is some inflation around and to put up selling prices (into a buoyant and undersupplied market) into the bargain. Company & other news: • Coca-Cola claims a ‘significant milestone’ as it moves to 100% recycled plastic across its entire on-the-go range in Great Britain. Coca-Cola said it was now saving nearly 29,000 tonnes of virgin plastic every year. • Krispy Kreme cut its IPO price to $17 ahead of first dealings yesterday but slightly increased the number of shares it was to sell. JAB Holdings will still hold about 78% of the Krispy Kreme shares after the offering. The initial range for the IPO had been $21 to $24. The shares closed their first day’s trade at $21. • Phone and mobile device charging solution company Joos is teaming up with OTC to take their product to hospitality operators. The company says ‘coming together with OTC is just the beginning, as we look to scale into the hospitality sector. No doubt their knowledge and unparalleled industry expertise will assist us as we deliver our solution to the sector, at a time when mobile phones are critical to experience and spend.’ Joos points out that, with customers ordering from table, if they are unable to charge their devices, business may be lost. • The BBC reports that the lorry driver shortage is getting real. It says that ‘German confectionery giant Haribo has said it is struggling to deliver its sweets to shops in the UK’. It says it is “experiencing challenges.” • IWSR Drinks Market Analysis reports sales of alcohol in Asia Pacific are expected to gain over +2% in volume and over +4% in value by the end of 2021. The drinks analyst forecasts that long-term volume recovery in the Asia Pacific region will return to pre-Covid levels by 2025. HOTELS & LEISURE TRAVEL: The battle to save our summer. • The UK travel industry and consumers face another ‘lost summer’ unless European leaders take a coordinated approach to allow double-jabbed holidaymakers to travel, according to the World Travel & Tourism Council. The WTTC has already warned the UK government it faces a £19.8 million loss to the country if international travel is not possible during July, and fears August will suffer the same fate. • Further comment: A ‘lost summer’ probably applies to overseas holidays rather than staycations because, as far as the latter are concerned, demand has been and remains very good. UK hoteliers, boarding houses, camp sites and holiday parks will be busy this summer and local pubs, bars and restaurants should benefit from elevated demand. indeed, JDW said a couple of weeks ago that, in common with many other operators, it was finding it hard to recruit sufficient staff to cope with demand in some holiday locations. The ‘efficiency’ of the track and trace system in enforcing isolation of contacts may be further adding to this problem. • Boris Johnson has said being fully vaccinated will be ‘a liberator’ for people who want to travel abroad this summer. Johnson also said that ‘extra precautions’ may be necessary to protect against COVID after 19 July and that travelling would not be ‘completely hassle-free’. • Jet2.com and Jet2holidays have suspended flights and holidays to all amber list destinations up to and including July 18. A statement said ‘We welcome recent news reports about vaccinated people being able to travel to amber list destinations without having to quarantine and we look forward to further updates’. The company expects the next UK government review of the traffic light status of overseas destinations to be on or around July 15. • On the other hand, the company is resuming flights to four destinations – Majorca, Menorca, Ibiza and Madeira – following their upgrade to green light status. Steve Heapy, CEO of Jet2, said ‘we have been filling those flights up thanks to a surge in bookings for flights and holidays in July and August.’ • EasyJet Holidays has also recommenced a programme to Majorca for the first time in more than a year. The company says ‘we’re so pleased to see the Balearics on the ’green’ list and we’ve had a brilliant response from customers who have travelled here today and those who have booked to travel in the coming weeks.’ • All passengers arriving in Tunisia will have to show proof of a negative PCR test, regardless of their vaccination status. • Staycity will next month open a unit in Manchester’s historic Northern Quarter. • The Trump Organization and its financial chief have pleaded not guilty to criminal charges. • STR reports that U.S. weekly hotel occupancy hit its highest level since late October 2019 in the week to 26 June. Occupancy was 69.9% (down 7.3% on 2019) with rates around level on two years ago at US$133.36. Revpar was some 8% down on 2019. Other covid news: • EasyJet has agreed a deal with high street pharmacy Boots to offer a range of Covid-19 tests at Boots’ testing hubs. In-store PCR tests cost £85 with results provided the next day, while an at home “self-swab” PCR test is priced at £65 from 500 stores or online with results given within 24-48 hours. GYM GROUP SHARE PLACING & TRADING UPDATE:
• The Gym Group has announced that, following its placing announcement last night, it has placed a total of 11,350,000 new ordinary shares of 0.01p each at a price of 275 pence per Placing Share. It says this will raise gross proceeds of approximately £31.2 million. The Placing Price represents a discount of 3.5 per cent to the closing share price of 285 pence on 1 July 2021 and the Placing Shares being issued represent approximately 6.8 per cent of the existing issued ordinary share capital of the Company prior to the Placing. CEO Richard Darwin says ‘our new gym pipeline is the strongest it has ever been and we thank shareholders for their support in today’s successful placing which allows the Company to accelerate its rollout to 40 new sites over the next 18 months. Gyms have an essential role to play in the nation’s physical and mental health and growing our portfolio will widen • Further comment: The company announced yesterday that its directors ‘believe that the Covid-impacted commercial property market provides a unique opportunity to increase the Company’s pipeline of attractive sites on favourable commercial terms and accelerate the site rollout.’ It added ‘the Board is confident that the additional financing from the Placing will allow the Company to capitalise on the current property market conditions to accelerate growth and gain market share.’ The group will also secure, contingent on the placing, ‘approval for revised terms on its existing £100m banking facility from its lending banks.’ • Gym Group said ‘the net proceeds of the Placing will allow the Company to accelerate its site rollout programme and take advantage of the current favourable commercial environment. The Company is targeting opening 40 new sites in the next 18 months, which are expected to be phased evenly over the period with the additional equity funding 25 of these new site openings.’ It says it ‘has a strong track record of returns from opening gyms consistently delivering 30%+ ROIC pre-Covid for sites when they reach maturity (two years after opening).’ It says it ‘continues to believe that there is a significant organic growth opportunity in the UK low cost gym sector and that the Company has the potential to double its estate.’
• Re current trading, The Gym Group said yesterday ‘trading since re-opening has outperformed the Company’s expectations, reflecting strong demand for the return to gyms; total membership has increased from 547,000 at the end of February 2021 and now stands at 734,000 as at 28 June 2021 versus 794,000 in December 2019. All members are now paying, with the free freeze option having been removed upon re-opening of gyms in April.’ It says that the summer months are historically quieter times for gyms but it ‘anticipates steady membership levels during this period with increases expected in September/October alongside further release of restrictions and a return to offices and universities with further growth expected in the January/February 2022 trading peak.’ Net debt as at 28 June 2021 was £62.6 million, with outstanding deferred rent and VAT of a further £7.2 million, versus banking FINANCE & MARKETS: • Markit has reported its UK Manufacturing PMI for the month of June saying that, at 63.9, it had dipped slightly from the record 65.6 seen in May, but still showed that the sector was in strong growth. Markit says ‘UK manufacturing maintained a near survey-record pace of expansion at the end of the second quarter, as the reopening of economies at home and overseas supported increased production, new orders and employment.’ Markit says ‘solid business confidence and rising backlogs of work also suggest that the current upturn has further to run.’ • Inflationary pressures. Markit says that the UK Manufacturing Sector is ‘still beset by rising cost inflationary pressures, however, as Brexit-related trade issues exacerbated global supply chain delays. The resulting widespread raw material shortages drove purchase prices up to the greatest extent on record, leading to an unprecedented steep rise in selling prices. There are also widespread reports of supply issues causing disruptions to production schedules and impeding the re-building of buffer stocks.’ It says ‘the continued inflationary impact of capacity issues at both manufacturers and their suppliers will be a further factor keeping headline inflation above the Bank of England’s 2% target in coming months.’ • Sterling weaker at $1.3769 and €1.1624. Oil price up at $75.70. UK 10yr gilt yield up 1bp at 0.73%. World markets broadly better yesterday and London set to open up around 16pts. RETAIL WITH NICK BUBB:
• Today’s News: The Retail news cupboard is a bit bare today, but, with corporate governance a hot topic after the JD shareholder rebellion yesterday, THG has announced a number of improvements to the structure and composition of its Board Committees. Now, ahead of yesterday’s JD Sports AGM at 1pm, we flagged that JD had given in to its corporate governance critics by agreeing to split the role of Executive Chairman and CEO and shake-up the non-exec representation on the Board, but that wasn’t enough to stop a huge rebellion by shareholders, as clarified by JD’s sheepish statement at 4.31pm. The JD Sports rebels claimed a big scalp at the AGM, via the ejection of the non-exec Andrew Leslie (who was head of the Remuneration Committee) and even Peter Cowgill got a sharp rap across the knuckles, with nearly 40% of the independent shareholders (ie non-Pentland) voting against his • Today’s Press (1): The narrow but unexpected victory for Labour in the Batley & Spen by-election came too late for today’s papers, and according to the invaluable Guardian press summary email, the unveiling of Diana’s statue takes up plenty of space on the front pages. The Guardian leads with the extraordinary heatwave in North America underneath a picture of a blaze in California: “Nowhere is safe: warning on escalating climate crisis” is the headline. The Telegraph keeps the pressure up on its campaign to ease Covid restrictions at schools, saying Boris Johnson is awaiting the results of a pilot scheme first: “PM asks for patience as crisis in schools grows” is the headline. The FT splashes on the historic talks in Paris where 130 countries sign up to a global minimum corporate tax rate • Today’s Press (2): In terms of Retailing stories, there isn’t as much coverage as we’d expected of the JD Sports shareholder revolt (see above), given the amount of other company news around, but the Times flags that “JD Sports shareholders boot out key committee chairman”. The FT doesn’t pick up the JD AGM news, given the focus on the GSK investor rebellion, but it runs the strong JD Sports and Primark trading updates together with the Gap UK exit news to create the headline “Primark and JD plug Gap on high street”. The Times notes that “Primark cashes in as customers lose ‘fear factor’ from pandemic” and also picks up on the AO.com finals: “Brave new world of online retail is boost for AO boss”. • Euro Watch: Ahead of the quarter-finals, the betting has shifted a lot, with both France and Portugal knocked out. England are now the favourites, at around 2-1 or less, and they have a relatively easy path to the final. Spain are now the second favourites, at around 3-1, but our alter ego, the intrepid tipster “Honest Nick”, still fancies Italy, who are now about 4-1. If you fancy Ukraine to win the Euros, you can get 40-1 with some bookmakers… • BDO High Street Sales Tracker: Given the end of the first lockdown on “non-essential” stores on June 15th a year ago, today’s BDO High Street Sales Tracker for medium-sized Non-Food chains again paints a rather more subdued picture than of late for w/e June 27th, against tougher comps. And we would still caution that the BDO index is just an unweighted average of the percentage changes in the sales of their reporting retailers (and it is skewed to Fashion), so it shouldn’t be taken too literally. But BDO Fashion LFL sales were still up by nearly 40% on last year, whilst Total BDO LFL sales (including some Homewares and Lifestyle retailers, plus the Fashion retailers) were up by c38% (up by c145% in Store sales and up by c7% in Online sales). • Next Week’s News: Tuesday brings the Ocado interims and the Sainsbury Q1 update, together with the AGM’s for Marks & Spencer and N Brown. The Watches of Switzerland finals are on Thursday, along with the B&M Q1 update and the Pets at Home AGM, whilst the Sainsbury AGM is on Friday. |
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