Langton Capital – 2021-07-05 – PREMIUM – Crowdcube, 19 July, WFH, comps v 2019, inflation, SA Brain, holidays etc.:
Crowdcube, 19 July, WFH, comps v 2019, inflation, SA Brain, holidays etc.:
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A DAY IN THE LIFE:
I took London’s rain back with me to Yorkshire on Friday and that made cutting the grass a pretty damp and, as the lightning began to crackle around, somewhat risky, affair.
But we got it done and we note that rain could be a feature this week across the whole of the country as we’re being warned of flash floods in places and the likelihood that chunks of Cornwall could be blown into the sea.
So a normal summer in England. Anyway, we’ve got the football to look forward to on Wednesday (and hopefully next Sunday) with the government updating on Freedom Day a week today. On to the news:
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PRIVATE COMPANY ACCOUNTS – CROWDCUBE:
Crowdcube has lodged its accounts for the year to 30 Sept 2020 with Companies House and below we highlight a number of the main points:
• The company reports revenues for the year of £7.97m (2019: £7.69m) with an EBITDA loss of £2.87m (2019: loss £2.47m) and a loss before tax of £3.02m (2019: loss £2.63m).
• The loss was struck after furlough receipts of £221k (2019: nil).
• Crowdcube now has accumulated losses of £26.1m since its incorporation in 2009. The company has positive shareholders funds of £7.6m or £6.6m if intangible assets are excluded. The group, as at 30 Sept last, had £5.8m cash.
• Crowdcube says it ‘slowed large scale investment into product development and hiring during the year, directly as a result of COVID-19.’
• It says the increased loss for the year ‘is modest given the challenging market conditions.’
• The company points out that, on 2 Oct 2020 (not during the year under review), the company agreed to buy Seedrs – but the CMA intervened and the two companies ‘abandoned the plans for a merger’.
• Re the going concern issue, Crowdcube says it ‘has £5.8m of cash held on the Balance Sheet as at 30 September 2020 and based on forecast performance this will enable the Group to meet its liabilities as they fall due for at least 12 months.’
• It says ‘while COVID-19 continues to impact long-term strategic decision making, the Group remains confident in its ability to continue to drive efficient revenue growth and prudent cash management in 2021.’
• The company has adopted the going concern principle and its auditors, PwC, do not think this is inappropriate
• Crowdcube has cash at hand but, as its attempted merger with Seedrs suggests, perhaps the company believes it needs to make changes in order to secure its future
• Stockbrokers have performed very strongly over the Covid period as companies, the brokers’ clients, have raised funds
• This has not necessarily been the case in the crowdfunded area and, though visibility is limited, this may remain the case for some time to come.
PUBS & RESTAURANTS:
Opening up on 19 July:
• Guidance will be given on 12 July as to what to expect on the following Monday, Freedom Day, 19 July. Leaks have already commenced with the Sunday Times saying ‘from July 19, masks will become voluntary in all settings, including shops, hospitality and public transport.’ It says ‘the requirement to scan a QR code when entering a bar, restaurant, hairdresser, gym, museum or other venue will be dropped. The government will scrap the regulations that require businesses to collect customers’ contact tracing details.’ There has been slightly ominous talk elsewhere of ‘enhanced precautions’ being necessary after the big Day itself.
• Scrapping checking in may stop much track and trace activity and will ‘curb the number of people forced to self-isolate for ten days after being “pinged” by the NHS Test and Trace app’ says the Sunday Times. Housing minister Robert Jenrick says ‘we’re going to have to learn to live with covid now.’ He says this ‘will be a different phase because we’re going to move away from the state telling you what to do, with very restrictive rules and laws to us all exercising our own good judgement and personal choice.’ He says masks ‘will be matters of personal choice.’
• The Sunday Times, which seems well-informed as to government intentions, says ‘Boris Johnson is also expected to announce plans to drop social distancing rules and to reject proposals for a domestic Covid-19 passport.’ Dropping one-metre plus rules should mean that ‘table service will no longer be necessary in pubs and customers will be able to get served at the bar.’ It quotes a Downing St source as saying ‘it is now time for the public to start learning to live with Covid.’ It says ‘the data and scientific modelling suggests that the lifting of restrictions will lead to a rise in cases but…we are confident there will be no risk of it putting significant additional pressure on the NHS.’ The Times says ‘official estimates suggest that infections will increase by as much as 26 per cent under the plans, but the government is likely to accept the risk to avoid further disruption to
• Further comment: Whilst the link between infections and deaths hasn’t been broken, the vaccine rollout programme means that the number of serious cases will be a much lower as a percentage of those catching Covid-19 and the move is being made from ‘avoidance’ to ‘learning to live with’ the novel coronavirus that has caused so much disruption over the last 18mths. The above-mentioned changes should secure labour availability, increase venue capacity and reduce costs. They should, we would hope, also go some way to making pubs feel once again more like pubs.
Working from home:
• The two way pull continues. A pick up in public transport usage suggests that there is a drift back to the office going on but The Telegraph reports that ‘just 60pc of staff on average are expected to return to the workplace.’ This seems a little low to us but, even if it is only directionally correct, a reduction in footfall will have an adverse impact on trade for city-centre bars, restaurants, pubs, sandwich shops, coffee shops and cafes. This will, at some point, need to be reflected in rents. Separately, The Times reports that lobby group London First has organised some of Britain’s biggest businesses to call on Boris Johnson ‘to encourage a return to the office and reignite a “buzz” in cities when Covid restrictions end.’ It says ‘more than 50 business leaders have written to the prime minister to ask that working from home is “no longer the default” when Covid-19 restrictions
• Further comment. The Telegraph quotes the Chartered Management Institute as saying that ‘hybrid and flexible working ¬practices are here to stay. All the evidence suggests empowering employees to fit their work around their personal lives makes them more productive.’ It says ‘we know that most people want to retain some form of flexible working in the years to come, so companies that fail to establish hybrid working policies risk haemorrhaging talented staff.’ An ONS survey of c10,000 businesses found that 20% either had already or expected to move to a hybrid model by the middle of this month.
• Data from S4labour shows that hospitality sales for the month of June were up 4.4% on the same week in 2019. Food sales increased by 16.2% in contrast to drink sales, which were down by 6.9%.
• Further comment: It depends very much whether this is a LfL or an industry total number. Reopened units (admittedly now the majority) will have been those that the owners thought would trade best whilst those that remain shut may have been expected to turn in poor LfLs. Nonetheless, the numbers are good and, as we say, with the majority of units now open across the country, LfL sales will be a better reading of total industry sales than they were when units could only trade outside.
• We believe that freehold and wet-led units may be able to break even at turnover levels much below half of 2019 numbers. For leasehold operators and for those serving food, the percentage required not to lose money will be higher.
• Per CGA, Drinks Recovery Tracker data shows average sales in the week to 26 June down 28% on 2019 levels. Last week saw a drop of 23% on 2019 levels. The tracker suggests table service, social distancing and limits on group sizes are all having a major impact on weekends.
• Pubs performed better than restaurants according to the Drinks Recovery Tracker, with pubs down 25% on 2019, restaurants down 32% and bars down 48%. Since the end of last week, drinks sales got a brief but much-needed boost from England’s 2-0 win over Germany at the Euros on 29 June.
Inflation & other covid news:
• Figures from the RAC show a litre of unleaded rose by 2.7p in June from 129.52p to 132.19p, indicating inflation is creeping into the economy. The motoring organisation predicted escalating fuel bills, driven by the rising cost of oil, could speed up the switchover to electric cars.
• The latest Treasury figures show that around one-third of eligible hospitality staff remained on furlough at the end of May 2021, despite restrictions easing to allow restaurants, hotels and pubs to reopen for outdoor and indoor services. This has caused some hospitality owners to warn support is being cut off too early, with businesses struggling to meet extra payments.
• In the US, the jobless rate remained steady at 5.9% with total nonfarm payroll employment rose by 850,000 in June, of which more than 194,000 of those jobs were gained in foodservice and drinking places. Restaurant companies continued to launch new efforts to hire workers.
Company & other news:
• A filing with Companies House reveals that SA Brain seeks to sell the freehold of 99 pubs from its 200-strong estate. SA Brain reported ‘Significant interest has been generated with a number of off-market offers being received for a number of ‘packages’ of assets and single asset sales, a number of which have been moved to Heads of Terms, giving the directors confidence in the ability to fulfil this initial strategic goal.’
• Owner of more than 40 high end restaurants, D&D London, will launch a summer school for staff in an effort to secure enough workers for full reopening on 19 July. Hospitality businesses face a looming crisis as a shortage of workers created by Brexit combined with a surge in Covid infections, forcing some businesses to temporarily close.
• Healthy food Czar Henry Dimbleby is to recommend a 6% tax on salty foods reports the Daily Mail. The tax, which would be modelled on the sugar tax that was introduced in 2018, would add 20p to the cost of a Big Mac.
• Reuters reports that Premier Foods has suggested the government should consider using the army to distribute goods to help relieve a severe shortage of truck drivers. The pandemic and Brexit have led to a shortage of more than 100,000 heavy goods vehicle drivers.
• Sainsbury’s ‘price match’ versus Aldi is reported to have boosted sales. The UK group is to launch a new fresh round of price cuts shortly. Sainsbury cut the prices of 250 items in February and a further 43 items will be reduced in price this week.
• Cask Marque appoints Tim Sprake as Head of Sales – South. Mr Sprake previously held a number of roles in Charles Wells over 22 years having been Sales Director.
• The Sunday Telegraph reports that, though a takeover of Morrison’s has been ‘agreed’, a bidding war is potentially in the offing. for. Fortress, the owner of Majestic Wine, leads a group of funds that have agreed a £9.5bn takeover deal of the supermarket. One rival is said to be Apollo Global Management.
HOTELS & LEISURE TRAVEL:
• Per Travel Trade Gazette, Jet2 CEO Steve Heapy calls on the govt to ‘get a move on and be brave’ with international travel policy, saying the summer season still had potential to be ‘quite promising’ if the green list was expanded and plans being worked on to allow fully vaccinated Brits returning from amber countries to skip quarantine were put in place soon.
• CEO Steve Heapy also said ‘You’ve got the cases of rich Uefa officials coming without being quarantined, rich leaders of international companies not being quarantined, rich people can go and watch Wimbledon in a massive crowd and people can stand in a crowd of 60,000 to watch the football – but you can’t go on holiday.’
• The European Medicines Agency (EMA) has not yet recognised AstraZeneca vaccines produced by Covishield at the Serum Institute of India (SII). This could mean up to five million Brits who are looking to travel in Europe could be turned away due to their vaccination not being officially recognised.
• Carnival Cruise Line and Royal Caribbean International have returned to service after almost 16 months. The groups both had ships depart from the port of Miami over the Independence Day weekend.
• Per STR, US hotel gross operating profit reached 70% of the comparable 2019 level. Raquel Ortiz, STR’s assistant director of financial performance, said ‘May was another step forward as more economic reopening and more demand pushed industry-wide profitability further upward’.
• Hotel News Now in the US looks at the major upheaval being faced by the hotel industry & lumps problems / challenges under four main headings: 1) supply chain disruption & problems in securing product & replacement items, 2) changes to the guest mix (more leisure, less business), 3) employee ‘burnout’ and staff shortages and 4) fickle & uncertain demand.
• The Telegraph reports that Heathrow Airport has warned lenders that it is at risk of defaulting on its £15bn of debt. Heathrow says ‘Britain’s economic recovery is falling behind its European rivals because we have been slow to restart international aviation. Manchester Airports Group separately says ‘despite the UK’s vaccination headstart, we are now clearly seeing European countries pull ahead of us in their recovery. We desperately need the UK Government to be more agile and open when it comes to international travel.’
• Playtech has confirmed that it ‘received on 29 June 2021 an indicative non-binding conditional offer from Gopher to acquire Finalto for US$250 million.’ It says ‘the indicative proposal from Gopher is non-binding and is subject to a number of conditions, including due diligence, financing, negotiation of key terms, preparation of transaction documentation and receipt of regulatory approvals. Therefore, there can be no certainty that the transaction proposed by Gopher would proceed to signing or completion.’
FINANCE & MARKETS:
• The US economy added 850,000 jobs in June helped by significant growth in demand for staff across bars, restaurants & retail. There are reported to be 9.3 million vacancies across the US & there is evidence of some upward pressure on wages. Average hourly earnings rose 0.3% in June and by 0.4% in May.
• Sterling higher at $1.3819 and €1.1654. Oil price up at $76.17. UK 10yr gilt yield down 3bps at 0.70%. World markets mixed on Friday with London opening bobbing around. Currently (7am) estimated to be down around 1pt.
RETAIL WITH NICK BUBB:
• Morrisons: The 254p recommended offer from the Bidco buyout consortium led by the Fortress private equity fund was announced on Saturday morning and a 64-page document has been published on the company website, so this rival to the 230p CD&R bid is clearly well advanced. In fact, it looks as if they have been talking to Morrisons for longer than CD&R, as it has been revealed that an initial 220p offer from Bidco was made back on May 4th…But the secret talks with Bidco had moved on a long way by the time Morrisons announced on June 19th that it had rejected a 230p approach from CD&R on the basis that it “significantly undervalued Morrisons and its future prospects”. The Board of Morrisons look foolish for not having mentioned at that point that they were already in talks with Bidco, but their recommendation of this Bidco approach doesn’t stop them recommending higher deals
• When the CD&R approach was first revealed, we thought that a deal could be agreed in the 250p-260p area and so it has been, but the action isn’t going to stop here. CD&R are said to have plenty of petrol left in their tank to raise their bid, whilst a third US private equity house, Apollo, is also said to be working on a deal and mighty Amazon could yet blow them all out of the water…After surging to 249p late on Wednesday afternoon, as rumours of a second bid swept the City, the Morrisons share price slipped back on Thursday and Friday to close just below 240p, but it will surge over 254p on Monday (the Bidco offer is 252p, plus the conditional 2p special dividend announced by Morrisons). And we expect the Sainsbury, Tesco and M&S share prices to be pushed higher as well…
• Weekend Press on Morrisons: The front pages of the Sunday Times and Sunday Telegraph Business sections both lead with the Morrisons news: the Sunday Times headline is “Rivals weigh counter-bids as Morrisons accepts £6.3bn deal”, whilst the Sunday Telegraph goes with “Fortress takeover fires up bid battle for Morrisons” and the Mail on Sunday Business section went with “Morrisons agrees to £6.3bn takeover”. Both the Sunday Times and the Sunday Telegraph have detailed follow-up articles on the pressures on Morrisons, with quotes from CEO Dave Potts on why they are backing the Bidco consortium and the fact that Fortress own Majestic Wine gets some attention. In terms of Business editorial comment, the Sunday Telegraph thunders that “Morrisons can’t go cheap with grocers roaring back” and the Observer highlights that “the Morrisons Board has given its blessing at a price that is credible,