Langton Capital – 2021-07-13 – PREMIUM – More from Young’s, 19 July, DPP, Vianet, Hotel Choc & other:
More from Young’s, 19 July, DPP, Vianet, Hotel Choc & other:
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A DAY IN THE LIFE:
So, judging by the number of out of office replies we got when sending out this email yesterday, there may have been some forward planning for sore heads being done.
And meanwhile, for those of us that made it up at something resembling a normal hour were faced with some dismal weather that seemed to accurately reflect the mood.
Still, no point in navel gazing any more than is strictly necessary and the rain at least is in the rear view mirror now. It’s meant to be dry for a fortnight which, since This is England, is a hostage to fortune statement if ever I heard one.
On to the news and here’s to the World Cup next year.
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YOUNG & CO – SALE OF MOST OF GROUP’S TENANTED UNITS:
The group says…’Young’s sole focus will now be on operating well-invested and premium managed pubs and hotels…’
Young & Co has announced the sale of 56 of its 63 tenanted pubs to Punch Pubs for £53m in cash. Our comments on the transaction are set out below:
• Young & Co reports that it has agreed ‘to sell most of its tenanted estate, the Ram Pub Company.’
• It will ‘sell 56 of the 63 pubs in the Ram Pub Company to Punch Pubs & Co. for a total consideration of £53M in cash.
• YNGA says the units generated EBITDA of £4.7M for the year ended 31 March 2019 implying a disposal at 11.3x historic (and hopefully future) EBITDA.
• The co says ‘Young’s will retain the remaining seven pubs for the long term.’
• Completion should occur on 9 August.
• YNGA says it regularly ‘reviews its capital allocation priorities’ and adds that this drove the decision to sell saying ‘the Disposal is consistent with Young’s strategy to target growth through investment in higher turnover managed pub and hotels.’
• A disposal was flagged up on 20 May at the group’s final results.
• CEO Patrick Dardis says ‘Young’s sole focus will now be on operating well-invested and premium managed pubs and hotels. We have a proven history of making attractive returns from investing in high-quality pubs and this disposal will provide us with additional firepower to upgrade our existing pubs and capitalise on attractive acquisition opportunities that may come to the market.’
Comment on trading:
• No numbers are given but the CEO says ‘we are delighted to be welcoming back our customers and are already seeing encouraging trading, despite some restrictions remaining.’
• He adds ‘the Board is confident Young’s will emerge from the pandemic in a stronger position and is excited about the future of the business.’
• Fuller’s last week said that sales at its City and West End units were still running ‘below 50% of 2019 levels’.
• It didn’t guide as to whether it meant they were at 29%, 39% or 49%, but it did say that sales had grown ‘strongly’ in the last few weeks
Use of funds
• Young & Co says the ‘net proceeds from the sale will be used to strengthen the Company’s balance sheet and provide additional capacity for investment in its managed estate’
• The co adds that ‘Young’s will look to acquire predominantly freehold managed pubs.’ It says head office costs will reduce.
• There are pros and cons to having an integrated structure.
• Young & Co has mentioned a few of the positives of unravelling this (providing a cash windfall, allowing ‘focus’ etc) but there are some negatives.
• The integrated model did not persist for decades for no reason. Without suggesting that this is a bad deal – indeed, it could be a resounding win-win for both Young’s and Punch – we would highlight a few issues.
• Young’s shares have recovered virtually all of the ground that they lost in the early months of the pandemic. This is reassuring but, as a lot of recovery is implied by the share price move, there are some grounds for caution.
o The company increased the number of its shares in issue by 19.2% via the placing of £88m of shares in June last year. Profits will recover to pre-pandemic levels before EPS does.
o A pure managed play is somewhat riskier than an integrated operator
o Though YNGA has wonderful sites, Central London is yet to recover. This may take time and office usage may re-set at lower levels.
19 JULY REMOVAL OF RESTRICTIONS:
19 July removal of more restrictions:
• It would appear that the date is remaining fixed but that what happens on that date has changed, somewhat. The rules will be reviewed in September. The devil will be in the detail. There are a couple of ‘government reserves the right’ lines in there.
• The PM has warned that there will be more hospitalisations and deaths. He says the pandemic is not over. The government in the Netherlands has just apologised and has reintroduced restrictions after taking them off, it says, too soon. In the UK, masks will be recommended. Mr Johnson has said that the roadmap is irreversible.
• Customers will be able to order from the bar again, which will speed up service and cut costs. They will not have to check in and mask-wearing and social distancing rules will end next week. Social distancing measures will be dropped and unit capacity will therefore increase. Table service rules will be dropped. It will be up to operators as to whether they continue with order & pay apps.
• Nightclubs and event organisers are advised to ask for proof that people have had their jabs. This will add cost and complication to their operations. PM Boris Johnson sys ‘as a matter of social responsibility we’re urging nightclubs and other venues with large crowds to make use of the NHS Covid pass, which shows proof of vaccination, a recent negative test or natural immunity as a means of entry.’ The government “reserves the right” to force these measures on venues.
• The BBPA writes that it has ‘welcomed confirmation that restrictions on pubs in England, including one metre plus social distancing and table service only, will be lifted on July 19th.’ It says this will ‘enable 2,000 more pubs to reopen that have remained shut because they cannot viably operate under restrictions.’ It says the industry will still need support and says it ‘had concerns over updated guidance expected to be published soon for the sector by the Government, stating that pubs and brewers needed clarity as soon as possible on guidance and that it must not be used to apply restrictions on pubs ‘via the backdoor’.
• Further comment: The Society of Independent Brewers’ CEO, James Calder, comments that ‘the Prime Minister has finally given brewers and pubs the green light to lift the remaining hospitality restrictions on July 19th.’ It says, however, that ‘muddled messaging and rowing back by Government threatens to undermine confidence in the reopening and long-term recovery of our sector. We now need a message of confidence and reassurance as we did in Summer 2020 around Eat Out to Help Out – because as we proved, hospitality is safe. As recent events have shown, pubs are vital to the health, wellbeing, and happiness of the nation.’ Mr Calder says ‘with this announcement we now begin the long road to recovery for our sector and for the country. Over the past 16 months, small brewers have lost 80% of their on-sales and built-up debts averaging £30,000 which now must be repaid. Finally lifting the
• There are two NHS apps. One is Track & Trace (the one that’s used to check into venues and will ping you if you’re unlucky) and one is simply The NHS App. The former doesn’t have any vaccination, test or disease status on it but the latter does. This is the one to download & fill in if / when venues or airlines demand proof of status.
PUBS & RESTAURANTS:
• Barclaycard reports that better weather (until this last week), the Euros and the lifting of some Covid restrictions drove consumer spending up in the UK in June. It says spending was up 11.1 per cent versus June 2019, the fastest rise since the start of the pandemic. It says spending at pubs and bars rose by 38.1 per cent (comparing a Euros month with a non-Euros month in 2019). It says ‘June saw Brits flock back to pubs, bars and beer gardens to watch the football and tennis on the big screens, as the heatwave early in the month encouraged many of us to get out in the sunshine and socialise.’ Barclaycard adds ‘the start of the Olympics and the expected easing of restrictions later this month should continue to lift spirits and provide more opportunities for get-togethers, whether that’s a weekend break, a meal out or to celebrate sporting victories. It’s great to see Brits making up
• Festival organisers, pubs, clubs, restaurants and airports (see below) are amongst the industries hit by the large number of staff being asked to self-isolate. The Guardian reports that ‘festival organisers have urged the government to change “untenable” self-isolation rules that they say are already causing staffing problems and could lead to people deleting the NHS Covid-19 tracing app to avoid getting “pinged”.’
• Further comment. Lord Sumption has said on numerous occasions that, whilst the British rarely riot against laws that they disagree with, they do have a tendency simply not to obey them. There are plans to restrict the need to self-isolate from 16 August but many employers, particularly where younger people make up a large proportion of staff, have said that this may be ‘too late’. The numbers pinged were reportedly rising at a rate of 60% a week from early June.
• The Daily Mail reports that Michael Gove was reportedly pinged in the first week of June to ask him to self-isolate after he had been in contact with someone who had the disease. It says it ‘was believed he’d come into proximity with the infected person on his flight back to Britain [from the Champions’ League Final], because a large number of his fellow fans were also contacted.’ It says, of that large number, Mr Gove was the one person ‘selected to be part of a new trial that gave some of the participants the chance to take a daily test, rather than stay locked up at home.’
• This may have involved pulling some strings, perhaps even retrospectively. For mere mortals, turning off the app, deleting it or turning off your phone’s Bluetooth may be a solution.
• The Food & Drink Federation suggests that food prices could rise by about 5% by the autumn as a result of staff shortages in delivery, slaughterhouses and elsewhere. The FDF says ‘there is a war for workers. The only way to get more HGV and logistics drivers is to put up pay.’
• The Telegraph reports that ministers are ‘in secret visa’ talks to end the haulage crisis that could be driving up food prices. Some 100,000 additional drivers are needed. The Telegraph says that ‘transport leaders are understood to have recommended a temporary easing of immigration controls as the only way of quickly solving the problem.’ It quotes a source as saying ‘there has been a subtle change of heart from Government.’
Company & other news:
• The Telegraph reports that seven in ten workers would like to get back to the office or their workplace. It says the findings will encourage rail networks and employers to push on what might be an open door. The Telegraph reports that it has cost taxpayers over £10bn to keep rail services running through the pandemic. Network Rail said earlier this year that passenger numbers might not get back to over 60% of previous levels at any time in the next 4yrs. Accountant PwC says ‘while people expect a significant shift back to normality after the pandemic, travel patterns and plans for greater flexibility have already changed because of Covid. Contactless payments and flexible part-time tickets will become more relevant to travellers as a hybrid of remote and on-site working becomes the norm.’
• DP Poland has updated on trading saying that, recently, ‘average daily dine-in sales for the period 18 May to 30 June 2021 have increased by 94% to PLN 122.9k in comparison to the lockdown period 1 May to 17 May 2021.’ It says that ‘dine-in business increased by 25% in comparison to June 2020 but still lower by 24% in comparison to June 2019 (pre COVID market).’ LfL system sales for June 2021 were up 5% on June 2020 but were 2% down on June 2019. DPP says that the IT conversion (post its merger with Dominium) ‘is now complete and the average order receipt in the enlarged Group has increased in June (in comparison to May) by 10%.’
• Vianet has updated on trading with chairman James Dickson saying ‘the Group’s performance in the first three months of the financial year has been very encouraging, with profits higher than anticipated with both divisions expected to return to more normal trading during H2 2022.’ He says ‘strong engagement with customers, suppliers and employees throughout the pandemic has placed the Group in an excellent position to benefit from the increased demand for data insight, remote asset management and contactless solutions as the economy recovers.’
• Vianet’s Smart Zones division ‘is recovering in line with the UK pub market with almost 90% of pubs having re-opened by the end of June with a corresponding return to full billing.’ He says ‘the ‘Freedom Day’ removal of hospitality restrictions, on 19 July 2021, together with a return of city centre office populations will result in further pub re-openings. The re-opening of pubs has resulted in increased demand for our draught beer market and retail data insight services as the industry seeks to understand its new ‘normal’ trading in the post restriction era.’ Dickson concludes ‘although there is still global uncertainty relative to Covid-19, the Board is very confident that we have implemented the correct measures to take advantage of the exciting growth opportunities that lie ahead, and we look to the future positively and with an increased level of confidence.’
• Hotel Chocolat has updated on trading for its full year to end-June saying that ‘since the previous trading update in May, Group trading has remained strong. With all channels open, Group sales for the 10 weeks from 19 April 2021 to 27 June 2021 grew 34 per cent compared to the same period in 2019, and 63 per cent compared to the same period in 2020 when all physical locations were closed.’ CEO Angus Thirlwell say7s ‘the growth avenues ahead of us have never been better in Hotel Chocolat’s history.’ He says ‘our brand-building stores will continue to play a pivotal role in our digital-led business, with an unrivalled ability to introduce new customers to our brand.’
• Flat Iron is taking a unit in Borough Market.
• Leaks suggest that the PM Boris Johnson is to say that outside dining will be part of the government’s plans to level-up the North. Pavement licenses are to be extended.
• The Caterer reports that ‘thousands of hospitality businesses are still fighting to secure insurance payments for coronavirus disruption, with many pursing a fresh wave of legal action.’ It says there have been ‘multiple instances of operators being told they were covered before insurers later reversed their decision.’
• Stonegate has published a book, Short Stories from down the Pub, containing over 100 stories, contributed by both customers and employees. The book is available to buy and all profits will go to the Licensed Trade Charity.
• Punch Pubs reports that the Filly Inn has reopened following a £1m transformation ‘with experienced Management Partner Nick Ranhem taking the helm.’
• Sales of rose rosé Champagne are reported to be up 188% at Sainsbury’s. The retailer says ‘we are selling 50% more of our new Taste the Difference Prosecco Rosé than we had originally forecasted.’
• Ste Michelle Wine Estates, one of the largest in the US, has been sold to a private equity firm Sycamore Partners for US$1.2billion.
HOTELS & LEISURE TRAVEL NEWS:
• Heathrow has called on the government to reopen US aviation links as rapidly as possible as numbers in the UK remain “much lower” than EU airports. Heathrow says ‘while it’s fantastic news that some double-vaccinated passengers will no longer need to quarantine from amber countries, ministers need to extend this policy to US and EU nationals if they want to kickstart the economic recovery.’
• While Heathrow is lobbying for moves to increase volumes, there is evidence that it does not have the staff to cope even at lower levels of trade. Heathrow’s Terminal 5 saw long queues at security yesterday as more than 100 staff are either ill or are being told to self-isolate. There was already some talk of six-hour queues.
• Center Parcs has idendified a site for a sixth UK holiday village in West Sussex, south of Gatwick. The project could cost between £350 million and £400 million and, when completed, would create around 1,500 permanent local jobs. Center Parcs says it is ‘really exciting to have identified a potential site for another Center Parcs village in the UK. The proposal we will be submitting will create a significant number of jobs and bring major benefits to the local and national economy.’ It says ‘today’s announcement marks the first step of a long journey and there is still a huge amount of work to be done before we can submit a planning application.’
• IATA reports that global air demand in May this year was 62.7 per cent lower than its pre-pandemic May 2019 level. This is slightly better than the minus 65.2 per cent seen in April. Domestic flights, perhaps unsurprisingly, are recovering more rapidly than the international market.
• Carnival reports that its AIDA Cruises is to increase capacity from Kiel.
• STR comments on additional hotel capacity in the US, saying ‘New York City is well ahead of all other U.S. markets in hotel rooms under construction and projected openings for the remainder of 2021.’ The Big Apple has around 22,000 rooms under construction. Second place LA is way back on 6,600 rooms. STR says that ‘as all this supply enters and re-enters the market, it’s definitely going to add pressure to recovering occupancy levels.’
• Destination Analyst in the US reports that high savings levels mean that ’44.6% of Americans feel that now is a good time to spend money on leisure travel.’ It says ‘overnight trips are on the rise and are boosting enthusiasm for travel. Over half of American travellers took an overnight trip in the past three months.’
• Flutter reports that it has agreed to sell Oddschecker Global Media to Bruin Capital in a transaction that values OGM at up to £155 million. It says ‘under the terms of the transaction, Flutter will receive £135 million in cash upon completion, with a further deferred contingent consideration of up to £20 million.’
FINANCE & MARKETS:
• The OECD reports that recovery is accelerating in a number of leading economise.
• Accountant BDO reports that UK business confidence has jumped ahead of the easing of lockdown restrictions next week. BDO says ‘businesses are clearly looking forward to the lifting of restrictions on the 19 July. After a gruelling year of unpredictable change, the ending of restrictions is timely, although rising Covid-19 cases still leave an element of uncertainty.’
• The Social Market Foundation has found that workers would like a four-day week, but not if it led to lower wages. It says finance workers and professionals were amongst those most likely to favour a cut in hours.
• Sterling slightly higher at $1.3887 and €1.1705. Oil up at $75.30. UK 10yr gilt yield down 1bp at 0.65%. World markets better yesterday but London set to open down around 8pts as at 7.15am.
RETAIL WITH NICK BUBB:
• BRC Retail Sales Watch: We said yesterday, ahead of the overnight BRC Retail Sales for June (the 5 weeks to July 3rd), that another month of strong growth was likely, despite the tougher comps and we were right. The BRC seems confused as to whether the growth in total sales on 2019 was 10.4% or 13.1%, but either way that is better than the 2-year growth of 7.3% in April and 10.0% in May, so Q2 overall was very strong. The key Food/Non-Food split for June is buried in the 3-month moving averages and the 2-year comps, but it looks to us as if Food sales held up very well, helped by Euro football demand, despite the return of hospitality and the mixed weather. Much of the growth last month came from Non-Food, however, and although Furniture and Homewares remained the key sectors on a 2-year view, the year-on-year recovery was again driven by Clothing, post-lockdown.
• Today’s News: There was no Retail news expected today, but the kitchen joinery business Howdens has issued a surprisingly bullish update ahead of next week’s interims, to flag that trading has been ahead of expectations and that it is now confident enough to forecast PBT of around £300m for the year (up from £185m last year and £261m in 2019); UK same store revenue was up by 15.1% on 2019 levels in the first half, even stronger than the 8.9% growth reported for the first 16 weeks of the year versus 2019. There has also been a bullish pre-close update from Hotel Chocolat, to flag that y/e June will be ahead of its expectations because of the strength of trading in the last couple of months: in the 10 weeks to 27 June group sales were 34% up on 2019 levels and although much of this growth has come Online (and Overseas), the company also flags that “UK store performance since the
• This Week’s News: Tomorrow brings the Dunelm Q4 update and the Burberry AGM, with the ASOS Q1 update and the French Connection AGM following on Thursday. Friday brings the Burberry Q1 update and possibly the Frasers finals, along with the Homeserve AGM.