Langton Capital – 2021-09-01 – PREMIUM – Takeaway & delivery, the consumer, staycations, PPHE, 888 & other:
Takeaway & delivery, the consumer, staycations, PPHE, 888 & other:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: We used to keep chickens. They were wiped out several times by foxes and, on the last occasion, a restocking was vetoed because of a) the bloodshed but also b) the associated problem that we were feeding a growing rat population. Hence, coincidentally, I’m familiar with rat droppings such that, when walking past a grab & go outlet the other day, I mistook a bunch of dropped coffee beans for the produce of a pack of rats and was momentarily horrified until I fairly promptly put two and two together. Nonetheless, they looked very similar though, even though these beans had been thrown out, I have little doubt that they would taste rather different. There’s a coffee shop joke in there somewhere but, considering how frequently we all visit such establishments, it’s probably not one that we want to hear. 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 now largely written 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: Takeaway and delivery: • The BBC reports that the ‘taste for takeaways outlasts Covid lockdowns’. This is a) good news for delivery companies and for restaurateurs that have embraced the medium but b) consumers only really have so much cash. • Further comment: The BBC quotes Mintel as saying that a quarter of consumers are still spending more on takeaways and food deliveries now than before the pandemic. KPMG said that the £38 per month spent in this fashion by the average Brit was already on the rise. It says ‘the change that would have happened in three to five years in the sector has happened in months when businesses reacted as the pandemic started.’ In this, the pandemic has proved to be an accelerant rather than a cause of the change itself. Getting to the customer: • Pragma Consulting reports that there are 3.78 billion social media users worldwide. It quotes Cybercrew research as saying there are 48 million active social media users in the UK – some 67% of the population – ‘with the average user spending 110 minutes on social media per day.’ • Further comment: This seems like an inordinately long length of time to be online but, as with many things, it will depend on definitions. If checking the weather and the news counts, that’s one thing, but if the 110 minutes is spent in trolling, venting and hyperventilating as a result of one spat or another, that is quite another. • See our comments on Jaron Lanier’s book Ten Reasons for Deleting Your social Media Accounts Right Now. Mr Lanier, who has a tech background himself, says that, amongst other things, (too much) social makes you sad. It also makes you angry, argumentative and unpleasant. Combine all of the above and there may not be too much to commend it. • On a more positive note, Pragma says that social media can be used for companies to undertake ‘social listening’. It says this is ‘a developing tool, comprising taking online interactions at a macro-level and drawing out insight to inform proactive campaigns, strategies and behaviours.’ Whatever that means. We interpret it as meaning aggregating positive and negative comments on a brand. Pragma says this ‘allows users to better understand the quality and impact of engagement, rather than just the degree of engagement itself.’ Basically, it can be a useful marketing tool. Trading: • The MCA quotes Lumina Intelligence as saying that over half of the UK adult population had an eating or drinking out occasion as restrictions eased across the UK during July. • Further comment: Lumina says the proportion of UK consumers who had an eating out occasion increased to a peak of 52.2% over the 12 weeks to the 11 July, with frequency of visit and average spend also increasing. It says that delivery’s share fell by 9.8 percentage points whilst click & collect declined by 5.7ppts. It says that lunch occasions accounted for over a quarter of all eating out experiences. • The consumer is borrowing less. The Bank of England reports that, in July, UK consumers paid back around the same amount as they took on in new debt. These were, presumably, different people doing the opposite thing but the implication is that consumers are taking less risk. • Further comment: This runs against comments we have had on business and consumer confidence. Economists had expected an increase in lending of around £400m, up from £300m in June. Mortgage approvals, where some borrowing was dragged forward into earlier months by tax incentives, were only 75,000, the lowest number since July last year. • For staycations comment, see holidays below. Company & other news: • Per MA, supply chain issues are set to continue as the shortage of delivery drivers and staff rolls on. The ONS reported that 20.4% of accommodation and food service operators have had issues with getting goods or services. • Meanwhile, Nike is to give staff a week off to support their mental health. It says it ‘can prioritise mental health and still get work done.’ Whether this is an acceptance that the work / life balance may be skewed in the US or a wider move that may put pressure on European companies remains to be seen. The Telegraph quotes the CIPD in the UK as saying ‘this will certainly be welcomed by employees and signals clearly that their employer recognises that their wellbeing is important and is prepared to invest in this.’ • In response to the news that Scottish first minister Nicola Sturgeon was considering the introduction of vaccine passports to pubs & restaurants north of the border, a number of trade bodies have come forward to say that imposing passports could create a divided society. • The Local Government Association calls for alcohol-related hospital admissions to be considered when granting or renewing operating licenses for pubs, bars, restaurants and clubs. This means it would become a key part of the assessment criteria for granting licenses and allow for action ‘where premises fail to protect the health of their communities’. • The MCA reports that JW Lees has indicated that there has been a resurgence of walk-ins benefiting the pub industry. The Manchester group reported that 71% of meals served last week were walk-ins. • The SIBA North East Independent Beer Awards saw Metalhead Brewery win overall Gold with their beer ‘Pretty Vacant’. The other top award for Overall Gold in the Bottle & Can competition went to Swaddle Micro Brewery, winning with their Czech-style Pilsner lager. • Urban Pubs & Bars has entered into partnership with Davidson Kempner and Global Mutual to support and accelerate the growth of the company. The company says ‘Nick Pring and Malcolm Heap will continue to lead the business as the new joint venture targets significant expansion across London and nationally.’ UPB currently operates 21 sites across flexible trading formats. Co-founder Malcolm Heap says ‘the biggest challenge won’t be about finding the sites it is more likely to be around building the team to facilitate such rapid growth.’ The US market: • US restaurants. Customers want more staff & suggest they should be paid more. Research from JLL has found that 52% of customers believe more staff should be put on at peak times and 48% believe that paying higher wages will have a positive impact. • Further comment: Easy for customers to say, as they don’t have to pay for this. They would maybe like gold toilets but there is a limit to what they can have. Restaurant Dive says this ‘is a tall order for chains struggling to attract and retain talent, especially since many operators are fighting to just maintain normal operating hours.’ It says, however, that ‘wages are already on the rise — QSR pay jumped 10% in the second quarter, marking the industry’s largest quarterly jump in years.’ Passing these costs on to the consumer will soon become an issue. • The National Restaurant Association in the US believes that restaurant sales across the country will total $789 billion this year. Earlier this year, the NRA had been looking for sales to reach $731 billion. This is up 19.7% on 2020 but down 8% or so on 2019 sales. • In the US, the National Restaurant Association reports that restaurants employment numbers are still 8% below pre-pandemic levels. According to the report, the two biggest challenges to the industry’s recovery are increased customer hesitancy around the delta variant, and the ongoing labour squeeze. HOTELS & LEISURE TRAVEL NEWS: Staycations: • The Guardian comments on staycations saying that there has been a sharp rise in complaints from “impatient” visitors and “Tripadvisor warriors”. Holiday providers say that ‘grumpy customers’ are ‘more demanding and even abusive when they can’t get a table in a restaurant or have unrealistic expectations of service.’ • Further comment: Situations, both good and bad, in this case the over-pricing of domestic holidays, are often (though not always) self-correcting. Next year, pandemic permitting, many more Brits will be holidaying abroad and cottage owners etc will have to decide whether to make more money from fewer people (that way, disaster lies) or cut prices in order to remain full. For operators such as pubs & restaurants in tourist destinations, the hope will be that the latter prevails. In the meantime, the more that holidaymakers spend on their accommodation, the less they may have to spend in resort. • Awaze UK, owner of Hoseasons, will add more than 600 new properties to its UK portfolio with the acquisition of Welsh cottage specialist Quality Cottages and sister brand Quality Unearthed. • Staycation prices. Credit to our Retail Commentator, Mr Bubb, for pointing out the words of Deloitte on the price of staycations. The accountant says ‘the cost of domestic holiday accommodation has surged with the strongest price increases for seaside breaks. It is more expensive to stay for a week in a two-bedroom lodge at Piran Meadows, a caravan park near Newquay, than it is to spend a week at the Savoy, one of London’s most famous luxury hotels.’ • Further comment. Deloitte adds that ‘according to holiday let company AirDNA, the cost of holiday accommodation in Cornwall was 30% higher in July of this year than in July 2019. Rising prices have encouraged more owners to let out their properties.’ This means kicking out some hospitality staff who cannot find alternative accommodation. This impact service levels. It will be self-correcting over time but, in the short term, holidaymakers risk paying more and getting less. Hotels: • PPHE Hotel Group has reported H1 numbers to 30 June 2021 saying that it saw ‘improving demand during the second quarter’. The company says that it generated total revenue in H1 of £25.8 million (H1 2020: £61.9 million, which included a pre-COVID January and February). It says that in Q2, total revenue was £20.4 million, up 95.8% vs Q2 2020. The EBITDA loss was ‘limited to £14.0 million in H1 through decisive actions to mitigate the impact of the COVID-19 pandemic (H1 2020: loss of £3.3 million, which included a pre-COVID January and February). In Q2, EBITDA was £(3.9) million, up 42.4% vs Q2 2020. • PPHE says that its ‘financial position is strong, with £237.9 million cash available at 30 June 2021, which consists of consolidated net cash of £177.9 million, and further access to undrawn facilities of £60 million’ and it maintains that it is ‘well positioned for recovery.’ The majority of the group’s units are now open but it says that ‘occupancy in the Group’s key cities is currently dominated by domestic leisure demand as air travel is still subdued’ though ‘positive booking trends continued into July and August in the UK, the Netherlands and Germany, again driven by predominantly domestic leisure activity.’
• Further comment: PPHE says ‘in the UK, the Group is encouraged by the increasing number of meeting and event enquiries, which are at the highest level since the start of the pandemic and demonstrate the demand when markets stabilise, albeit enquiry levels are still some way behind 2019.’ CEO Boris Ivesha says ‘we were delighted to welcome back guests to our properties and see improving demand as restrictions eased across our markets in Q2 following a long period of lockdown measures and ongoing domestic and international travel restrictions which impacted trading in the period.’ He says ‘post period end, we have seen the increasing trend for leisure demand continue, while the number of enquiries for meetings and events in the UK is at the highest level since the pandemic started. In Croatia we have reported a strong July and August performance, with revenues at approximately 90% of • STR reports that the number of hotel openings in Europe ‘is expected to hit an all-time high in 2021, with more than 100,00 new rooms estimated for the year.’ It says that ‘more than 50,000 rooms have opened thus far in 2021, which is already more than all of 2020, and scheduled openings for the remainder of the year are expected to grow the number to more than 100,000 total.’ It says this represents some growth held over from 2020 but says ‘the pace of openings is not expected to slow significantly in 2022, with a further 100,000 openings anticipated. Europe’s previous peak for new openings came in 2019 with 74,852 rooms.’ • Further comment: STR says ‘the pandemic led to far more delays than deferred and abandoned projects in Europe — yes, performance has suffered during the pandemic, but many investors are still counting on the resilience of the sector.’ It adds ‘while the impact of this supply influx will of course vary by market, there will be even greater competition for properties that have weathered the pandemic and hope to achieve meaningful levels of recovery over the coming years. These new openings will not be replacement supply as most properties that closed because of the pandemic have reopened.’ • New supply can be good for the company putting it on but negative for the industry as a whole and, as the industry is the sum of its parts, it’s easy to see how rational behaviour at the micro level can lead to a sub-optimal macro outlook. It will be worth keeping a sharp eye on both occupancy levels and achieved room rates later this year. We have covered hotel cycles before. This could be a large one. We are currently in the upswing but, as supply rises and demand stabilises, prices could come under some pressure. • Per HotStats, the US hotel industry saw RevPAR more than $20 higher month on month in July 2021, with occupancy up to 60%. However, total payroll hit $92 per available room in July 2021, only $18 off its July 2019. General & company news: • Reuters reports that the EU has begun the process to remove the United States from the 27-country bloc’s ‘safe list’ of countries. This indicates that travel restrictions and quarantines will be applied to US travellers in the near future. • Ryanair CEO Michael O’Leary told Sky News the UK should scrap its ‘bizarre’ rules governing foreign travel, saying they are holding the country’s economy back. Ryanair revealed 14 new routes from London airports for the looming winter season. • Jet2 will buy 36 new Airbus A321 neo aircraft, with current list prices valuing the deal at $4.9bn, and also agreeing flexibility to extend the order up to 60 aircraft. The airline said it has negotiated ‘significant discounts’ from the list price. • Commenting on his company’s aircraft order, Jet2 CEO Philip Meeson comments ‘we are delighted to have placed this order with Airbus and are proud to operate this aircraft which has more seats, provides additional operating benefits through lower fuel consumption and is, in our opinion, the most efficient and environmentally friendly aircraft in its class today – it will ensure our Customers have a wonderfully comfortable and enjoyable experience as they travel with us.’ OTHER LEISURE: • 888 Holdings has reported H1 numbers to end June saying that it saw ‘record first half revenue and profit, strong strategic progress [and has] increased full year expectations.’ The company says revenue rose 39% to $528m with adjusted EBITDA of $97m (2020: $70m) and adjusted PBT of $75m (2020: $50m). Re current trading, the company says ‘revenues throughout July and August increased by mid-single digit percentage relative to the prior year period, with the slowdown in the rate of growth reflecting the impact of retail and leisure venues reopening across international markets, and the previously disclosed expected impact of regulatory and compliance changes.’
• Further comment: 888 says ‘for the remainder of the year, the Board remains mindful of the tougher comps in the fourth quarter, a period that enjoyed an exceptionally strong performance in both betting and gaming revenues during 2020.’ It says, however, that ‘the Board is confident that revenues and Adjusted EBITDA in the full year will be slightly ahead of its prior expectations.’ CEO Itai Pazner says ‘the strong momentum from 2020 continued into the first half of 2021, with growth driven primarily by regulated markets, where we believe ongoing market share gains continue to reflect our product-leadership strategy, highly effective data-driven marketing, and our excellent content.’ He adds ‘the Board remains confident that, with 888’s advanced technology, products and diversification across markets, the Group remains well positioned to deliver further strategic progress during 2021 • ByteDance, owner of TikTok, has acquired virtual reality headset maker Pico, in a move to rival Facebook’s moonshot. Pico had raised some $62 million in venture funding from Chinese firms, including a $37 million Series B in March. • Zoom reports quarterly revenues of more than $1bn, up 54% yoy. However, the share price fell after the company warned of demand cooling off. It also faces competition from rivals such as Cisco’s Webex and Microsoft Teams. FINANCE & MARKETS: • The latest measure of business confidence reported by Lloyds Bank says that UK business confidence has hit a four-year high as optimism about the post-Covid recovery has buoyed spirits. Lloyds says that companies have nonetheless highlighted concerns about staff shortages. • Further comment: Lloyds reports that nine of the UK’s 12 regions and nations reported improved confidence. The bank says the figures represented ‘a positive story about the country’s economic recovery’. It says, however, that ‘staff shortages remain a challenge but as the economy moves back towards pre-pandemic levels we can be optimistic that the momentum for business confidence and economic optimism can be sustained in the months ahead.’ This matters for leisure as business confidence impacts investment and that impacts jobs. Job security is key in driving consumer spending, particularly in discretionary areas such as leisure. • The Telegraph reports that higher inflation will cost the UK treasury (aka) the taxpayer, an extra £12bn this year as a quarter of the country’s national debt pays out interest linked to inflation, specifically, retail prices. • Further comment: As recently as March this year, the OBR believed that the RPI would rise by 3.1% in the 3mths to June. It has now hit 3.9% with a figure of around 5% possible in the coming months. Barclays is looking for a short term peak of around 5.5% near the end of this year. Each percentage point costs the taxpayer around £6.5bn in additional interest. • The US Conference Board’s Consumer Confidence Index has dropped to 113.8pts in August, a 6mth low. The drop is thought to be due to the spread of the Delta variant in the US. Deaths in the US (which has around six times as many people as the UK) are running at around 10,000 per week compared to around 800 in the UK. The July measure was 125.1pts. • The FT reports that increased homeworking during the pandemic is responsible for pushing up house prices in areas surrounding most of Britain’s biggest cities more than in the urban centres. • Sterling weaker at $1.3737 and €1.1640. Oil lower at $72.10. UK 10yr gilt yield up 4bps at 0.62%. World markets lower yesterday but Far East up in Tuesday trade & UK set to open up around 34pts as at 6.45am. RETAIL WITH NICK BUBB: Today’s News: The WH Smith pre-close update (for y/e August) flags improving sales trends over the last 8 weeks, with full-year profits to be slightly ahead of management’s cautious expectations. Having said that, the key UK Airport Travel shops saw sales as much as 70% below 2019 levels in July/August, but UK Hospitals were only 15% down and UK Rail was only 41% down, whilst the UK High Street was a mere 16% down and the important North American business was only 7% down. The sting in the tail, however, is that “While there will be a return to good levels of profitability in the year ending August 2022, the trajectory of the recovery in travel remains uncertain. This…means that we currently anticipate the levels of profitability for the year ending August 2022 will be at the lower end of market expectations”. This Week’s News Flow: The McColl’s EGM to approve the highly dilutive equity placing is being held at 11am this morning and at about 5.30pm this evening the latest FTSE index quarterly review is announced (with Morrisons expected to make it back into the FTSE 100 index, with its current £7bn market cap, at the expense of Just Eat). Tomorrow lunchtime the US jeweller Signet (which owns the UK chains of H Samuel and Ernest Jones) announces its Q2 results. |
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