Marston’s, DPEU, Shaftesbury, Wm Hill, current trading & other:

A DAY IN THE LIFE:

Despite the storms and the snow, we made it down to London OK which, on balance, is just as well as this week is scheduled to be our busiest for face-to-face meetings for almost two years.

And that’s a heck of a long time. Let’s hope the journey back to ‘normality’ isn’t too badly disrupted by the Omicron variant and that meetings, once the bane of ones life, can once again become a feature.

Anyway, I know we mentioned it yesterday but Hull City has won four on the trot. I’m sure there are statistician out there who will say that’s no big deal but, hey, this is Hull we’re talking about so you’ll have to forgive me for saying it twice. On to the news:

LANGTON EMAIL:

The Free Email is now written in short form. Full stories are in the Premium Email. Reply to this email if you would like to upgrade.

See Twitter for in-day comment. Let us know if you would like an example of the Premium Email or to comment on the new format.

Prices for the Premium, unchanged for 2yrs, are £295 for one subscription, £495 for multiple, both plus VAT. Reply to this email to order & request invoice.

Or sign up for easy in, easy out monthly option HERE

MARSTON’S FULL YEAR NUMBERS:

Marston’s has today reported full year results for the year (52wks) to 2 Oct 2021 and our comments thereon are set out below:

The numbers:

• Marston’s reports that it has seen ‘improved trading post lockdown’ with ‘sales levels above 2019’. However, the full year 2021 sales were heavily impacted by significant disruptions from the pandemic

• The group reports total revenues of £423.8m (2020: £821m) and an underlying loss of £100m (2020: loss £22m.)

• The reported figure, including the profit on the sale of the brewing business into the Carlsberg JV, is a profit of £119.3m (2020: loss £397m)

• Like for like sales since restrictions were lifted in July this year are running at 102% of 2019. This impressive figure will be aided by the lower rate of VAT.

• The group has seen ‘strong accommodation sales benefitting from staycations.’

• As regards cost pressures, the group says that little has changed since its last announcement and it remains well-hedged. It believes it is looking at cost increases of perhaps 4-5% (pre mitigation).

• This will be dealt with via a mix of cost savings and price increases. Discounting levels are very low.

Current trading & outlook:

• Like for like sales in the last 8wks are +1.3%.

• Whilst the weather has not been helpful in recent days, the Omicron variant has, thus far, not led to a wave of Christmas booking and the level remains similar to that seen in 2019

• This is encouraging. It does not take into account walk-ins but, as a predominantly booked occasion when food is involved, Christmas trading looks solid. The group says ‘Christmas bookings encouraging and in line with 2019.’

• It is not clear whether (or by how much) Omicron will disrupt leisure’s recovery but, as the government exempted hospitality from mask wearing in its Friday announcement, the signs are that the government is not keen to impact the sector any more than it has to

• Synergies of some £35-40m are now expected from the Carlsberg Marston’s Brewing Company. This compares with the c£24m expected at the time of the merger

• There remains a great deal of uncertainty but the fervent hope is that the worst of the Covid pandemic has now passed

Sales progression:

• Sales have progressively improved since outdoor trade was allowed on 12 April. Indoors was permitted from 17 May and further regulations were removed on 19 July.

o 12 April to 16 May – 77% of 2019 (drink 89%, food 59%)

o 17 May to 24 July – 92% of 2019 (drink 93%, food 90%)

o 25 July to 2 Oct – 102% of 2019 (drink 99%, food 102%)

o 3 Oct to 28 Nov – 101.3% of 2019 (with less help from lower VAT)

• The numbers are directionally positive. They still benefit from the lower rate of VAT (5% to end-Sept and 12.5% now) on food & non-alcoholic drinks.

• In addition, footfall is lower and prices have been edged up a little. Spend per head is higher. Room revenues have been strong due to the buoyant staycation market.

Balance sheet & borrowing:

• Marston’s had reported £1,232m of debt at its year end trading update. This is £97m lower than last year. Net of the Carlsberg JV receipt, debt is perhaps £130m higher.

• There is an £80m property charge taken through the P&L. This is Covid related. The company may move to annual revaluations in order to illustrate just how quickly this reverses

Strategy:

• New CEO Andrew Andrea says that the group runs ‘pubs to be proud of’. There is a recommitment to the pub, rather than casual dining outlets, as the core of the business.

• The group has also recommitted to getting debt below £1bn by 2025. Marston’s aims to grow sales to ‘over £1bn’ by 2025, an increase of some 25% from current levels (ex the brewery). The write down applies mostly to food led and city-centre leased units

• Marston’s intends to spend in the region of £55m on this transformation and refurbishment programme over the next four years with a target return on capital of 30%

• The group has a ‘plan to reposition 290 food-led pubs to meet changing consumer dynamics’ and it will evolve its franchise model with the formulation of a new “Pillar” agreement for food-led leased pubs. The group has trialled the latter in 32 pubs. The company (as well as the franchisee) has generated more cash from the units as a result of increased turnover

• The rumoured Fortress Investment Group approach to Punch Pubs will have analysts recalculating their sum-of-the-parts valuations today.

• To recap, Sky reports that Punch Pubs may be sold after ‘receiving a string of approaches despite ongoing pandemic-related uncertainty.’ It says that Fortress Investment Group, the US PE house owned by Japan’s SoftBank and which was one of the underbidders on Morrison’s, ‘is in talks to buy Punch for a price believed to be in the region of £1bn.’ If Punch were to change hands at these prices, then valuations across the sector are perhaps too low.

Company comment:

• CEO Andrew Andrea comments ‘it is extremely encouraging that trading momentum has built well since reopening and trading is now exceeding FY2019 levels.’

• He says ‘whilst there are still some challenges to navigate over the months ahead, we believe the worst of the pandemic is now behind us and Marston’s has emerged a stronger, more focused business which is in great shape. Importantly, consumer demand for the pub and the role which this great British institution plays, at the heart of communities up and down the country, has never been stronger.’

• The CEO adds ‘Marston’s enters the year ahead as a focused pub business with a clear strategic plan, a profitable and cash generative business, a strong balance sheet and a 40% share in CMBC, our partnership with Carlsberg, which has such exciting potential.’

• Re the balance sheet, the company says ‘our debt reduction plans remain on track and our well-invested, predominantly freehold, suburban pub estate is well placed to benefit from many of the positive consumer dynamics and drivers post pandemic.’ ~Mr Andrea concludes ‘whilst still early days, Christmas bookings look encouraging and we look to the future with renewed optimism.’

Langton Comment:

• Whilst normality remains hard to define, Marston’s comments should reassure. The company is confident that it will reduce debt and current trading is solid.

• The current picture (and the comps from last year) is confused by EOTHO, 5% VAT, 12.5% VAT, removal of business rates, furlough payments and then the end of furlough meaning that forecasting is more difficult than ever

• Looking slightly longer term, pandemics are rare, hostelries have been popular for centuries, Marston’s debt is reduced and will fall further, it’s strategy is clear and it has a well-financed, largely-freehold estate.

• Furthermore, the rumoured Fortress approach to Punch Pubs suggests that there major investors outside the sector that recognise the long term value held within it

• There is at this stage to commitment to reinstate the dividend. Marston’s says it will need to be covered, be sustainable and be capable of growth.

• The group has ridden Covid relatively well. Current trading is more than acceptable and Christmas looks good. Inflation is a feature but, at this stage, it is manageable. The cautionary elements (Omicron etc) in today’s statement and the asset write-downs should be temporary in nature whilst the positive moves that the group is making should last.

• Along with the wider sector, Marston’s shares have slipped from their recovery-highs of over £1 on concerns that the consumer will edge back spending and latterly on Covid-resurgence concerns. Whilst there are challenges ahead, we believe that the company remains well-positioned to prosper.

PUBS & RESTAURANTS:

Sky reports that Punch Pubs may be sold after ‘receiving a string of approaches despite ongoing pandemic-related uncertainty.’ It says that Fortress Investment Group, the US PE house owned by Japan’s SoftBank and which was one of the underbidders on Morrison’s, ‘is in talks to buy Punch for a price believed to be in the region of £1bn.’

Sky quotes ‘City sources’ as saying that ‘the talks were “serious” but said they were far from certain to result in a deal.’ The move suggests that Fortress considers UK property to be undervalued and the approach has a direct read-across to other UK pub groups. Sky says ‘other parties are also said to have approached Punch, which is controlled by Patron Capital Partners, and it was unclear whether Fortress had formal exclusivity in its negotiations.’ The old Punch Taverns was bought and split between Patron and Heineken in 2017.

• See premium. Reply to this email to upgrade.

Corporate advisory, insolvency & investment firm Cork Gully has commented on the resilience of businesses in the UK saying that, despite the end of the furlough and despite a tough business environment, the number of UK company insolvencies fell from 1,530 in September to 1,487 in October. It cautions, however, that ‘the underlying trend in corporate insolvencies remains an upwards one. Corporate insolvencies in October still stand 29% higher than the average for the year so far. Although, insolvencies in October stood 8% below the October 2019 figure.’

• See premium. Reply to this email to upgrade.

The Government’s decision to not reimpose restrictions on hospitality and night-time economy settings in the wake of the new Omicron Coronavirus variant has been welcomed by the Night Time Industries Association (NTIA).

• See premium. Reply to this email to upgrade.

All travellers entering the country from 4am on Tuesday will be required to take a PCR test within the first two days of their arrival, and have to self-isolate until they have received a negative test result. To the extent that this may dissuade leisure visitors from coming to the UK, it is a negative for domestic pubs & restaurants.

Sky reports seasonal workers are enjoying record levels of pay due to the labour shortage, but Glassdoor said its data also showed that job satisfaction had slumped as burnout looms.

COMPANY & OTHER NEWS:

JD Wetherspoon has announced a 20-year deal with Budweiser, which will become the chain’s largest beer supplier, ending its 41-year association with Heineken.

• See premium. Reply to this email to upgrade.

Landlord Shaftesbury, which owns a 16 acre portfolio of land in the West End, has reported full year numbers saying it has seen a ‘rebound in occupier demand driving vacancy down towards pre-pandemic levels.’ It says that valuations recovered somewhat in H2. The company’s CEO, Brian Bickell, adds ‘“Freedom Day” on 19 July marked the first time in 17 months that our 600+ hospitality and retail occupiers, and businesses across the West End, could begin to trade normally. What followed has been a remarkable bounce back in activity, as domestic visitors and workers returned, with footfall and spending in our villages well on the way to returning to, or in some cases already exceeding, their pre-pandemic levels.’

• See premium. Reply to this email to upgrade.

DP Eurasia has updated on trading for the first 10mths of its financial year saying ‘group system sales increased 51.8%, on the back of very strong demand in Turkey and against weak comparables for H1 2020 in both Turkey and Russia due to the pandemic.’ CEO Aslan Saranga comments ‘trading performance across the Group has continued its strong momentum since our Interim Results in September.’

• See premium. Reply to this email to upgrade.

Itsu is set to launch its first European restaurant on Tuesday, in Brussels airport, with seating for 46 diners alongside grab and go options.

Le Bab, a London-based kebab operator, is opening a new site on Coldharbour Lane in Brixton Village.

A Christmas meat shortage could be on the menu as the EU Covid surge disrupts a visa scheme designed to attract foreign butchers to the UK.

Big Hospitality reports that Pret A Manger has agreed a Middle East franchising arrangement with One PM Franchising. The move is part of the company’s plan to double the size of its business within the next five years. 

Lightspeed in the US has said that 83% of Americans plan to dine out during the holiday season. It adds that 84% of restaurant operators believe they will meet or exceed pre-pandemic sales levels over Christmas.

• See premium. Reply to this email to upgrade.

LEISURE TRAVEL & HOTELS:

Despite the partial recovery of a number of share prices, Sky reports that everyone arriving in the UK will now have to undergo a compulsory PCR test, in what is being described as a ‘huge blow’ for the travel industry.

Vaccine certificates for travel are to be valid for nine months, according to proposals from the European Commission, with the body saying that rules on travel within the European Union should be tied to travellers’ personal health risk, rather than country of departure.

Travelodge reported adjusted EBITDA for the three months to September 30 of £87.2m against £57.5m in the same period in 2019 and £31m last year, crediting the growth to demand for summer staycations.

• See premium. Reply to this email to upgrade.

A poll of UKinbound members prior to the latest Omicron restrictions saw 89% of respondents stating that November/December international arrivals/visitor numbers would be lower than 2019 figures.

• See premium. Reply to this email to upgrade.

The UNWTO has reported that Europe is the most open region to international tourists in the world. It says 7% of borders are completely closed. This is followed by Africa (9%), the Americas (10%) and the Middle East (15%). Some 65% of borders in the Asia / Pacific region are closed.

STR reports that US hotel performance slipped last week but remains close to pre-pandemic levels. In the week to 20 November, occupancy was 59.7%, down 2.1% on 2019. REVPAR was down 0.4% on two years ago.

OTHER LEISURE:

888 Holdings Plc has updated on the acquisition of the international (non-US) business of William Hill & says it has made ‘strong progress made towards completion’ which is ‘now expected in Q1 2022.’

Macau casino operators saw their share prices fall after police arrested 11 people over alleged money-laundering and illegal cross-border gambling.

FINANCE & MARKETS:

The bond markets, where billions are traded and where bigger brains than ours are currently employed, has decided that the appearance of the Omicron variant means that interest rate rises are less likely.

• See premium. Reply to this email to upgrade.

Sterling weaker at $1/3317 and €1.1772. Oil price down at $71.20. UK 10yr gilt yield up 4bps at 0.85%. World markets better yesterday but Far East down today and London set to open down perhaps 82pts as at 7am.

RETAIL WITH NICK BUBB:

• See premium. Reply to this email to upgrade.