Langton Capital – 2019-09-30 – Gig workers, MARS, late night spend, TCG etc.:

September 30 2019

Gig workers, MARS, late night spend, TCG etc.:

A DAY IN THE LIFE:

So, Langton along with four of its five (adult or semi-adult) kids did make it to Go Ape over the weekend where the younger members dangled from various trees and swung into rope-nets, zip-lined across valleys and generally spent parental money and got filthy into the process.

And, though various of the trails were closed to allow rally enthusiasts to scream up and down narrow, undulating corridors throughout the forest, a good time was had by all.

However, it has to be said that tree-scrambling isn’t much of a spectator sport. After the first hour or so it gets a bit samey and neck-ache sets in but it’s a good job that we did it when we did as the heavens opened on Sunday and they don’t seem to have shut since.

Anyway, we’re at the dawn of a new week. Let’s move on to the news:

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Below by way of example is last week’s comment on the property market from the property company’s point of view.

TO SEE OURSELVES AS OTHERS SEE US: A brief look at the casual dining, pubs & bars market from the perspective of the landlord. Included in Premium Email 26 Sept 2019:

Introduction:

• Looking at the F&B market from the position of the operator has the plucky casual diner trying to break into a market dominated by the majors and big money, with landlords seen at best as an irritant and, at worst, as a threat to business.

• Like banks, they are deemed to take ‘little’ risk and they can be trigger happy when things get tough. However, we’d suggest that 1) CVAs and the like have levelled the playing field (albeit at the cost of ripping up the rules) and 2) things were never that simple in the first place.

• Property owners fall into a number of categories. Apart from private landlords, large & small, there are the diversified property companies (holding offices, warehouses, manufacturing sites, shopping centres etc.) and some that are more targeted towards B2C outlets. These might include Intu, Shaftesbury etc.

• See also comments below from Local Data Company.

An integrated player, Shaftesbury:

• We are not property analysts and do not have a view on the company but Shaftesbury’s H2 update, for the 25wk period to 24 Sept, brought the above to mind.

• It’s often interesting to turn the telescope around and look through it from the other end and, whilst Shaftesbury, as a West End property specialist, isn’t altogether typical of the UK property market as a whole, it does have something to say.

• Shaftesbury says the ‘West End remains busy and our food, beverage, leisure and retail occupiers continue, on average, to report year-on-year sales growth.’

• Shaftesbury is seeing ‘continued good demand for our regular space’ and says rents are robust and that its ‘vacancy remains low and consistent with long-term average.’

• CEO Brian Bickell does emphasise that Shaftesbury is not a typical property co when he says ‘our exceptional 15.2 acre portfolio, located in some of the busiest parts of the West End, continues to perform well.’

• The company, unlike many property companies, is spoiled for choice when it comes to tenants. It says ‘our long-established tenant selection strategy has ensured that we have been largely unaffected by high-profile retail and restaurant failures and restructurings.’

• Imagine, the cheek of it, picking and choosing your tenants.

Putting it in context:

• Whilst we’re by no means experts in the area, it hasn’t come as much of a shock to discover that property companies in general tend to be optimistic. Almost to a fault and occasionally in the face of contradictory evidence.

• Shaftesbury says ‘despite the uncertain political and macroeconomic backdrop, London’s global city status continues to draw businesses and visitors from across the World, reinforcing the West End’s long-term appeal and prospects’ and that, as far as it goes, may be true.

• Shaftesbury also says ‘despite reports of a small decline in overseas visitor numbers, mainly attributed to fewer European tourists, the West End remains busy. In our areas, the largest components of daily footfall comprise the huge local working population and daily visitors from across London and the Home Counties.’

• This is true but, if you have to use the word ‘despite’ too much, then you’re point to a mixed rather than a perfect market.

• But it doesn’t say much about Scunthorpe High Street or the retail parks around Bury, Burnley, Blackburn, Bolton or Blackpool.

• And what’s a property company really going to say? That the market’s soft and that its tenants should be asking for rent reductions?

The view from our side of the fence – a silver lining?

• From the operator’s point of view, the market is soft. The cookie-cutter, me-too sites have been coming under pressure and demand for generic units has fallen.

• We’ve seen in a number of administrator’s reports that leasehold sites (with £600k or £800k of fixtures & equipment in there) are either being sold for a pittance or ‘abandoned’ as the costs of recovery exceed the value.

• Many, perhaps most, operators have slowed their opening programmes. This is driven by self-interest but it has made units more readily available, cut demand and put downward pressure on rents.

• Fulham Shore (Franco Manca) said last month ‘we continue to see more properties coming to the market at ever lower rents as a result of the current conditions in the wider property, retail and dining out sectors, and will continue to take advantage of these as and when is appropriate.’

• It said in July ‘landlords are facing falling retail and restaurant demand for their sites.’ It added ‘many of these landlords and their commercial agents continue to suggest we are at the bottom of the cycle. However, we believe there is a way to go. Consequently, we feel the longer we wait for properties the better value we can achieve.’

• FUL points out ‘holding out for lower rents feeds through to continued low prices on our menus, which is excellent for our customers. We have sometimes seen as much as a 30% fall in rent where an existing tenant ceases trading and the landlord re-lets the property.’

• FUL believes ‘we are due for a longer period of rental decline this time around.’

• JDW has slowed its opening programme. So has Restaurant Group, Tasty, Comptoir and a number of other operators.

It’s hard work:

• That goes for both operators and landlords.

• Me-too operators, who may have survived 5-10yrs ago, are no finding the going much more difficult but, perhaps more interestingly, landlords cannot simply throw up a shopping centre, retail park or leisure park and expect it to attract business.

• That means that the cookie-cutter approach may be inappropriate.

• And, as anyone who’s had even a passing glance at operators such as McDonald’s, Subway, Gregg’s or the like knows, anything that can’t be produced in this way involves much more effort.

• Shaftesbury, for example, accepts that ‘structural changes in shopping and spending patterns continue to have a considerable impact on businesses exposed to these nationwide trends.’

• It points out that ‘earlier this month, the Seven Dials Market opened in Thomas Neal’s Warehouse, a 23,000 sq. ft. Victorian warehouse in the heart of Seven Dials.’

• This concept is ‘a hybrid operation providing an exciting line-up of street food concepts, a bar and a market selling fresh produce. This has increased the food and beverage offer in Seven Dials, further improving this popular and distinctive village destination.’ One thing that it isn’t, is simple to conceive, build, tenant and manage.

Other considerations:

• Rubbish, as they say, rolls downhill. Operators feel chill winds first. They pressure their landlords. The landlords are geared. If they have trouble paying their interest bills then the banks are in trouble. The banks turn to the government and the government turns to the tax payer – and that’s us.

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TAKING GIG-ECONOMY WORKERS ONTO THE BOOKS: Moves afoot in California suggest that gig workers could be treated like standard employees, 30 Sept 2019: See Premium Email.

GENERAL NEWS – PUBS & RESTAURANTS:

• The Sunday Times reports that Marston’s plans to sell c150 tail-end pubs for around £45m. The Times says ‘Marston’s is understood to have appointed advisers from Christie & Co to sell off 150 tail-end pubs for about £45m, in a process dubbed Project Harvest — part of its mission to pay down the debt. Initial bids were due on Friday, but the deadline has been pushed back until the end of this week.’

• Marston’s has recently cut back on its opening programme in order to more rapidly pay down debt. It updates on full year trading on 15 October.

• Nightclub operator Deltic’s latest survey of late-night spending patterns has suggested that UK consumers are spending more on a night out than at any point in the last three years.

• Deltic says the average spend on a night out is £70.69 this September. It says that is up by 25% on the same period last year and the highest since October 2016. That makes it rather a volatile series as very little goes up or down by 25% or so when inflation is just 2% and demographic trends are relatively stable.

• Deltic says that 61% of people went on a night out at least once a week in Q3 this year, up from around 56% last year. Peter Marks, CEO of Deltic comments ‘this quarter’s Deltic Night Index demonstrates that consumers are spending a significant portion of their disposable income on going out. However, these aren’t impulse purchases. People are clearly thinking about where and when they spend their money, as shown by the percentage of people that budget, and seek out the best value whilst enjoying a fantastic night out.’

• Shares in AB InBev’s Asia-Pacific unit rose c7% on their Hong Kong trading debut. The revived IPO was priced at the lower end of the projected range. AB InBev nonetheless raised c$5bn from the sale.

• The CGA latest Business Confidence Survey has found that the majority of Britain’s pub, bar and restaurant groups are keen to see the UK avoid a ‘no-deal’ Brexit, with only 7% of business leaders stating they thought it would be a good idea.

• Prezzo 40% off mains, Pizza Express 25% off food. Bella Italia offering 2nd main course for £1.00.

• The Food and Drink Federation has said that ‘continued access to EU preferential trade agreements [is] vital to avoid significant drop in exports.’ The FDF says that the UK Government has secured continuity deals for 15 existing EU preferential trade agreements out of a total of more than 40.’ This represents around £650m of trade out of a total of £1.5bn in H1 2019.

• The Society of Independent Brewers is teaming up with the Michelin Guide to bring independent craft beers to the exclusive Michelin Star Revelation event next month.

• The MCA UK Restaurant Market Report 2019 has found that sales at the top 50 branded restaurants in the UK have increased by 2.1% in 2019, against a backdrop of a market decline of 3.1%.

HOLIDAYS & LEISURE TRAVEL:

• Tui UK has announced that it will expand its tour programme, taking travellers to ‘off the beaten track’ locations.

• Comments now from both TUI and Jet2 suggest that capacity is going into the UK overseas holiday market in the wake of the Thomas Cook collapse. This is good news for operators in resort and probably a relief for would-be holidaymakers – but it does mean that any upward spike in margins as a result of TCG’s demise may only be temporary.

• CDL has reported that it has had acceptances for its bid for Millennium & Copthorne from holders as at 27 September of 99.21% of the equity. As the bidder has acceptances of over 90%, it has chosen to compulsorily purchase those shares that it does not own. MLC’s shares will be de-listed on 11 October.

• ICAMAP, which is bidding for EasyHotel, has reminded investors that its bid closes tomorrow at 1pm. It may or may not be extended. If EasyGroup, which as indicated it will hang on, does not accept the bid, then ICAMAP will not be able to delist the shares.

• EasyHotel has announced that non-executive Chairman Jonathan Lane has confirmed his intention to step down from the Board and to leave the Company on 1 October 2019. EZH says ‘following Jonathan’s resignation, Non-Executive Director Scott Christie will assume the role of Interim Non-executive Chairman.’

• Jet2.com and Jet2holidays have added more than 170,000 seats to the Canaries, Turkey, Cyprus, Greece and the Balearics. The company claimed the extra flights were being added because of increased demand between October to March, rather than a response to slots being available after the collapse of Thomas Cook.

• Merlin announces plans to open a Legoland in Sichuan, western China, by 2023. Merlin Entertainments has entered into a partnership agreement with Global Zhongjun Cultural Tourism Development to build and operate the resort.

• DER Touristik acquires Czech-based Fischer Travel Group for an undisclosed sum.

• CAA data shows 143,000 departing passengers who used London City Airport last year live within a three-mile radius, up 22% yoy.

• More on TCG.

o Union TSSA suggests that Thomas Cook boss Peter Fankhauser’s claim that he was not a fat cat does not stand up to scrutiny. The TSSA says ‘unlike employees he walks away having been paid millions of pounds. It’s our members who are paying the price.’

o Profits at Barrhead Travel fell to £1m last year despite a 6.6% growth in revenue to £320 million from £300 in the prior year.

o The FT looks at the track record of the three most recent bosses at TCG, Peter Fankhauser, Harriet Green and Manny Fontenla-Novoa concluding that ‘previous executives sowed the seeds of [the company’s] downfall with a debt-fuelled expansion and an inability to deal with disruption from new online rivals.’ It says that Mr Fontenla Novoa liked doing deals, Harriet Green splurged £180m on advisors and left Peter Fankhauser, a travel industry lifer, to inherit ‘a company that was “the most complicated simple business I’ve ever seen,’’ according to one person close to the liquidation process.’

o TCG arguably never had the capital to get back on a level footing. The FT says ‘Mr Fankhauser and Mr Fontenla-Novoa declined to comment. Ms Green did not respond to requests for comment.’

o Travel Weekly agrees that this was not a collapse that could be pinned on any one single event. It says that the merger with MyTravel ‘was strategically wrong’ and money was wasted on pan-European reservation systems. Entry into the Russian and Indian holiday markets proved to be ‘complete disasters’ and the group failed to sufficiently differentiate its product as it was assailed by low-cost airlines and new entrants such as Jet2.

FINANCE & ECONOMICS:

• Bank of England MPC member Michael Saunders has said that the bank may need to cut interest rates should Brexit uncertainty persist.

• The IFS has said that PM Boris Johnson’s various spending commitments will put a £26bn hole in the public finances. Moving higher rate tax bands up from £50k to £80k would cost around £9bn in lost revenue.

• The White House is said to be considering de-listing Chinese companies from US stock exchanges. Alibaba fell 5% on the news.

• Trade minister Liz Truss has said that Britain will be a low-tax, flexible economy after Brexit.

• Sterling lower at $1.2291 and €1.1237. Oil down at $61.75. UK 10yr gilt yield down 4bps at 0.48%. World markets mixed with UK & Europe higher on Friday & US lower. Far East mixed in Monday trade.

• The FT reports that spending promises being made by government (another £25bn on roads mentioned today) are coming under scrutiny as they do not seem to be consistent with slow growth and no increases in taxation. The government also says that it will build 40 new hospitals, spend more on the police & prisons and spend £5bn to support the rollout of high-speed broadband networks to rural areas.

• Brexit & politics:

o Various suggestions that PM Boris Johnson believes he cannot be compelled to write a letter to the EU requesting a Brexit extension.

o Mr Johnson is insisting that he did not have a conflict of interest when Mayor of London when his friend, Ms Jennifer Arcuri, received thousands of pounds in sponsorship grants.

START THE DAY WITH A SONG:

• Training courses intruding. Back soon.

RETAIL WITH NICK BUBB:

• Saturday’s Press and News (1): In the Saturday papers, the Times had the most to offer in terms of Retail stories, leading with more revelations from the bitter legal row between Ocado and its co-founder Jonathan Faiman (his lawyer has been accused of “burning” incriminating evidence). The Times also flagged that the owner of Poundland has rebranded itself from Pepkor to Pepco, to link itself with the central European discount chain of the same name and to distance itself from its troubled South African parent Steinhoff, ahead of a potential IPO. The Times also had a feature interview with the new boss of Mulberry, Thierry Andretta, who has “bags of ambition” to expand Overseas and drive Online sales.

• Saturday’s Press and News (2): In other news, the stockmarket report in the Telegraph noted that Justin King, a non-exec at Marks & Spencer, has followed Archie Norman in buying some shares, whilst the Daily Mail highlighted that Clive Whiley, the Chairman of Mothercare, has picked up a second job as Chairman of Dignity, the funeral business. The Daily Mail also focused on Tesco in its “Popular Shares” column (ahead of next week’s interims). Finally, Bryce Elder, the well-respected stockmarket correspondent of the FT, had an interesting, if not very well informed, column about the uncertain outlook for JD Sports in the US, notwithstanding the support of mighty Nike (”US expansion for JD Sports looks like a tough match”).

• Sunday’s Press and News (1): There were some interesting front page headlines in the Sunday papers, with the Observer flagging that “PM “whipping up riot fears to avoid Brexit extension”” , whilst the Sunday Times led with “Arcuri “told friends of affair with Boris””, the Sunday Borisgraph went, ludicrously, with “Johnson: I will build 40 new hospitals” and the Mail on Sunday, shamefully, ran with “No 10 probes Remain MP’s “foreign collusion””…

• Sunday’s Press and News (2): The main talking point in terms of Retail stories was the Sunday Times story about the lurid revelations in the legal row between the shoe firm Clarks and its former boss Mike Shearwood (“Clarks rocked by claims of racism, sexism and fraud”). The Sunday Times also flagged that Sainsbury is demanding that suppliers absorb any post-Brexit tariff rises, whilst the Observer highlighted the post-Brexit fresh food supply disruption fears flagged by Tesco, ahead of its interims next week. The “Stockmarket Watch” column in the Mail on Sunday highlighted that City brokers are bullish about what Tesco will have to say with its interims and also that M&S will focus on the overhaul of its Food business in its presentation to the City next week. The Sunday Times also had a feature interview with Mark Langer, the boss of the fashion business Hugo Boss, on his
turnaround plans (“We have to show the world who’s Boss”). Finally, there was an interesting column in the Sunday Times by its Economics correspondent David Smith on political spending plans (“Corbyn’s not popular, but many of his ideas are”).

Today’s Press and News: The news that another of the beleaguered Arcadia’s subsidiaries, Miss Selfridge, has reported big losses for last year is picked up by the Guardian and the Daily Mail, inter alia. The Times flags that that the struggling Mamas and Papas chain has brought in advisers to put the business up for sale and it also follows up the Sunday Times story that Sainsbury is demanding that suppliers absorb any post-Brexit tariff rises. The Telegraph leads its preview of the week’s company news with the headline that “Greggs remains on a roll” and it also has a useful “SWOT” analysis on Tesco ahead of tomorrow’s interims and flags that there are City fears that Ted Baker will try to raise money on the back of its interims this week.

News Flow This Week: As the Tory Party conference continues in rainy Manchester and as we move into October and Q4, there is again plenty going on in the Retail sector this week to distract us from the crisis in UK politics, kicking off tomorrow with a Marks & Spencer Capital Markets Day, the ScS finals and the Greggs Q3 update. Wednesday then brings the Tesco interims and the Topps Tiles pre-close update, with the Ted Baker interims following on Thursday.

TRADING STATEMENTS & EVENTS:

Upcoming results are set out below:

• 27 Sep 19 Escape Hunt H1 numbers

• 1 Oct 19 Revolution Bars FY numbers

• 1 Oct 19 Gregg’s Q3 trading update

• 3 Oct 19 Constellation Brands Q2 numbers

• 8 Oct 19 Hollywood Bowl FY trading update

• Est 8 Oct 19 EasyHotel FY update

• Est 8 Oct 19 Gfinity FY numbers

• 15 Oct 19 Marston’s year end trading update

• 18 Oct 19 Coca Cola Q3 numbers

• 22 Oct 19 Whitbread H1 numbers