Langton Capital – 2019-12-18 – PREMIUM – CVAs, Safestay, late-night spending, wages etc.:
CVAs, Safestay, late-night spending, wages etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Walls seem to be more in the news than ever today.
You’ve got Mexico-border walls, Red Walls, walls of money and all the rest but people seem conflicted as to whether it’s a good thing to 1) build them up (Donald Trump’s a fan, he wants a big one somewhere in the US south-west, Colorado maybe, geography’s not his strong point) or 2) tear them down (Berlin 1989) or 3) simply hose them with oodles of taxpayers’ money and hope that they crumble as PM Johnson looks set to do here in the UK with the wobbly socialist edifice between dear old Hull and North Wales.
Anyway, that’s enough of that. The year’s nearly over so let’s move on to the news:
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CVAs IN 2019: CVAs have once again been a hot topic in 2019. The impact of these administrations on the UK high street has been well documented by the press this past year. 18 Dec 2019:
The year in brief:
• Very little slowdown in the rate of CVAs.
• The Government’s ‘Commentary – Company Insolvency Statistics July to September 2019’ reports there have been 274 CVAs in the first three quarters of the year (Jan-Sept). In the same period in 2018 there were 286 CVAs.
• The report also shows a 1.7% increase in underlying insolvency volumes in the 12 months ending Q3 2019, this was the largest increase by sector.
A few notable lowlights:
• Bigger names have been in general retail.
• Notable CVAs have included HMV (27 stores shut down with 455 jobs lost) Debenhams (50 stores closed with 1200 jobs lost) and Arcadia (48 stores shuttered with 500 job losses).
• Can they work for staff? What about shareholders?
• However, this year has again seen some CVAs where no stores have been shut nor redundancies made. For example, CVAs by Monsoon and Select allowed the chains to secure massive rent reductions and wipe out tens of millions of points of debt respectively.
An uneven playing field?
• This begs the question, at what point is a company using a CVA to secure competitive advantage?
• It would appear as though landlords have faced some raw deals over the past year, but do they also need to shoulder the blame for pursuing aggressive rent policies?
• After all, they bought into the boom and pushed rents. Isn’t this just the flip-side?
• But, on the other hand, tenants willingly entered into rental agreements. In some cases, they even bid up rents against each other.
Any interim conclusions?
• Arguably, the past two years have shown CVAs are here to stay.
• The he frequency with which they’ve been used shows that they are a strategic tool on a company’s utility belt.
• Until or unless there is legislation to prevent this from happening (or there is an economic boom), this is likely to continue.
• This year has also seen the use of the more serious ‘pre-pack administration’ where a company is often bought out of administration with unprofitable sites being shuttered.
• Examples of this in 2019 included Pod being bought out by Azzurri Group and Clinton Cards being bought by its US owners.
• This type of administration is arguably more serious as it can involve a change of ownership, whilst that is usually not the case in a CVA.
Does this help the market?
• The CVA allows a company to shed its tail, or in some cases, just reduce liabilities in general (rent reductions and/or debt write-offs).
• But there remain some big questions.
• Are CVAs just allowing unprofitable ventures to linger around for a few more years or are they providing a much-needed mechanism to challenge notoriously rigid landlords?
• Do they disadvantage ‘good’ players that have stuck with their original sites, rental agreements and financing structures?
• They may be a bit of both but CVAs look set to continue into the New Year, with the results of the vote on Chilango’s proposed CVA being announced on 03 January.
• But politicians may take a bit more notice.
• The Chilango CVA could be interesting as, with the group’s ‘burrito bond’ holders likely to take a haircut, this could be one of the first times that individual investors (read, voters) have been hit in the wallet by something that usually only involves landlords, banks and some other creditors.
PUBS & RESTAURANTS:
• The latest Deltic survey into late night spending habits has reported that consumers now spend an average of £69.64 on a night out. Deltic surveyed some 2,335 people. The survey adds together all the elements of a night out, including drinks at home, transport both ways, food and drink purchases, entry fees and transport home.
• The Deltic survey suggests that consumers are spending £2.59 more when they go out at night than they were this time last year.
• London is the most expensive city in the UK with people in the 26-30 age bracket being the biggest spenders in the country with a spend of £75.24. More than a quarter of 18 to 21-year-olds go out 2-3 times a week, compared with 15% of all consumers. Deltic says ‘we know that consumers celebrate occasions by going on a night out, and what bigger occasions are there than Christmas and New Year? We’re seeing this trend reflected in this quarter’s figures. More than 50% of Brits believe that a big night out is a good way to celebrate the end of the year and as the figures show, we certainly will be celebrating.’ Mr Marks adds ‘more than 40% of us will enjoy more frequent nights out to catch up with friends and almost half of us will spend more while we’re out.’
• Oakman Inns & Restaurants has announced revenue for the 15 month period ended June 2019 of £46.7m with LfL sales up 7.3%. The group reported site EBITDA at £8.6m with group EBITDA at £4.2m.
• Oakman Inns CEO, Peter Borg-Neal, commented: ‘Overall we have maintained our corporate momentum despite an unhelpful environment with the uncertainty around Brexit impacting both consumer and investor confidence. We believe that the post-election period will bring some momentum in to the economy and we expect that the new Government will keep their promises with respect to a root and branch reform of Business Rates’.
• Speaking at the UKHospitality’s annual Christmas Lunch, Chief Executive of the association, Kate Nicholls commented: ‘This year, we have achieved the ambitions we set out at last year’s Christmas Lunch, and more besides. We have a new Government elected on a manifesto that answered our key asks for hospitality: reform of business rates, support for high street hospitality, a cut in employment taxes and reform of NICs’.
• 17-strong bar chain Arc Inspirations, which runs the Manahatta, The Pit, Box and Banyan Bar & Kitchen chains in the North of England, has reported full year numbers to 31 March 2019 to Companies’ House saying that revenue rose by 16.6% to £27.2m with operating profit down by 31% at £213k. The company reports losses before tax of some £474k compared with a profit before tax of £183k last year.
• Arc Inspirations reports that ‘overall we have had another extremely pleasing year and one of significant progress’. The company reports that adjusted EBITDA rose by 15% year on year. The company says that ‘despite increased competition, challenging market conditions and ongoing industry-wide cost pressures…the company has performed very strongly.’
• Arc reports that, during the year, it made changes to its accounting policies that had the impact of reducing the current year depreciation charge by £1.6m. The prior year figures have not been re-stated. Arc says that it is evaluating potential new sites and says that ‘Santander PLC continues to be very supportive of our business and doubled its banking facilities during the period to fund new openings.’ Bank debt is 1.6x EBIDTA. Arc says ‘we also have the benefit of high net-worth shareholders who have consistently invested in the company.’
• The Coaching Inn Group has acquired the Bell Hotel in Stilton, taking the group to 16 properties.
• US-based Wahlburgers plans to overhaul its menu at its London Covent Garden site just six months after launching. The news comes a week after Wahlburgers was forced to refute claims it was preparing to put its flagship London site on the market.
• Punch and Steven McGeachy have completed a £150,000 joint refurbishment of No 4 Brook Street at The Dun Cow in Daventry, with the pub launching last week.
• British American Tobacco and four other firms have been banned from advertising vaping products on Instagram with health campaigners calling the move ‘a huge step forward’.
HOLIDAYS & LEISURE TRAVEL:
• Safestay has announced the acquisition of three hostels in Warsaw, Prague and Bratislava from Dreamgroup Management for a total consideration of €3.7 million. This increases ‘Safestay’s network to more than 5,000 beds across 21 hostels, all centrally located in Europe’s leading cities.’
• Safestay says ‘it is satisfying to meet our target of having at least 20 hostels one year ahead of schedule. However, the true value of the operating network we are establishing is in the customer response to the Safestay brand and the sought-after central locations in key cities our hostels occupy. No other hostel operator offers the same range of premium sites in leading locations making the Safestay network uniquely positioned in a sector that is growing rapidly.’
• Stansted is expecting 88,000 passengers to travel on December 29, making it the busiest day of the festive season. Only 3,500 passengers are expected on Christmas Day.
• Accor has announced the disposal of its stake in Orbis, a hotel operating company, for £890m to AccorInvest. The transaction is expected to be completed in Q1 2020. Accor has also struck a deal with HR Group resulting in a £361m reduction of Accor’s consolidated debt.
• Abta has reissued voluntary guidelines encouraging travel companies to stop selling unacceptable animal attractions. Examples include photo opportunities where the animal cannot move away, performances where training involves punishment or food deprivation, elephants without a barrier, and contact or feeding with wild cats, crocodiles, great apes, bears or sloths.
• In the US, AAA expects a record 115.6 million travelers to travel at least 50 miles from home between 21 December and 1 January 2020.
FINANCE & ECONOMICS:
• The ONS has reported that average weekly earnings excluding bonuses rose by 3.5% in the three months to October compared with the same period a year before. Total wages including bonuses rose by 3.2%, down on growth to the quarter before due to lower bonus payments.
• CPI in the three month period was 1.6%, suggesting that real wages are growing at some 1.6% including the impact of bonus payments. The NIESR comments ‘earnings growth has softened slightly in recent months. With the general election removing some of the political uncertainty, there is a chance for a renewed pick-up in pay dynamics as we enter the new year. But with real wage growth outpacing productivity improvements and unit labour cost growth elevated, such a pick-up would unlikely be sustained.’
• Sterling has given back some of its post-election gains as the markets have digested the potential impact of the government’s move to block any extension of the Dec 2020 transition period in law. Supporters say that it will focus minds whilst opponents say that it creates another artificial cliff-edge and may incentivise the EU to run down the clock.
• Sterling lower on renewed fears of a cliff-edge. Trading at $1.3106 and €1.1773. Oil higher at $65.76. UK 10yr gilt yield down 5bps at 0.77%. World markets mixed with Far East lower in Friday trade.
START THE DAY WITH A SONG:
Yesterday’s song was I’m Waiting for My Man by Velvet Underground. Today who sang:
Talk in song in tongues of lilting grace,
Sounds caress my ear
There are not a word I heard could I relate
Story was quite clear
RETAIL WITH NICK BUBB:
Marshall Motors: We haven’t heard much from the Motor dealers recently about trading conditions, but one of them, Marshall Motors (which has a market cap of £120m) has stepped up to the plate today, by announcing a “strategic acquisition” of a group of VW and Skoda dealerships for c£22m, together with a brief trading update, which says that, despite the continuing decline in new car sales, “the group has performed well in this challenging market and despite trading conditions weakening further in Q4 2019, the Board’s outlook for the full year remains unchanged”.
John Lewis Trading Watch: We said a week ago that the John Lewis sales figures for last week would probably take a pounding, given the business pulled forward by “Black Friday” discounting, so we weren’t surprised to see that overall gross (and LFL) sales in w/e Dec 13th slumped by 11.9%, according to yesterday morning’s JLP weekly overview…In terms of sales mix, for what it’s worth, Fashion/Beauty sales were down by 13.3% gross last week, Electricals were down by 14.7% and Home sales were down by 6.3%. Over the last 46 weeks, overall gross sales are now running down 1.3% cumulatively (the H1 LFL sales fall was 2.3%, with gross sales 1.8% down). The debate now moves on to how badly this key week will be affected by the Black Friday pull-forward effect, with Christmas Day now just 7 days away (!) and the weather unhelpfully dreary, but we note that John Lewis has gone on Sale
Waitrose Watch: If the poor John Lewis sales last week can be explained away, it is disappointing that last week, w/e Dec 13th, saw another painful fall in gross ex-petrol sales at Waitrose, of 3.4%, pulling the last 46 weeks cumulative run-rate down to -0.9%…Although, unaccountably, Waitrose do not think it useful to provide a weekly LFL sales figure, we think that store space is at least 1% down (after the sale of five Waitrose stores in June and more disposals in October), so it is safe to say that the LFL sales picture does not look so bad (the LFL sales dip was 0.4% in H1, with gross sales down by 0.8%). But even so, that would still imply that the last few weeks have been over 2% down LFL and, though the Christmas calendar effect of Christmas Day moving from a Tuesday to a Wednesday has yet to unwind, Waitrose will need a huge last-minute spending rush to get back on track.
News Flow This Week: Today brings the WH Smith EGM (for shareholders to approve the US deal) and the Carpetright EGM (for shareholders to approve the Meditor rescue bid). Tomorrow we get the ONS Retail Sales figures for November and then Friday brings the GFK Consumer Confidence survey for “December”.