Langton Capital – 2020-04-23 – PREMIUM – Compass, G4M, Loungers’ cash raise, consumer attitudes etc.:
Compass, G4M, Loungers’ cash raise, consumer attitudes etc.:
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A DAY IN THE LIFE:
Lot going on, believe it or not. Either that or Langton just got up late. It certainly didn’t feel like it. On to the news:
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• Cash hoarding. Extends to dividends, share placings etc.
• Passing the parcel. Missed rents.
• Jilting staff and suppliers. Repercussions?
CASH HOARDING: Whilst understandable, this does not put more money into the economy. It simply slows down its movement:
• As mentioned on a number of occasions, one company’s cash management is another company’s bad debt.
• This will negatively impact the velocity of circulation of money.
• And, if GDP is the amount of money in circulation multiplied by the velocity with which it changes hands, then GDP will fall.
• Furthermore, if large companies (which tend to be better capitalised) stop paying smaller companies, then the latter will fail fairly rapidly.
LANDLORDS ARE PEOPLE TOO. Well, sort of. They certainly have bills to pay:
• Not paying rents is great stuff but, as there is no such thing as a free lunch, somebody is going to be left short.
• We’ve mentioned that bad stuff rolls downhill.
• It is natural, in a market economy, to attempt to pass bad stuff on and to keep good stuff (cash) for yourself.
• Hence it is no surprise that rental payments for Q2 are running between 40% and 50%.
• And the payers will include government and utilities meaning that the proportion of market-facing companies that paid their rent will be lower than the number above.
• All of which will create issues for landlords. Intu was in a mess already and one would assume that many other landlords are in discussions with their lawyers (to get cash in) and with their banks.
• It never hurts to walk a mile in the other guy’s shoes but the market, at the end of the day, is what it is.
STIFFING STAFF AND SUPPLIERS: Of course, different language will be used but corporates want to pass the bad stuff on. How will this affect future relationships?
• It is perhaps contradictory to suggest that we can say ‘people have short memories’ and also say that the current situation is unprecedented.
• Because, if the latter is true, then you can’t use anecdotes to get a handle on the future.
• But, if we had to guess, we’d say that a company’s behaviour in the current environment is relatively unlikely to have many repercussions on its treatment in the future.
• Because, although it’s an over-used word, this is unprecedented.
• And there are a whole host of excuses out there. The payment staff were furloughed, we’ve had IT issues, the cheque is in the post etc.
• JD Wetherspoon suggested that it would understand if some of its staff decided to go and work at Tesco etc
PUB & RESTAURANT NEWS:
• Loungers has announced that it has successfully placed a total of 9,250,000 new ordinary shares of 1 pence each at 90p raising gross proceeds of approximately £8.3m for the Company.
• It says ‘the Placing Price represents a premium of 16.1 per cent to the closing price on 22 April 2020 of 77.5 pence per Ordinary Share.’
• Loungers joins sector companies City Pub Group, Carnival, Ten Entertainment, SSP Group, Everyman Media, Restaurant Group, Gym Group and Hollywood Bowl, all of whom have already raised funds.
• Loungers says ‘the net proceeds of the Placing, together with the New Facilities [see below], will be allocated to provide sufficient liquidity in the event that Covid-19 materially impacts the Company’s sales into 2021, as well as to enable the Company to re-commence the roll-out of new sites post Covid-19 at the time trading conditions support this.’
• The company says certain directors, staff and funds advised by Lion Capital will participate for 4.2m of the 10m shares on offer.
• Loungers says it is ‘committed to resuming the Company’s roll-out strategy as soon as there is evidence that consumer confidence has returned and trading conditions allow.’
• Loungers says it is cutting costs, staff has been furloughed, capex has been shelved and the group has agreed an incremental £15m revolving 18-month credit facility with Santander and Bank of Ireland in addition to the net debt of £35.4m that it announced yesterday.
• Compass Group has updated in light of the disruption brought about by the COVID-19 pandemic with CEO Dominic Blakemore saying ‘we are managing the business to protect the interests of all our stakeholders. Compass is a strong, resilient organisation that is well-positioned to continue to support our colleagues, clients, consumers and the communities we serve during this challenging period.’
• The company says ‘our priority has been to protect jobs as much as possible.’ It adds that it is continuing to ‘care for the communities we serve’ and says ‘in the last two weeks of March, the business performed in line with the expectations set out in our Coronavirus Trading Update of 17 March 2020. Organic revenue growth for Half Year 2020 was c.1.6%, within the 0%-2% expected range.’
• CPG adds ‘currently around 55% of our business is closed due to country lock downs.’ Sports & Leisure is 100% closed, Education and B&I c75% closed with Defence, Offshore, Healthcare 100% open. The group has cut costs, the CEO has taken a 30% pay cut and ‘we are working hard to protect our cash flow.’ Capex is down and, re liquidity, it says ‘we have put in place an additional revolving credit facilities of £800m with existing relationship banks and now have total committed credit facilities of £2.8bn.’
• CPG will not pay a dividend for the year to September 2020. The group has delayed its H1 numbers from 13 to 20 May. SSP has also delayed its numbers. We expect a host of other companies to follow suit.
• DP Eurasia updated on the Covid-19 situation yesterday saying that ‘the Group’s Turkish stores are currently operational except for 54 stores that were shut down due to either being located in shopping malls which were closed or as a result of optimising labour efficiency through combining delivery zones.’
• It says measures introduced in Russia are stricter than those in Turkey. It says ‘in Russia, except for 26 stores that were shut down for reasons of labour optimisation, all stores continue to provide delivery and take-away services’. It says in Russia, takeaway system sales have been minimal ‘whereas delivery service has been performing well.’
• DPEU says ‘the Group’s banks are being supportive in both countries.’ It says ‘assuming the current operational constraints do not worsen, the Group does not foresee any issues with business continuity and cash flow.’
• DPEU says ‘the Board is confident that the Group’s balance sheet is strong enough for the Group to operate for six months under its current cost structure even if all its operations are shut down by government action in response to the COVID-19 outbreak. Furthermore, the Group has the ability to extend this period by taking certain additional cost cutting measures.’
• Global beer major Heineken said yesterday that beer sales slid by 14% in March with declines in all regions as Covid-19 problems closed many outlets. The group has shut down production in South Africa. In other areas, sales in the off-trade have failed to make up for lost volumes in the on-trade.
• Heineken reports beer volumes for the quarter as a whole down by 2.1%. There is no obvious end to the lockdown in site and Q2 could be considerably worse than Q1. The group will pay its final 2019 dividend but will not pay an interim dividend this year. In common with most producers and operators, the company has cut costs, reduced capex etc.
• Coffee chain Grind says that online sales have ‘exploded’ but that its sales through its shops have fallen to zero. Founder David Abramovich says ‘our online sales are up by about 12 times. We were selling a couple of million cups in our 11 stores last year, but it is now many times that for cups brewed at home.’
• MEATliquor is to reopen its East Dulwich restaurant for a takeaway and delivery service.
How long will this last?
• The UK’s most senior medic, Professor Chris Whitty, has said that social distancing will be needed until at least the end of the year to prevent fresh outbreaks of coronavirus.
• Prof Whitty says that there is an ‘incredibly small’ chance of a vaccine being ready at any point during 2020. He says ‘we are going to have to do a lot of things for really quite a long period of time, the question is what is the best package and this is what we’re trying to work out.’
• Sir Keir Starmer meanwhile has suggested that the government has got itself into a muddle. He says it was slow to go into lockdown, its figures are tracking ahead of Italy, we are not including care homes in our numbers, we don’t know what to do about masks, we haven’t sourced PPE and we don’t have an exit strategy.
• Michael Gove has said that pubs and restaurants, which were the first to go in, could be amongst the last to come out of lockdown.
• The BBPA has said that local authorities are letting pubs down. It says its research has ‘revealed that there are many parts of the country where pub businesses are yet to receive grant funding from local authorities to help them survive the COVID-19 lockdown.’
• The BBPA says that only 11% of eligible pubs in Birmingham have received their grants (either £10k or £25k). Some 17% of pubs in Manchester have received the money and 22% in Brighton.
• The BBPA, which ‘greatly welcomed the grant support offered by the Government’ when it was announced, says that ‘in some areas the system has been slow and sluggish, with Local Authorities not paying out grants to pubs and other businesses with the urgency needed.’
• The evidence is very mixed with around a third of pubs receiving their cash in Liverpool, Sheffield and Bradford but almost 100% getting access to the money in Redcar & Cleveland, Winchester and some areas in London.
• The BBPA says the situation ‘needs to be rectified immediately. Otherwise, pubs will close for good and the thousands of people they employ will lose jobs.’ It says ‘credit must go to those Local Authorities who are doing the right thing and getting their grants to pubs and other businesses quickly. We need the Local Authorities to learn from best practice and get the urgently needed support to pub businesses as a matter of urgency.’
• Subway in the US is enhancing its cleaning procedures and sourcing masks for its staff in a move to bolster trust across its takeaway outlets.
Estimates of the new normal:
• YouGov has conducted a survey into consumer attitudes and has found that 63% of former customers would still feel uncomfortable going into pubs and bars once the lockdown restrictions have eased.
• People seem to have a desire for space. Only 25% would be worried going into garden centres, for example, whilst 62% would feel uncomfortable in gyms and 58% would have qualms about going into coffee shops.
• YouGov says ‘the places that are rumoured to be reopening first, such as garden centres or clothing stores, are also the places that people would feel most comfortable returning to. Although in both cases there are substantial minorities who would still feel uncomfortable.’ The UK government has the advantage of being able to watch Italy and Spain to see how those countries come out of lockdown.
• YouGov says, unsurprisingly, that people ‘are more concerned about visiting places where they would likely end up in closer contact with others.’ It says ‘there is a noticeable gender difference across most of the areas we tested. For example, looking specifically at clothing stores, 54% of men saying they would feel comfortable going back, compared to 42% of women.’
• YouGov says ‘there is a similar age divide, with 64% of 18 to 24 year olds saying they would feel comfortable returning to clothing stores, compared to just 46% of those aged from 50 to 64. The numbers are even lower for those aged over 65, although most of that age group will likely still be in isolation after the lockdown has eased.’
• We’re not even there yet but operators are beginning, probably rightly, to fret as to how they will operate in a socially-distanced world.
• UKH’s Kate Nicholls says ‘hospitality faces a unique problem, in that our businesses are built around socialising. When the lockdown ends, and even if social distancing measures are relaxed, many businesses will not be able to operate fully and some might not be able to open at all. Customers may also feel nervous about going out into a potentially crowded setting, too.’
• We have commented at length about the problems the industry may face if the government decides to privatise the problem whilst socialising the solution. If government support stops before footfall returns to normal, it will be hard for some operators to make ends meet.
• UKH says ‘our sector needs to be a special case when it comes to the furlough scheme. We will not be able to go from zero to 100 overnight. The government must make sure it provides continual support for businesses in our sector, specifically the ability to keep staff furloughed where they need to.’
• Food equipment journal fermag.com has said that operators need to be very careful as to how they shut down and maintain-whilst-closed, their units. Guidance is on its website. It suggests emptying fryers, draining combi-ovens and the like. It warns that pipes could clog, limescale could be an issue etc. This will all add to the time and money needed to re-open.
• The British Chambers of Commerce estimates that 70% of private firms have furloughed staff.
• ePOS Hybrid, a tech start-up, is offering a fully-integrated ePOS platform to make it easier for restaurants to ‘effortlessly move – in some cases within five minutes – to takeaway services.’ It says ‘the worldwide hospitality industry has been turned upside down in recent weeks, with so many restaurants closing and others having to pivot their services to takeaway and delivery.’ It adds ‘to help our customers, we’re working with them to switch services to takeaway either by utilising their existing hardware or by using a single, low cost tablet device, which will act as the main ordering hub for the business.’
• Orderbee, a low-cost Click & Collect and Order & Pay platform from hospitality sector specialists Omnifi, is offering services to clients for £100 per site per month. It says ‘during lockdown Orderbee will allow customers to Click & Collect via a simple website that takes care of ordering and payment.’
• Better movements in the sector yesterday. Whitbread was up 5%, Hostelworld up 6% and Premier Foods up 8%. DP Eurasia rose 11%, Fevertree 13% and Cineworld 9%. Amongst the fallers, TUI was 6% lower and Intu was down by 20%.
HOLIDAYS & LEISURE TRAVEL:
• IATA has warned that the recovery from the current upset will be slow and potentially problematic. It says ‘passenger confidence will suffer a double whammy even after the pandemic is contained – hit by personal economic concerns in the face of a looming recession on top of lingering concerns about the safety of travel.’
• IATA is calling for government help. It says help to the industry must be ‘coordinated with confidence-boosting measures.’
• STR reports that the US hotel industry saw REVPAR fall by 19.3% in Q1 as a whole. This was on a declining trend as the quarter progressed. Occupancy was down by 15.9% and rates were down by 4.0%.
• Fred. Olsen Cruise Lines has said that it will extend its suspension of cruising past its earlier date of 23 May. The company says it cannot confirm a date at present.
• Which magazine has reported that all of the UK’s biggest airlines and most big holiday companies are breaking the law by not paying timely refunds to customers. Many simply do not have the money to do so.
• A Saga poll has found that almost two thirds of over-50s have would be reluctant to take a cruise due to coronavirus fears. Many were more likely to book a holiday in the UK.
• The Foreign Office has repatriated over 19,000 cruise passengers back to the UK.
• Air Mauritius has filed for voluntary administration.
• Gear4Music has updated on full year trading to end-March saying that revenues rose by 9% to £120.3m. EBITDA should be not less than £7.0m compared with £2.3m last year. The group says ‘subject to audit. Final results to be announced on 23 June 2020.’ SSP and Compass Group have delayed H1 numbers and other companies could do the same. Discussions with auditors could be testing.
• G4M CEO Andrew Wass says ‘I am very pleased to report that we have achieved our primary FY20 objectives of improving our operational strength and driving efficiencies in order to restore gross margins, resulting in record profits for the Group.’ He adds ‘FY21 has begun with operational challenges relating to COVID-19’ but says ‘we remain confident that our business is appropriately configured to achieve long term profitable growth, and that we are in a strong position to build upon the excellent progress we have made during FY20.’
• Sumo Group, a Sheffield games company, has reported a 73% rise in sales in the last few weeks. CEO Carl Cavers says ‘the group entered 2020 in great shape and global demand for our services remains strong.’
• Procurement company Regency Purchasing has said that two of its largest members will not open their businesses for the rest of this year. They are understood to be visitor attractions.
FINANCE & ECONOMICS:
• UK CPIO fell to 1.5% in March from 1.7% in February on the back of lower oil prices.
• The NIESR says ‘our analysis of approximately 120,000 goods and services included in the basket indicates that lower prices in clothing and footwear and the transport categories contributed meaningfully to the moderation in inflation recorded in March.’
• Oil bounced sharply yesterday to $22.99 per barrel. Sterling stronger at $1.2338 and €1.1406. UK 10yr gilt yield up 2bps at 0.32%. World markets better with Far East higher in today’s trade.
o The FT has extrapolated the number of deaths that it has become aware of in care homes across the industry and suggests that the ‘real’ death toll from the virus is around 41,000.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: As well as the DFS placing news today (see below), it’s worth noting that the CMA has made an early decision (wonders will never cease etc) to clear the acquisition of Just Eat by Takeaway.com and that there has been a trading update from a company that #MadMike has a big stake in, namely Studio Retail (the old Findel, which trades Online as Express Gifts). Unfortunately, the planned sale of Studio’s Educational Supplies business has been held up by the pandemic crisis and order demand has slumped, but the core Online gifts business is trading well.
• DFS Furniture: DFS announced after-hours last night another trading update and confirmed that, despite some technical problems, it was proceeding with a rescue equity placing. And it has confirmed this morning that the placing has been completed on quite favourable terms, with £66m raised at a price of 150p, a 16% premium to last night’s weak close of 129p. The equity placing and bank financing announced last night was designed to give the company liquidity headroom through “a pessimistic scenario of a lockdown to December 2020, followed by a historically weak sofa market”.
• News Flow This Week: There is no more Retail company news scheduled this week, but the belated ONS Retail Sales figures for March will be out first thing tomorrow (ie 7am) on that strange parallel world, the Planet ONS…