Langton Capital – 2020-09-09 – PREMIUM – Rents, overseas holidays, Fevertree, EOTHO, Thomas Cook etc.:
Rents, overseas holidays, Fevertree, EOTHO, Thomas Cook etc.:
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A DAY IN THE LIFE:
Bit busy this morning, on to the news:
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OVER-RENTING. With virtually all CVA proposals going through unamended, is it time to ask whether rents are simply too high? 9 Sept 2020:
• Traditionally, UK commercial rents are upward only.
• Over a 15yr or 25yr period, this can lead to over-renting if circumstances change.
• Many observers suggest that Covid-19 is just such a change in circumstances and that rents may be 20% or 30% too high.
• The fact that so many CVAs have been waved through, apparently on the nod, would suggest that even many landlords agree.
• But CVAs arguable reward failure and cut rents for less-good operators whilst leaving others with their existing rent structure
• This happened with High St bars around the Millennium, much to the chagrin of JD Wetherspoon
• An observer would potentially agree that this stat of affairs is ‘unfair’, but there is no obvious mechanism to change it.
• Poor companies that are able to grab the attention of CVA advisors early in this process are likely to restructure before their ‘better’ peers
• Indeed ‘better’ companies may never do so.
• Units that ‘benefit’ from rent cuts gain an advantage and those that are shuttered and returned to the landlord, may only reopen at much lower rent levels
• There is an argument that first cuts are often not deep enough.
• This was certainly true concerning the CVAs of 2018 – although it is fair to say that Covid was a shock
• Ultimately, the landlord owns the property – and rents should trend towards whatever the fair level is – though the mechanism to achieve this is unclear
• ‘Good’ operators will be having words with their landlords and we would expect to see rent cuts in due course
WHY WOULD CONSUMERS TAKE AN OVERSEAS HOLIDAY NOW? With UK infection levels at 20 per 100,000, could the UK itself be subject to restrictions?
• The UK set 20 infections per 100,000 as the level at which it would require quarantining when travellers returned from a country.
• It had to set the level somewhere but, now that the UK itself is at 20, could other countries impose restrictions on UK travellers.
• Destination countries want UK travellers to spend their money
• But, the numbers are the numbers and, if travellers found themselves having to spend their holiday in their hotel room, could they really be surprised
• Of course, that’s not what the travel industry wants to hear.
• It would like to hear that the new normal is a similar to the old normal as possible – but that is not really the case
PUB & RESTAURANT NEWS:
Trade data on the EOTHO scheme:
• The British Beer & Pub Association, British Institute of Innkeeping and UK Hospitality have jointly revealed new data today’ showing that the Eat Out To Help Out Scheme directly benefitted the Government to the tune of £250 million, whilst also saving thousands of jobs in the pub and hospitality sector.’
• The work undertaken looks at the revenue generated for the government via VAT on food, VAT on drink sold with food and employment taxes and a reduced furlough cost were the main contributors.
• The trade bodies says ‘the new data follows figures announced by the Government last week which revealed that a total of 130,000 claims were received for the Scheme equating to a cost of £522 million for the Government, with further claims still to be made.’ If the government has recouped around half – and given footfall and confidence a boost, the scheme may be deemed a success.
• The report says ‘the Scheme enabled 200,000 staff in the pub and hospitality sector to come out of furlough early to facilitate the increase in trade generated by the initiative. This alone saved the Government almost £150 million in furlough costs.’
• Emma McClarkin of the BBPA says the scheme has ‘saved tens of thousands of jobs, helped with the recovery of the economy and boosted our sector at a much needed time.’ Ms McClarkin says ‘investing in our sector clearly delivers’ and she calls for more of it. The BBPA would like to see Business Rates reformed and beer duty reduced.
• UKH CEO Kate Nicholls says the scheme was ‘a shot in the arm for consumer confidence in eating and drinking out of home, right across the country. It gave our businesses the opportunity to showcase the investment they had made to keep customers safe while also making them feel welcome.’
• Meanwhile, the BII’s Steve Alton says ‘strengthening consumer confidence has been critical to kick-starting the recovery of the hospitality sector, as well as the wider economy.’ He adds ‘further Government support will be required building on this investment to ensure pubs are sustainable businesses in the long term.’
• A host of 50% off deals aimed at partially-replicating the EOTHO scheme, end at M&B outlets today.
Getting back to the office, changed consumer habits:
• Retail Week says ‘make no mistake about it, the consumer habits developed during lockdown will have a long-lasting impact on the experience shoppers demand from retailers in a post-pandemic landscape.’
• It says ‘in the space of just one trading quarter, the entire way retailers operate and customers shop has been turned on its head.’ The BRC and others are thinking particularly of online shopping. The end result for hospitality companies, reduced footfall, has not been positive.
• Langton has commented a number of times that, though the shock may be passed, a decade’s worth of evolutionary changes could be squashed into the next six months.
• New West End reports west End footfall was down 23% week-on-week on Monday, 7 September. It says ‘compared to the same day last year, footfall was down 58%.’ It says the ‘preceding Monday saw exceptionally strong footfall (+14% WoW, -49% YoY) due to both the Bank Holiday and the final day of the Eat Out to Help Out scheme.’
• There is clearly still something of a mountain to climb.
• JP Morgan says it will have the ability to have a half of its workers back at its Canary Wharf HQ at any one time from this week.
• Local lockdowns are the preferred way of dealing with Covid-19 spikes across the UK with Bolton currently under increased restrictions. Hospitality businesses can only serve food and drink to take away and they will have to close by 10pm.
• A number of people interviewed by the BBC and Channel Four pointed to pubs but, as UKH CEO Kate Nicholls says ‘we share the Government’s public health objectives as a top priority, so the increased Covid cases in Bolton are obviously regrettable. Hospitality venues have gone out of their way to collect test and trace data, so inevitably will be linked to more cases, despite the reality of infections happening in any setting.’
• Nicholls says ‘it is vital that the Government urgently engages with us to help businesses understand what more they can do, and what triggers this level of lockdown.’ She adds ‘there must be an adequate support package to see them through to the other side of this shutdown, with clear criteria for when they can reopen fully.’
• Bolton is currently running at around 120 cases per 100,000 people compared with around 20 for the UK as a whole. The trigger point for blacklisting a country for quarantine purposes has been set at 20.
Other Covid-19 developments:
• Unfortunately, the Oxford vaccine trial has been suspended after a suspected serious adverse reaction in one of the participants. Oxford University partner AstraZeneca says ‘as part of the ongoing randomised, controlled global trials of the Oxford coronavirus vaccine, our standard review process was triggered and we voluntarily paused vaccination to allow review of safety data by an independent committee.’
• A ban on social gatherings of more than six people will be introduced in England from Monday after a steep rise in coronavirus cases. The average UK level is now above that at which the government would require quarantining if a traveller returned from a country will similar levels of infection.
• The ban will not extend to schools, workplaces or Covid-secure weddings, funerals and organised team sports. It will be tricky to get a message across that workers should return to their offices but refrain from meeting people other than in the office.
• Pubs and restaurants will be allowed to have more than six customers inside. Large indoor gatherings have been deemed high risk since the beginning of the pandemic.
• Nielsen reports that the total UK consumption of alcohol halved during lockdown. Whilst sales fell to zero in the on-trade, they rose sharply in the off-trade.
• Nielsen reports that around 46% of alcohol in the UK is normally sold in the on-trade. Nielsen’s Gemma Cooper comments ‘without being able to go out or socialise with others during the peak of the pandemic, and no access to dine-in pubs or restaurants, we have seen a natural decline in alcohol consumption even as at-home drinking increased.’
• Labour has called for the furlough scheme to be extended. It says that many pubs and bars may be forced to close otherwise. Labour’s Lucy Powell says ‘pubs are a vital part of our high streets and social fabric in communities up and down the country. They have been hit hard by the pandemic.’
• Spare a thought for the events industry. It must be up there with cruise ships when it comes to being in a tight spot. At the relatively tiny end of the market, Christmas office bookings etc would normally be kicking off by now. This is not an easy market.
• Research carried out by CGA and Access Hospitality shows 45% of UK consumers do not feel comfortable about visiting on-trade venues for festive celebrations. The potential size of the gathering may be key.
Companies & other news:
• Various Eateries, where an IPO had been suggested in some quarters, announced yesterday the resignation of five directors including Hugh Osmond and Andy Bassadone.
• Fevertree yesterday (at its H1 numbers) reiterated that ‘the first half of 2020 has been a challenging period for most companies navigating through the uncertainties created by COVID-19.’ However, it says that it has a ‘diverse set of revenues, across multiple geographies and channels’ and this ‘has led to a resilient first half performance.’
• Fevertree says ‘whilst the long-term aspirations of the Group remain unchanged, this year’s performance will be impacted by the challenges and uncertainties COVID-19 has created, most notably the closure of the On-Trade across our regions for a significant proportion of the year followed by what we expect to be a gradual reopening. We are well positioned to benefit from the reopening but remain mindful of the impact of continued social distancing implications alongside the risk of further local or national lockdowns as the year progresses.’
• It says ‘the impact of COVID-19 on the remainder of the financial year is still hard to predict’ but concludes ‘while we are not immune to the current situation, the Group is financially well placed and its unique asset light outsourced business model provides it with the agility to adapt to and mitigate the challenges arising from the current circumstances.’
• Morrison’s is to convert ‘thousands’ of temporary staff to permanent positions as a surge in delivery has kept the company busy.
• Sales of English and Welsh wine hit a record 5.5 million bottles last year.
• EI Group’s 65-strong managed pub group is to be consolidated within Stonegate’s larger pub formats.
• The Government has asked the hospitality industry to help it in its aim to reduce the excess number of calories eaten by consumers by 20% by 2024. It is suggesting reducing calories by 20% for most meal categories in the eating out of home, takeaway and delivery sector, alongside a maximum calorie guideline for all categories.
• Obesity has been identified as a co-morbidity factor with regard to Covid-19. UKH CEO Kate Nicholls says the sector agrees with the government’s aims but added that the sector does not need more burdens and responsibilities piling on it at this stage. Nicholls says ‘we continue to support the objectives and will never absent ourselves from such well-intentioned pursuits, but the timing of these announcements, with the country still in the grips of a pandemic and hospitality businesses struggling to stay afloat, rather sticks in the craw.’ She adds ‘never have the burdens threatening the existence of hospitality businesses been more acute – this is not the time to throw petrol on the fire.’
• The board of Luby’s Inc has agreed that he company should liquidate the company’s assets reports NRN. It says this indicates the failure to find a buyer.
HOLIDAYS & LEISURE TRAVEL:
• The Thomas Cook brand is reported close to being re-launched as an online brand by owner, Fosun. The BBC quotes a ‘source’ as saying Thomas Cook was ‘very keen to be up and running by Christmas. It’s when people’s thoughts turn to summer holidays, and there is likely to be a lot of pent up demand because of this year’s coronavirus cancellations.’
• Jet2holidays has suspended all flights to the Greek islands of Crete and Zante up to September 20.
• The European Tourism Manifesto has called for harmonised travel restrictions across Europe. That would be nice. See premium email.
• EasyJet has suggested it may cut its flight programme further over the coming months. It says it must focus on ‘profitable flying.’
• STR has reported that a strong staycation market over the Bank Holiday weekend allowed the UK hotel industry to reach a nationwide occupancy of 70%. This is the highest level in absolute terms since 4 March.
• STR says the ‘lack of corporate, conference and international visitation is continuing to impact the capital.’
• Visit Britain is planning to launch an Escape the Everyday campaign for the autumn.
• Microsoft has confirmed the name and price of its next-generation Xbox console following a series of leaks. It says the Xbox Series S will be available for £249 and won’t have a disc drive, instead depending on users purchasing and downloading or streaming games over the internet.
FINANCE & ECONOMICS:
• Sterling lower at $1.2962 and €1.1005. Oil lower at $39.73. UK 10yr gilt yield down 7bps at 0.18%. World markets weaker with London set to open down around 20 pts.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
Today’s Market: Wall Street was down 2.3% at the close last night (as measured by the Dow Jones index), as the tech sell-off continued and Asian markets have been a bit weak overnight (not helped by the news that AstraZeneca has had to stop its coronavirus vaccine trial), but the FTSE 100 index is expected to be only modestly down this morning (according to the Proactive private investor website), with the spread-betting firms expecting the FTSE 100 to open c7 points down at 8am, at around the 5925 mark.
Today’s News: After the bumper bundle of mostly reassuring updates from Halfords, JD Sports, Travis Perkins/Wickes and ScS yesterday (albeit the City was a bit disappointed with the Travis Perkins news), today has gone a bit quiet, but there has been an unscheduled and bleak trading update from the struggling fashion chain QUIZ, flagging that overall sales have been no less than 77% down over the last 5 months despite much higher discounting. Even Online sales have been well down, although the company boasts that August was only down 11% Online. QUIZ does not spell out what this disastrous trading will do to the P&L account, ahead of the delayed finals for y/e March on Oct 27th, but it does claim to still have cash and plans to reopen a further 12 stores on turnover leases.
News Flow This Week: While The Hut Group’s £4.5bn IPO continues to bubble away (controversially) in the background, tomorrow brings the Morrisons interims, the Dunelm finals, the Dixons Carphone AGM update and the N Brown AGM.