Langton Capital – 2020-10-14 – PREMIUM – Comptoir, Stock Spirits, fund raises, London hotels & other:
Comptoir, Stock Spirits, fund raises, London hotels & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
It’s good to be in London for the first time in 7mths.
I feel as though I have the place to myself but, as I’m heading West a bit this evening, it could get a little busier.
However, one side-effect of reopening the office is that the admin headache that has obviously been my piled up and ignored London post for the last few months has been opened, edged into the In Tray and has become all that more pressing.
Added to which, site visits (aka beers in the pubs in the evening for analytical purposes) and meetings over coffee eat into available time and the daily email might be a little shorter as a result, our Twitter ramblings a little sparser.
Anyway, there are scheduled announcements from Fulham Shore and Marston’s tomorrow and JD Wetherspoon will be reporting full year numbers on Friday but today, however, is a little quieter. On to the news:
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TIMING IS (NEARLY) EVERYTHING: Whether we’re talking about fund raisings, bids, the decision to enact a CVA or whatever, timing is key. And, though judgements may be harsh, this is much easier to get ‘right’ with hindsight, than it is without. 14 Oct 2020:
• Covid is the Big Issue. We’re in the middle of it. Maybe the end of the beginning but almost certainly not the beginning of the end.
• Timing rights issues, dividend cuts, CVA announcements etc has been a) important but b) very tricky to get right. And, as this is a live situation, we still can’t definitively comment on ‘correct’ versus ‘incorrect’ timing.
• It’s only now that the penny is dropping for many of us.
• Robert Woodward, Rage (in the White House) tells us that Donald Trump was told at the end of January that a) this would be the biggest challenge of his presidency and b) that it would be a 2-5yr marathon rather than a 3mth sprint
• Albert Camus wrote in his 1947 novel The Plague that pandemics outstay their welcomes, last longer than you can be vigilant and are not put off by the fact that you find them passe, boring etc
• Mr Trump’s public comments (like a miracle, it’ll be gone, the summer heat will kill it etc) are well known but who knows what he thought privately
• For the rest of us, memories of SARS, MERS, swine flu, etc came to mind and we could see that China was a long way away
The first wave & the financial response:
• Then cases spiralled, the first wave was much steeper than this one, pubs were shut, and the value of shares plummeted
• Companies passed dividends, cut capex, furloughed staff, obtained covenant waivers and accessed more debt. Many stopped paying their bills
• Then, with no trading going on, we had more of the same, energetic paddling below the surface of the water and the first equity raises were announced
• There is a case for saying ‘if you’re going to panic, panic first.’ It could be maintained, however, that early raisers were not panicking at all.
• These fund raises were too numerous to cover in detail but, concentrated as they were between March and May, they came earlier in the Covid pandemic than any of us would have liked to acknowledge at the time
• Initially, rising share prices made some of the fund raises look a little rushed and dilutive for shareholders
• But, as the pandemic has dragged on (and it may drag on a while yet), they began to look more sensible
A few more thoughts on fund raising:
• We will, when time permits, look at fund raises and compare them with current share prices. But here just a few observations
• Some companies went big and they went early. Restaurant Group announced two administrations, a CVA and a share placing
• SSP and Whitbread also made bold calls. JD Wetherspoon, given that it had been buying shares back, also made the call to raise money
• Marston’s JV with Carlsberg insulated the company to some extent from the need to raise funds. It’s unknown what discussions are going on behind the scenes at Greene King and EI Group, both of which were recently acquired
• Passing the dividend is the equivalent of a 3% or 4% fund raise, per annum, depending on the scale of the dividend
• Whilst not a fan of EBITDA per se, we acknowledge that a cash measure is arguably more meaningful in the current environment than is profit.
• Any company able to break even in cash terms in the current stop-go environment should at least be able to stay in the game
PUBS & RESTAURANTS:
• Kantar has reported that UK consumers spent £261 million more on alcohol to drink at home last month than they did in the same month last year. This fits in with the Alix Partners’ comments on re-opened sites below.
• Kantar reports that home sales were up by 28% in the last four weeks versus the same period last year, a rise of 4 percentage points from last month. The rate of growth is twice that of the wider grocery market.
Reopened sites, the broad picture:
• The Alix Partners Market Recovery Monitor reports that ‘after a busy August, when hospitality operators were incentivised to reopen sites by the Eat Out to Help Out scheme, VAT cut, staycations and rising consumer spending…momentum has stalled.’
• The monitor says ‘licensed premises continue to reopen for business, and we are also seeing start-ups and ambitious small groups taking advantage of lower barriers to entry in some places. But September’s net increase in sites is a fraction of what it was in August, and a new landscape of much reduced capacity is emerging.’
• One has a picture of troops flooding back after an engagement. Then it becomes a trickle and, after a while, you realise that’s all there is.
• With the Covid roller-coaster apparently on another downward leg, re-openings may well be slower in October than they were in September (and there is nothing to stop them becoming negative).
Reopened sites, the detail:
• Alix Partners reports that four in five British pubs, restaurants, bars and other licensed premises are back trading after lockdown, but the pace of reopening dropped substantially in September.
• It says ‘just over 90,000 premises were open by the end of September, 80.4% of the total known market.’ This is up from the 76.3% of sites open at the end of August. The additional net c4,000 sites were a mix of reopened sites and new locations.
• Alix Partners says ‘despite the gains made since the end of lockdown, Britain still has nearly 25,000 fewer sites open than it did in March, and the big question now is how much of that shortfall will ever be made up – or is this the new trading reality reflecting the suppressed demand as many consumers remain cautious about going out to eat and drink?’
• Risks are substantial but, if supply is to be reduced, the rewards for the last restaurants standing should also be material.
• Community pubs are largely open again. Bars much less so and only 56.2% of nightclubs have reopened. The pace of re-openings is slower in London than it is in the provinces.
• Comptoir Group has reported H1 numbers to end June saying revenue was down 61% at £6.1m with adjusted EBITDA of £0.45m, down 78% on last year. The group is reporting an IFRS after tax loss of £4.97m, up from a loss of £600k last year.
• Comptoir reports that it had net cash and cash equivalents at the end of June of £5.0m (H1 2019: £3.4m; 31 December 2019: £5.1m). The basic loss per share for the period was 4.05 pence (H1 2019: basic loss per share 0.49 pence).
• Chairman Richard Kleiner says ‘there is no hiding from the fact that we are facing unprecedented times across UK hospitality, and with that, market conditions will inevitably continue to be challenging for our business.’
• CEO Chaker Hanna says ‘the Group began a phased re-opening of its restaurants for full dining, take away and delivery services from 4th July 2020. As at 1 October we have re-opened 19 of our own operated restaurants leaving 5 still closed, pending the outcome of ongoing negotiations with the landlords.’
• Comptoir says ‘the two franchise restaurants operated by The Restaurant Group (“TRG”) in Heathrow and Gatwick will not re-open under the TRG franchise agreement, however, we are in early discussions with airport authorities for the possibility of reopening them as company owned, or with another franchise partner, if and when the passenger numbers return to normality in the future.’
• It adds ‘trading in the early stages of re-opening has inevitably been very challenging’ and the ‘focus has continued on protecting the cash position, particularly bearing in mind the large majority of our restaurants are London based which are still very quiet in terms of footfall, driven by very low number of tourists, offices still unoccupied and theatres still closed.’
• The company adds ‘the need to service the increased deferred liabilities of the business has placed even more pressure on the available cash position. With the huge reduction in revenue, the focus on the control of operational costs and the tightest possible management of our cash is now absolutely key and continues to be at the forefront of minds as we navigate through these unprecedented times for us and the entire UK hospitality.’
• Stock Spirits Group has updated on trading for the year ended 30 September 2020 saying that ‘overall trading for the year was ahead of our expectations. The impact of COVID-19 in the second half has been less than initially anticipated, with a strong Off-Trade performance being driven in part by On-Trade restrictions, lock-downs relaxing earlier than our prudent planning assumptions, and our brands benefitting from the trend towards staycations.’
• Stock Spirits says ‘the Polish and Czech spirits markets, which together deliver some three-quarters of our revenue, continued to show growth in both volume and value terms despite excise increases during the year and the subsequent COVID-19 impact.’ The company will report full year numbers on 2 December 2020.
• Brewdog founder James Watt has announced on Twitter that the company has 20 brand new bars in the pipeline. Watt says this is ‘a crazy time to be expanding’ and adds ‘these bars will all be carbon negative and will create over 400 new jobs at a time when job creation is badly needed all over the world.’
• Carlsberg is to buy Wernesgrüner Brewery, a Saxon brewer, from Bitburger Braugruppe.
• Aldi is reported set to double the size of its trial of on-demand grocery deliveries with Deliveroo. Meanwhile, Lidl is to scrap the planned launch into online grocery in the UK. It says it will focus “on our bricks-and-mortar business”.
• Whiting & Hammond has filed for administration. Managing director Brian Whiting said ‘it will come as no surprise that during this past year the hospitality sector has endured a torrid time as a result of the pandemic and the forced closure for three and a half months.’
• www.beta.nationalcareers.service.gov.uk has been established to suggest new careers to redundant workers. It may point baristas towards working in care homes etc. One member of Langton input his details, the suggestion being that he should retrain as an antique dealer, a makeup artist or a fashion model. We kid you not.
HOTELS & LEISURE TRAVEL:
• STR has reported that London hotel occupancy in September this year was down 66% with achieved room rates down 45%. This has led to an 81% drop in REVPAR to around £27.64 per room. STR says ‘like previous months, the occupancy and RevPAR levels are the lowest for any September on record in London.’
• Royal Caribbean has announced the underwritten public offering of $500 million of shares of common stock of the Company (with a further $75m if demanded). It has separately announced that it has commenced a private offering to eligible purchasers of $500 million aggregate principal amount of senior convertible notes due 2023 (or up to $575 million aggregate principal amount if the initial purchasers exercise in full their option to purchase additional convertible notes).
• James Villas is reported to have stopped selling flight-inclusive bookings. It will offer only accommodation. The company says that it has renewed its Atol licence.
• A survey of 515 UK business leaders commissioned for London City Airport has found that 88% of leaders of businesses with more than 250 employees believed air travel is important to the future success of their business.
• Cinemas faced with a number of challenges. Not least, running out of money.
• The Telegraph reports that cinema chains Cineworld and Odeon may run out of cash by Christmas. Odeon’s owner says there is a “significant risk” of it not making it intact to the end of the year, while Cineworld could run out of cash by the end of November. The Telegraph reports ‘both AMC and Cineworld have opened talks with creditors to access fresh funding as the crisis wreaks havoc across the cinema industry.’
• AMC warns ‘there is a significant risk that these potential sources of liquidity will not be realised or that they will be insufficient to generate the material amounts of additional liquidity that would be required until the company is able to achieve more normalised levels of operating revenues.’
• Tech Crunch reports that Disney is to push further into direct streaming. It notes the company has announced ‘a massive reorganization of its media and entertainment business that will focus on developing productions that will debut on its streaming and broadcast services.’
FINANCE & MARKETS:
• The UK unemployment rate is at its highest level in over three years reports the ONS. It says 4.5% were jobless in the 3mths to August, up from 4.1% in the prior three months. Overall employment is down around half a million since March.
• The IFS says that taxes will have to rise by £40bn just to stop the current government debt pile from getting bigger. Any move to reduce indebtedness would require additional tax funding. PM Boris Johnson has said he will not countenance austerity measures.
• Cabinet office minister Lord Agnew has said that businesses has its “head in the sand” regarding Brexit.
• Four ferry firms have been given government contracts worth a total of £77.6m to provide post-Brexit freight capacity.
• The IMF has said the world recession this year may be less severe than it forecast but adds that the bounce in 2021 may be less dramatic as well. Re the UK, it forecasts a decline in GDP of 9.8% this year (was 10.2%). The IMF says that more than 90 million people globally could be forced into “extreme deprivation”
• The NIESR has commented on the ONS’s average wage numbers saying that they declined in real terms by 0.8% in the 3mths to August. The NIESR says ‘the UK labour market is in a difficult transitory period with local lockdowns affecting nearly a third of the country and infection rates on the rise. Recent policy announcements such as the Job Support Scheme and the local furlough scheme are welcome steps to contain the fall in employment and provide some income support. But the multiplicity of job support schemes (CJRS, JSS, Job Retention Bonus and local furlough) and heightened risks related to Covid-19 limit the effectiveness of these policies’.
• Sterling weaker at $1.2921 and €1.1002. Oil higher at $42.28. UK 10yr gilt yield down 4bps at 0.24%. World markets broadly lower yesterday but London set to open up around 20pts.
RETAIL WITH NICK BUBB:
Grocery Market Share Watch: Yesterday’s Nielsen grocery sales figures (for the 4 weeks to Oct 3rd) showed improved overall supermarket industry sales growth of 8.3%, driven by Online grocery sales growth of 91%. However, the rival Kantar grocery sales figures (for the 4 weeks to Oct 4th) were up by 10.6% on an overall “Till Roll” basis, albeit the growth was again flattered by the collapse in both the “on-the-go” food market and in the “food away from the home” market (with Online up by only 76%). On a pure “Grocery” basis (excluding Non-Food), overall Kantar sales were as much as 12.4% up, with Aldi/Lidl still lagging a bit with growth of “only” 11.4% combined (handicapped by their lack of Online presence). Morrisons was again the best of the “Big 4” on this basis, with gross sales 15.1% up, whilst Sainsbury was up 11.9%, Tesco was 12.6% up and Asda was just 9.0% up gross. Outside
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