JD Wetherspoon, Coca Cola HBC, Flutter, consumer spending etc.:

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A DAY IN THE LIFE:

Remember when the UK shunned countries that had running weekly Covid infections of more than 20 per 100,000?

Only the late summer meaning that it was somewhat disturbing to see York move above 300 a couple of weeks ago with Liverpool, Newcastle and a number of other areas much higher still.

However, with numbers falling sharply in all three cities mentioned above, the pandemic is far from evenly spread and has the look more of a random walk about it than a systematic assault.

York is down from a peak of c300 to 170, Newcastle is 560 down to 340 and Liverpool is 700 to 270 and, with the curves looking pretty similar, it’s not surprising that some are pointing at their students as being the cause of many a march up the hill and many a march down.

But anyway, it’s to be hoped that Pfizer will make such distinctions less meaningful going forward. On to the news:

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JD WETHERSPOON – Q1 TRADING UPDATE:

JD Wetherspoon has this morning updated on Q1 trading and our comments thereon are set out below. 11 Nov 20:

Headline numbers:

• JDW has updated on trading for the 15 weeks to 8 November 2020, comprising Q1 and a further fortnight.

• The group says ‘for the 15 weeks to 8 November 2020, like-for-like sales decreased by 27.6%.’

• It says ‘sales in October were significantly lower than the previous months, following the imposition of a number of new restrictions, including changes in the tier categories, a 10pm curfew, a requirement to order all food and drink ‘at the table’, and the mandatory use of face masks when moving around inside pubs.’

Current restrictions:

• The company says ‘as of today, 756 pubs in England, Northern Ireland and the Republic of Ireland are closed.’

• JDW adds ‘these pubs will remain closed until the Company receives guidance from the UK and Irish governments to the effect that pubs are permitted to re-open.’

• JDW has 64 trading pubs in Scotland and 51 in Wales.’

• It says ‘the Scottish pubs, in particular, are subject to an extremely onerous tier system which, as has been widely reported, is having a serious effect on trade.’

• Wetherspoon adds ‘we estimate the ‘cash burn’ during the month of closure to be approximately £14 million.’

Cash & balance sheet:

• JDW says it ‘undertook a share placing in April 2020 that raised £137.7 million, and £48.3 million was raised through a CLBILS loan in August 2020.’

• The company adds it ‘had £234 million of liquidity on 25 October 2020. Liquidity is significantly higher, and current liabilities are lower, than before the March lockdown.’

Company comment:

• Company chairman Tim Martin says ‘for any pub or restaurant company trading in different parts of the UK, and for customers generally, the constantly changing national and local regulations, combined with geographical areas moving from one tier to another in the different jurisdictions, are baffling and confusing.’

• He adds ‘the entire regulatory situation is a complete muddle.’

• Mr Martin says that, whilst ‘the initial regulations, following reopening, introduced on 4 July, were carefully thought through’, he says ‘the benefits of the regulatory hyperactivity since then, including the imposition of a curfew, are questionable.’

• The chairman says there is uncertainty as to the exit route from the current regulations.

• Although PM Boris Johnson says the regulations will expire automatically on 2 December. Mr Martin says ‘a particular anxiety in the hospitality industry relates to the future timescale for the ending of “temporary” regulations.’

• He concludes ‘veterans of the industry will recall that the afternoon closing of pubs between about 3pm and 6pm was imposed in the First World War, to encourage munitions workers to return to their factories – but the requirement for afternoon closing was only abolished in 1986.’

Langton comment:

• The direction of travel from August through September and October and into the current shutdown was clearly negative.

• This was already known and, with its English pubs shut and its units in Scotland still under restriction, trade is not good.

• But this is an industry rather than a stock-specific issue and, as JDW says that its cash burn is currently £14m per month, investors may be reassured that the company has the resources to withstand a prolonged period of slow or no trading.

• Hopefully, units will reopen on 2 December and Christmas will happen.

• And the Pfizer (and hopefully other) vaccine will bring us back to some sort of normality by Easter or Q2 next year.

• With that in mind, it is worth remembering that JDW does what it does extremely well and it has taken steps (dividend passed, capex reduced, debt facilities increased and a share placing) to secure its finances

• The assets are capable of earning perhaps £105m to £110m in PBT despite the fact that debt has increased.

• There are more shares in issue, of course, but the company’s shareholders seem a little more relaxed and the sharp upward move over the last couple of days is testament to this

RECENT SPENDING TRENDS & FOOTFALL: With lockdowns coming, going and coming again, this is something of a moving target. 11 Nov 2020:

Spending patterns:

• In Lockdown One, spending on credit cards broadly halved but spending on essentials held up. This meant that non-essentials were completely clobbered.

• Spending data for Lockdown Two is not yet available but some footfall information is now coming through.

Spending in October:

• Barclaycard yesterday updated on spending saying the expenditure ‘on essential items grew 4.2 per cent [in October], bolstered by continued growth in supermarket spend as the category saw an online uplift of 94.4 per cent.’ See Premium Email.

• The credit card company maintains that spending in ‘food and drink specialist stores – including butchers and greengrocers – rose by 50.7 per cent as nearly half of shoppers looked to support local businesses.’

• Digital & online was strong but consumer spending overall ‘declined 0.1 per cent year-on-year in October, as the introduction of further restrictions and the arrival of colder weather encouraged Brits to stay at home and turn to online shopping.’ Spending on non-essential items declined 1.7 per cent, compared to the 0.6 per cent growth seen last month.

• Barclaycard maintains that ‘as the winter months approach, more time spent indoors also meant more hours browsing the internet. Overall online transactions grew by 29.0 per cent in October, accounting for 45.7 per cent of all retail spend this month.’ Winter happens every year, of course, but restrictions on travel and shopping in physical stores has increased trends already underway.

Hospitality spending.

• The attempt to move back to anything like ‘normality’ was only partly successful.

• Spend on hospitality & leisure was down by around 38% on the same month last year. Restaurant spending was down by 33% and spend in bars, pubs & clubs was some 13.5% lower.

• Hotel & resort spending was down by 37% and travel spending, perhaps unsurprisingly, was down by 68%. Spare a thought for travel agents, as spending there was down by 78%.

• These numbers will be considerably worse during November.

Footfall data:

• The above data, gathered as it was before Lockdown Two, is already dated.

• Elsewhere, however, the British Retail Consortium and ShopperTrak have been looking at footfall.

• They report that new Covid controls ‘brought halt to burst of activity.’ Their report says ‘the picture for retailers is only slightly brighter than during the spring lockdown, when footfall was down by 82%.’ They say footfall is now down by 75% on a year ago.

• The BRC says ‘footfall has plummeted since the second lockdown took effect. Retailers who have been forced to close will be counting the cost of each passing day, which is why it is vital they are able to reopen from 2 December.’

• Reduced footfall will hurt ancillary coffee shops, sandwich shops, snack bars and the like.

• Many of the food to go retailers have already responded to pressures such as those caused by the footfall drops mentioned above by shutting stores, enacting CVAs etc.

PUBS & RESTAURANTS:

Market recovery & the New Normal:

• Hospitality & travel shares had another good day yesterday but, though the outlook has hopefully been changed by proof of the efficacy of the Pfizer vaccine, trading on the ground remains tough.

• The latest Alix Partners’ Market Recovery Monitor says that ‘a host of COVID-related government restrictions around the UK in October brought an abrupt halt to the summer’s recovery period for licensed premises.’

• It says ‘hope remains for brisk festive trading-post lockdown during December but, while the extension of the Government’s furlough scheme into 2021 will provide some additional security, this also raises questions for what business will look like in the New Year for licensed premises across the UK. Any further restrictions would present huge concerns on prospects for the sector, increasing the likelihood of further restructuring activity.’

• KAM Media says that lockdown is changing the longer-term habits of beer enthusiasts. It says ‘new research shows that beer enthusiasts are more open to trying new and different beers than ever, with 91% having tried a beer that they’d never consumed before in the last two months alone.’

• Brew/LDN says ‘2020 has given the beer enthusiast an opportunity to take stock and evaluate their traditional, ingrained behaviours.’

• Premier Foods yesterday said that, whilst the boost that lockdown gave to cooking at home is well-understood, the ‘six or seven’ standard meals that the average family cooks in rotation became a bit boring and consumers were keen to try new meals. Cooking them from scratch may have been one challenge too many, however, and the group’s sauces performed strongly.

• Back on beer, KAM says ‘habits changed fairly drastically in the first lockdown and this latest research shows some of those habits are here to stay.’

Other consumer trends:

• Barclaycard yesterday updated on spending saying the expenditure ‘on essential items grew 4.2 per cent [in October], bolstered by continued growth in supermarket spend as the category saw an online uplift of 94.4 per cent.’ See Premium Email.

• Elsewhere, the British Retail Consortium and ShopperTrak also commented on footfall. See Premium.

Other Covid news:

• Mayor of London Sadiq Khan says the ‘latest [unemployment] figures show that London has had the largest quarterly increase in the unemployment rate in at least 30 years. For those who have lost their jobs these are extremely tough times, and it shows how vital it is that we get this virus under control both to protect people’s lives, and also their livelihoods.’

• This is terrible news for those concerned but it does also underscore reduced levels of footfall, the need for lunchtime food and drink out of the home etc.

• Khan says ‘businesses in London’s retail, hospitality and cultural sectors still require more support until an operational vaccine is widely available, and we see a return to significant levels of international tourism.’

• A report by KPMG and the British Retail Consortium has suggested that, after a good couple of months, the UK retail sector will struggle in the face of new lockdown regulations in England.

Company news:

• Sky reports that potential bidders for nightclub chain Deltic have been told to ‘table offers within days.’ Deltic employs 2,000 people and trades from 52 venues across the UK. As Sky points out, its sites ‘have been shut for months, and there remains no clarity on when they will reopen, despite optimism surging through financial markets on Monday about the prospects for a vaccine.’

• A Deltic spokeswoman said its ‘board of directors is working with advisers BDO to assess all options available to the company, including the possibility of bringing in new equity partners.’ The Telegraph reports that PE firms Greybull Capital and Aurelius ‘have been circling Deltic Group ever since it hired accountancy firm BDO’ to assess its options last month.

• Coca-Cola HBC has updated on Q3 saying that there has been a ‘strong improvement in trading in Q3 with recovery in the out-of-home channel and growth in the at-home channel.’ It says ‘FX-neutral revenue was minus 2.6% or -0.3% like-for-like and is showing monthly sequential improvement.’

• CEO Zoran Bogdanovic says ‘we are encouraged by the strong improvement in trading in Q3, supported by a rapid recovery in the out-of-home channel as markets reopened. This performance demonstrates our ability to adapt to the fast-changing market environment. Looking into Q4, as we cycle a very strong volume comparator and see the renewal of lockdown restrictions in some markets, we are encouraged by the consistent growth we have seen in the at-home channel, which will be especially important for this final quarter.’

• NRN in the US reports that Pizza Hut is to offer a plant-based pepperoni alternative on some of its products. The pepperoni substitute will be supplied by Beyond Meat.

• Beyond Meat itself missed Q3 expectations in the US with its shares falling 29% after hours on Monday. The company said ‘our financial results reflect a quarter where for the first time since the pandemic began, we experienced the full brunt and unpredictability of COVID-19 on our net revenues and accordingly, throughout our P&L.’

• McDonald’s Corp beat analyst estimates for its Q3 with same store sales turning positive at plus 4.6%. Shares in the company rose 3.6% in premarket trading. Total net sales fell by 2% to $5.42 billion, beating expectations of $5.4 billion.

• Channel Islands pub & restaurant operator The Liberation Group has announced that it is buying 21 pubs from Wadworth. Liberation says the acquisition is in line with its ‘longer-term strategy to grow Butcombe’s presence throughout the West Country via the acquisition of high quality, predominantly freehold pubs capable of supporting a premium, food-led offering with accommodation.  The acquisition will deliver an additional 140 number of rooms to the Liberation Group’s Managed estate, taking the total number of rooms to 223.’

• Liberation will incorporate the acquired sites, and associated employees, into Butcombe’s existing 39-pub portfolio and says it ‘intends to invest substantial capital into many of the businesses to support future growth.’ Liberation was advised on the transaction by Sapient Corporate Finance.

• Brewer & pub company Everards has cancelled rents totalling £3m for its Tenants.

• Jubel reports that its online sales have risen sharply since the beginning of the first lockdown. It says ‘we recently launched our Beer Club as a subscription service for our customers nationwide.’ The company says ‘we’re off to a flying start.’

• Salcombe Brewery has launched two new limited edition barrel aged porters (750ml, 6.2% ABV ). It says ‘we aged the porter in wooden barrels for six months to allow the flavours to evolve. The barrels had previously contained either Speyside Whisky or Heaven Hill bourbon and we were thrilled with the results.’

Other news:

• The EU has imposed tariffs on US goods including rum, vodka, brandy and vermouth.

• SIBA reports on the debate re the future of Small Breweries Relief saying ‘it’s great to see MPs from across the political spectrum speak out about the harmful impact that these changes will have on our small brewers, and on choice for consumers.’

• SIBA and CAMRA say they ‘are fully aligned in their agreement that any changes to ‘smooth the curve’ of Small Breweries’ Relief cannot come at the expense of breweries under the current 5,000hl threshold.’

HOTELS & LEISURE TRAVEL:

• The European Travel Commission says that the re-imposition of lockdowns and travel restrictions have halted hopes of an early European tourism recovery.

• Ryanair says this winter will be a ‘write-off’ but it believes there will be ‘some level of normality’ by next summer. Boss Michael O’Leary says ‘I’ve heard lots of rubbish that it will be 2050 before the world recovers. Volumes will come back by 2022-23 because airlines, led by Ryanair, will discount.’

• A survey of leading serviced apartment operators by HVS has suggested that the sector has proved more resilient in pandemic than has the hotel industry as a whole. HVS says more properties stayed open ‘with operators benefitting from the fact that serviced apartments are self-contained with their own kitchens and amenities, making it easier for guests to social distance.’

• Transport secretary Grant Shapps has said that self-isolation periods could be reduced. He says ‘this should encourage many more people to book flights with confidence knowing there is an option that allows them to shorten self-isolation.’

• Luton airport passenger volumes in October were down by 82% on the same month last year.

• Consultancy firm Oliver Wyman reports that 37% of those surveyed felt “uncomfortable” about flying.

• Plans for a 71-bedroom Premier Inn hotel in Keswick have been approved.

• Disneyland hotels are reported to have stopped taking reservations.

• Long stay operator Extended Stay America has reported Q3 numbers saying that REVPAR was down by (only) 14.7%. The company says ‘we are pleased with another strong quarter easily outperforming every industry benchmark and improving our RevPAR index by more than 30% against our closest competition.’

OTHER LEISURE:

• Flutter has updated on Q3 saying that group revenue growth has accelerated to 30%. It says online revenue growth was +33%.CEO Peter Jackson says ‘Flutter’s performance in the third quarter exceeded our expectations in both sports and gaming.  Our strong trading continued as we grew market share in key regions while retaining our commitment to safer gambling practices. During the quarter we continued to expand our recreational customer base while bringing our businesses together. This included the successful migration of the BetEasy customer base onto the Sportsbet platform in Australia.’

• Flutter says ‘we are now a truly global business with significant scale. As such we are in a unique position to respond to the many opportunities we see across our growing markets. Looking ahead, whilst the outlook with respect to Covid-19 remains uncertain, we are confident that our business is well positioned to capture further growth in a sustainable and responsible way.’

FINANCE & MARKETS:

• The rate of unemployment in the UK rose to 4.8% in the three months to September, up from 4.5% reports the ONS. Some 314,000 people were made redundant in the period.

• The NIESR says annual growth in average weekly earnings, including bonuses, turned positive from -1.2 per cent in the second quarter to 1.3 per cent in the third quarter as employees returned to work from furlough. It says from now ‘pay growth is likely to be subdued in the fourth quarter because of an expected increase in furloughed employees during the Autumn lockdown and ongoing high level of redundancies.’

• The LSE says a million people in the UK intend to give up being self-employed as a result of the hit taken during the Covid-19 pandemic.

• Sterling up at $1.3257 and €1.1214. Oil higher at $44.28. UK 10yr gilt yield up 2bps at 0.40%. World markets significantly better yesterday and London set to open up around 10pts.

RETAIL WITH NICK BUBB:

• BRC-KPMG Retail Sales figures for October (the 4 weeks to Oct 31st): We expected yesterday’s figures, which came out overnight, to show surprisingly good growth again and total sales were indeed well up, by as much as 4.9% (after the 3.9% increase in August and the 5.9% increase in September), given further strong Online sales growth. The exact Food/Non-Food split of total sales last month is buried within the 3-month moving averages (of +5.8% and +4.0% respectively), but it looks to us as if both total Food sales and total Non-Food sales were c5% up. The overall positive Non-Food performance was again driven by continued strong growth in Home-related sub-sectors like Computing, Furnishings and Electrical Appliances. Total Online Non-Food sales growth in October edged up to +39%, after 37% growth in September, with Online penetration of all Non-Food sales in October reaching c42%.

• Grocery Market Share Watch: Yesterday’s Nielsen grocery sales figures (for the 4 weeks to Oct 31st) showed slower overall supermarket industry sales growth of 6.9%, despite Online grocery sales growth of 87%. However, the rival Kantar grocery sales figures (for the 4 weeks to Nov 1st) were up by 9.4% 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. On a pure “Grocery” basis (excluding Non-Food), overall Kantar sales were as much as 11.3% up, with Aldi/Lidl still lagging a bit with growth of “only” 10.0% combined (still handicapped by their lack of Online presence). Morrisons was again one of the best of the “Big 4” on this basis, with gross sales 12.6% up, whilst Sainsbury was up 11.8%, Tesco was 14.2% up and Asda was just 7.8% up gross. Outside the “Big 4”, M&S
Food “at home” sales slowed from +13.4% gross to +8.7% in the 4 week period (notwithstanding the loss of much of its sandwich etc trade at lunchtime), but the best performer (apart from Ocado) remained Iceland, with “till roll” sales over 21% up.

• News Flow This Week: Tomorrow brings the B&M interims, the Burberry interims and the WH Smith finals.