Langton Capital – 2020-11-18 – PREMIUM – Habits, more lockdowns, jobs, footfall, DPEU, Carnival etc.:
Habits, more lockdowns, jobs, footfall, DPEU, Carnival etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Mr Johnson’s hero Winston Churchill maintained that ‘loose lips sink ships.’
And quite right too but, even before saying that devolution was a ‘disaster’ and was the biggest mistake that Tony Blair made, the PM said that ‘the hospitality sector is an obvious place of transmission of coronavirus.’
He didn’t have supporting evidence.
Still doesn’t to the best of our knowledge but words like those have consequences, if not for the PM himself, then certainly for the pubs and restaurants referred to and for the c660,000 staff that used to work there but have since lost their jobs.
With friends like these in Downing Street, what should we expect from our enemies?
Anyway, the weekend’s around the corner so let’s move on to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
CHANGED HABITS: Covid 19 has changed habits of necessity. Some changes will be fleeting, others longer lasting.
• Even before the word took on Covid connotations, it was easy to find oneself in a bubble. Effectively an echo-chamber where your views are reinforced so, from time to time, it is a good idea to listen to and perhaps list, other people’s views.
• Here are a few questions with answers different to those we would have given ourselves.
Life in general:
• How quickly will we return to ‘normal’? Normal may change. For younger people, a material chunk of their lives has been in a time of Covid.
o Masks may be ‘normal’ (or at least not unusual) on public transport, perhaps even shops, doctors’ surgeries etc.
o Very younger children may not remember normal and what used to be ‘familiar’ for everyone will certainly be less so. We might have to work at getting back to ‘normality’ – and that in itself may change it.
o Social bubbles may become more of a thing.
• What is ‘normal’ may be redefining itself. We are social creatures but we are also creatures of habit. If you ‘get out of the habit’ of doing something, you might need a jolt to get you back in. here a few questions.
• How much have you eaten out since March?
o Langton got out and about a bit in August & September and caught Covid. We were arguably ‘in the pack’. We weren’t reckless but several respondents have either not eaten or drank outside the house at all for 8mths or they could count the occasions on the fingers of one hand, even if they did not have all of their own fingers.
o You can only be as active as the least adventurous timid (or most sensible) in your group. We’ve seen this kill off several potential social occasions.
o Going to a busy pub (or being jostled on the way into a football match) will certainly ‘seem strange’.
• What about holidays?
o Again, Langton was in the pack with a couple of cottage holidays.
o Some have been overseas, but many have not taken a holiday (away from their own home) all year.
• Traveling for work?
o Langton, not for the want of trying, Covid and the subsequent Track & Trace scotched a couple of trips, has only been down to London once since March.
o That’s hardly adventurous but, judging by some comments received, it might even be more adventurous than most.
Very large gatherings:
• It’s hard to envisage life without football crowds, major events, racing meetings, even demonstrations etc – but these may not return in a rush.
• Re hospitality, that has implications for larger events and sporting fixtures – but it may also impact on larger ‘ordinary’ gatherings such as meals, Christmas parties and the like.
Regulations and behaviour:
• Regulations during and after Lockdown 1.0 were quick on and slow off.
• This may a) happen this time too and b) also be applicable to people’s behaviour.
• Are we headed for ‘Tier inflation’? There is talk of ‘strengthened Tier 3 rules’ and of nowhere in the country being in Tier 1. Effectively Tier 1 won’t exist, in that case.
• If the R rate is above 1.0 during the current lockdown, then cutting restrictions is likely to push it higher rather than lower.
LOCKDOWN 3.0 CONSIDERATIONS. Need it happen, what are the odds etc.? November has been thrown under the bus to save Xmas – but might we need to lockdown again in the New Year? 18 Nov 20:
• There are too many variables to say anything definitive.
• If the students have ‘all had it’ then they won’t bump numbers either when they come home next month or when they return to Uni in January.
• EOTHO is unlikely to be repeated and Xmas will be subdued by normal standards.
• Less positively, if R is over one now, it can hardly be below one when we’re mingling again so a rise in infections is likely and Easter could be under threat.
• Much then depends on the vaccine, whether the vulnerable can be inoculated quickly and if the government feels able to accept the cost (on the deaths vs bankruptcy spectrum) of keeping the economy open
• Tricky shout. How many deaths are ‘acceptable’?
• Certainly, if the most vulnerable have been vaccinated, the mortality rate should fall sharply from its current 1%*
• *Currently in the UK 3.7% of those that have tested positive for Covid-19 have died but, if sufferers who were not tested and asymptomatic carriers are added in, the 1% may still be a workable number
PUBS & RESTAURANTS:
The cost of the pandemic:
• UKH CEO Kate Nicholls has told MPs on the Business, Energy & Industrial Strategy Committee that the Covid pandemic has cost about 660,000 jobs in the UK’s hospitality sector this year.
• With the £1,000 furlough bonus now scrapped, operators may be considering more layoffs either now or just after Christmas.
• Ms Nicholls says that hospitality sector revenue is down 40% compared with last year.
• The industry needs some certainty as to when and how it can reopen. The indications (see Monday’s Premium Email) are that trading will commence from 3 December – but confirmation as to that seems to depend rather upon who you speak to.
• UK Hospitality says that the industry had not clawed its way to break-even before restrictions tightened again in September and units were obliged to close in November.
Any exit strategy?
• Langton queried in its Premium Email just whether the current lockdown would end on its scheduled date and hazarded some comments.
• UKH’s Kate Nicholls tweets ‘key messages to MPs today – we need early confirmation of reopening in December, advance notice of which parts of the country are in which tier, clear, transparent, evidence based restrictions which are targeted and effective, stability not weekly changing, a clear end date.’
• She says ‘restrictions since Sept have seen revenues fall from -15% of normal trade to -65% at the point of lockdown. It means recovery has been pushed back too: after lockdown 1, half our members thought they would break even by the end of the year, now 43% don’t it will be before 2022.’
• UKH adds ‘and a further 20% of operators think it will be H1 2022 or later before they break even. Return to post pandemic revenue levels and profit not forecast to 2023.’
• Loungers’ Alex Reilley tweets that it is ‘disappointing to see that the medical/scientific community is already gearing up to demand more misery and distress is inflicted on hospitality. It must be really annoying for some that we can’t be blamed at the moment! Hospitality continues to be the Covid punch bag.’
• Springboard says retail footfall during Lockdown 2.0 looks “more resilient” than it did in March. The Daily Mash said that the lockdown was ‘not visible to the naked eye’. Pubs and restaurants would disagree, but footfall is holding up better than earlier in the year.
• Springboard says that shoppers are returning to high streets, shopping centres and retail parks, despite the lockdown still being on. It says by the end of the week, the venue-types were up 10%, 14% and 19% respectively.
• Wireless Social says ‘footfall on the weekend of the 14th November is similar to the first weekend of lockdown (7th Nov.)’ it says total UK footfall on Saturday 14th was down 74% on February’s pre-Covid footfall. Saturday was down 69%.
• In Wales, Wireless Social says that, post the principality’s 3wk firebreak, Saturday footfall was up 53% on the prior Saturday in Cardiff and it was up 54% on the Sunday. These numbers still reflect falls of 31% and 25% on February respectively.
What will post 2 Dec look like?
• There are hopes that the 10pm curfew could be scrapped or staggered.
• This is Labour policy and, hopefully, that will not poison the suggestion in the minds of the government.
• Labour leader Sir Keir Starmer says PM Johnson should consider staggering times for closures to avoid crowding in the streets and on public transport in the run up to Christmas.
• Sage has said that curfews are “likely to have a marginal impact” on reducing the growth of the epidemic. A senior Tory MP has suggested that this is accepted and it is rather a way to show that everyone is paying a price.
• The hospitality industry might suggest that some are paying a higher price than others. Food retailers, who are presumably currently cleaning up on sales of non-essential items, have yet to comment on calls for them to pay back the business rates that they are saving alongside more severely impacted retailers.
• Sky says that the government has denied speculation the Eat Out to Help Out scheme will be resurrected this winter. It seems like a long shot. Sunak says ‘I won’t talk about specific measures but…we want to get consumers spending again and people out and about. So, we’ll look at a range of things to see what the right interventions are at that time.’
• The Night Time Industries Association says that the nightclub sector in the UK could cease to exist unless government restrictions are lifted. The NTIA says ‘we are on the cusp of losing a cultural institution, the Government has ignored the sector and failed to recognise its economic and cultural value.’
• Scientists have claimed that shouting and singing help spread the virus. This is, presumably, what’s been behind various decibel limitations.
• The NTIA says ‘we are already seeing a huge rise in illegal parties in abandoned warehouses across the UK, people are desperate to socially engage, and our sector are desperate to support the Government by delivering Covid Safe environments to stem the increase in illegal unsafe parties, placing additional pressure on Police and emergency service.’
• Some talk that Tier 3 restrictions will be tightened post the lockdown. One has the impression that various potential policies are being leaked to judge the public’s reaction to them.
• A legal challenge to the 10pm hospitality curfew is due for a second court hearing on 3 December. The owner of a Soho nightclub says ‘we would much rather not have to go to court. However, if the government decide to bring [the curfew] back, we are able to challenge them through our hearing immediately. The curfew doesn’t help control the virus, and it destroys livelihoods.’
• Scotland is to introduce tougher regulations in regions covering half the country’s population from this Friday until 11 December.
• DP Eurasia N.V. has updated on trading for the 10mths to 31 October 2020 saying that the ‘strong momentum in current trading [has] carried through from interims.’ The company says that total system sales are up 11.8% for the period with group-wide LfL system sales growth of 14.6%.
• CEO Aslan Saranga comments ‘trading performance has continued to improve in Turkey and Russia since our interim results release in September.’ He says ‘our Turkish operations have maintained their strong summer with a September/October like-for-like growth rate of 43.4%, driven mainly by delivery and, also, tailwinds from a temporary reduction in the VAT rate to 1% from 8%.’
• Saranga says ‘also, encouragingly, in our Russian operations we have continued to see an improving trend in like-for-like growth, at -6.4% and -2.2% in September and October, respectively, up from the -10.9% reported in July/August and the lows of -30%s during the Moscow lockdown in the spring.’
• DPEU says ‘daily new Covid-19 cases have been increasing in both Turkey and Russia in the autumn and we note the announcement by the Turkish government on 17 November which re-introduces certain operational constraints.’ It says ‘whilst the Board is conscious of the risks posed by any further material worsening of operational constraints, the momentum in current trading is encouraging and supportive of our confidence in our positioning and the prospects for the business through the long term.’
• Shareholder American Financial has cut its holding in JD Wetherspoon from 15.0% to 13.6% of the equity in issue.
• Owner of Wahaca Mark Selby says of Dick Enthoven’s investment in the company ‘Yellowwoods have lent money to Wahaca alongside their equity stake in the business. We are very proud that our investors and our bank continue to be excited about our future and are supporting our drive to be the most sustainable restaurant group in the UK’.
• Amazon is suggesting that Christmas shoppers make their purchases early this year in case there are problems with delivery. Demand for delivered products is expected to be sharply up this year on last.
• London bar-restaurant operator Darwin & Wallace is advertising meal kits for delivery ‘to doorsteps over London’. There are six kits to choose from. Orders need to be in by 3pm Wednesday each week and ‘your box will arrive fresh on Friday using entirely sustainable packaging with no single-use plastic.’
• West End property company Shaftesbury yesterday update on its Open Offer and Offer for Subscription saying that the group has raised £307m gross.
• Copper River Distillery in Chatham has produced its first single malt whisky made with Kentish malted barley.
• Chancellor Rishi Sunak says that new freeports in the UK will create national hubs for trade, innovation and commerce, levelling up communities across the UK, creating new jobs, and turbo-charging our economic recovery.’ Bidding has officially opened to establish at least seven new freeports.
• The Drinks Trust has launched a new initiative, The Drinks Community. This is ‘a platform dedicated to creating connection and opportunity.’ It is ‘an online member platform where people from the UK drinks industry can share knowledge and will provide the bridge between disciplines.’
HOTELS & LEISURE TRAVEL:
• Carnival owned cruise brand Cunard is following sister brand P&O Cruises in putting its 2022 schedule on sale.
• Carnival has issued $499.4m worth of convertible loan notes. The proceeds will be used to pay off similar loan notes. It says ‘on a net basis, the Corporation will not receive any proceeds from the Transactions and will pay customary fees and expenses in connection therewith. Therefore, the Transactions will not have a material impact on the Corporation’s cash position.’
• VIP Chalets has gone into administration. MD Andy Sturt says ‘we ceased trading last night and I have today placed our Tour Operator in administration, without doubt the hardest decision of my life.’ He says ‘since the day that Covid was added to our lexicon we have tried desperately to wrestle a path through incoherent, inconsistent and sometimes deeply unhelpful government guidance on refunds and travel restrictions, a patchwork of European lockdowns, flight cancellations and a complete and absolute lack of specific government support for our sector. Despite the support of our guests and many of our partners, it has proved impossible to navigate a way through this.’
• Sturt adds ‘without a sea change in booking behaviour, for which I can see no reasonable expectation in the short term, I cannot in good faith continue to trade and put our colleagues, guests, landlords and partners through the absolute chaos, personal misery and additional financial loss that would ultimately occur were our failure to happen in the middle of the ski season.’
• EasyJet has suggested that the package holiday market will recover more quickly than flight-only bookings. It says ‘many customers will seek a package deal that provides them with more certainty in the current environment’.
• Heathrow workers plan a four-day strike in December. Harsh, but it remains to be seen whether anyone will notice.
• Airbnb, which is gearing up to list its shares, says ‘we believe that the lines between travel and living are blurring, and the global pandemic has accelerated the ability to live anywhere.’
• Spare a thought for ancillary industries. Textiles firm Johnson Service is to cut 1,550 jobs as hotel demand remains slack and operators need less linen.
FINANCE & MARKETS:
• Sterling higher at $1.3263 and €1.117. Oil down at $43.68. UK 10yr gilt yield down 2bps at 0.33%. World markets mostly lower yesterday. London set to open down around 25pts.
RETAIL WITH NICK BUBB:
Today’s News: The Halfords interims today (for the 26 weeks to Oct 2nd) are very strong, as expected, with group revenue growth of nearly 10% and PBT of £56.0m more than double last year, but the current trading vibes are a bit mixed and management have not felt able to give any H2 guidance, so investors may have pause for thought, despite the eye-catching announcement about investing in electric car servicing. Halfords say that trading for the first five weeks of H2, to 5 November, continued to be relatively strong, with good growth and increased market share in cycling, but that “since the 5th of November we have seen some impact on trading as the second national lockdown came into force…sales of motoring products have been impacted, with Government data showing car traffic last week at 70% of pre-Covid-19 levels”.
• Asda Watch: The Asda PR machine swung into action yesterday on the back of the Walmart Q3 results in the US at lunchtime. LFL sales growth of only 2.7% (ex-fuel) in the calendar quarter represented a big loss of market share, as the overall market has been growing at 8%/9%, but Asda chose to focus on the fact that it grew Online Grocery and Clothing sales by 72% in the period and the news that “Asda is already seeing a surge in demand for Christmas products and ‘lockdown proof’ festive essentials as customers start their preparations earlier than in previous years”. Asda whined that “The significant costs Asda has incurred since the start of the pandemic have exceeded business rates relief in the year to date”, but gross margins improved, for sales mix reasons, and the analysts presentation slide on Asda said that operating profits were “up” for the quarter. Interestingly, the
• Yesterday’s News: The interims from the home repairs and improvement insurance business HomeServe, for the six months to end Sept, showed impressive 16%/17% sales and profit growth and the company says “with the business having performed better than expected in the first half and with marketing and full claims handling now resumed, HomeServe now expects to grow in the year and deliver group PBT for FY21 slightly ahead of current consensus earnings estimates (of £186m)”. In other news, Boohoo announced that the much travelled Shaun McCabe has been appointed to the Board as an independent non-exec Director (he is currently CFO of Trainline and a non-exec Director at AO.com, having previously worked at both ASOS and Amazon Europe). Mahmud Kamani, the joint founder of Boohoo, said in the statement, without a trace of irony, that “As Executive Chairman, I am committed to supporting and
• News Flow This Week: Tomorrow brings the Kingfisher Q3 update and the Card Factory Q3 update, whilst first thing on Friday we get the GFK Consumer Confidence index for “November” and the ONS Retail Sales figures for October.