Langton Capital – 2020-11-23 – PREMIUM – Vaccines, lockdowns & post 2 Dec, footfall, coffee, Stonegate, CCL etc.:
Vaccines, lockdowns & post 2 Dec, footfall, coffee, Stonegate, CCL etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The Mighty Hull City, Destroyer of Worlds, yesterday beat MK Dons 3:1 away from home.
And that’s good but, being realistic, it’s maybe that we’ve been relegated to a division where we can look impressive rather than have seen any more fundamental a change in fortune.
However, a win’s a win.
But sadly, we can’t get into the ground at the moment. And that’s a pity because, as my daughter told me witheringly the other day – and I’ve taken her to at least half a dozen matches – ‘dad, I’ve never seen Hull City win. Or even score a goal…’
Anyway, fall far enough and most things bounce a bit and, much to our cost, the opposite can be true as well. If a football team or a person, let’s say a Cabinet Minister or whomever, is promoted to a position that they find, let’s say, challenging, then they will look bad almost whatever they do.
Not pointing the finger at anyone so let’s move on to the news:
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BACK TO BASICS: WHY HAVE A LOCKDOWN? AND WHERE ARE WE WITH VACCINES? Minimising deaths and hospitalisations are admirable – but they may also be a means to an end. 23 Nov 2020:
• We’re more than halfway through Lockdown 2.0 but, even with that in mind, it might be worth looking at why the lockdowns have been imposed.
• And, on a positive note, look at the vaccines that are now promised for next year, with a smattering of inoculations due as early as next month.
• An admittedly small Langton survey of one NHS nurse in Hull suggests that certain key staff have been told that they will be inoculated during December
Why have a lockdown?
• The most acceptable – indeed the most likely – answer is to avoid deaths and an overwhelming of the NHS.
• That we are or were following the example of other countries could also be argued. The fear of being an outlier is a real one.
• But assuming the former, then surely a rollout of a vaccine, even if only partially, that targeted the most vulnerable could prevent the UK government from announcing another lockdown?
• There are wrinkles. Better treatment, increased survivability of the aged and a younger pool of infected people means that, whilst deaths may fall, stays in hospital could lengthen (with happier endings but taking up capacity nonetheless)
• The virus could still then spread among the less vulnerable. This may be an acceptable trade-off, given that the damage to the economy and people’s mental health would be reduced
A few words on vaccines:
• This then leads us to our next question which is ‘how close are we to a vaccine and how quickly can this be rolled out to those at the highest risk?’
• How quickly a vaccine can be rolled out will depend on which of the 236 vaccines currently in development is to be distributed.
• Of these vaccine candidates 10 are in phase three (the last regulatory stage of vaccine development before approval), with three specifically making headlines recently, Pfizer, Moderna and Oxford University (in partnership with AstraZeneca).
• Both the Pfizer and Moderna are mRNA vaccines.
• This is a new method of vaccine production which should in theory have a higher level of immunological response than the traditional vaccine methods that the Oxford University team are using.
• In practise, this remains to be seen as the Oxford team have not released data yet.
Problems with mRNA vaccines.
• The new technology required for Pfizer and Moderna mean that their vaccines must be kept at a much lower temperature than the Oxford vaccine, adding to the logistical complexity.
• ‘Cold chains’ need to be established. These exist – but only to -20c or so
• The Pfizer vaccine will have to be kept at -70c, requiring specialised transportation equipment and then used within 5 days once placed in a fridge
• Creation of the infrastructure will take time. Some countries will be prepared considerable earlier than others
• But the Moderna vaccine can be kept at -20c, a temperature achievable in commercial deep freezers.
Slow and perfect or fast and ‘good enough’?
• NASA allegedly spent millions of dollars perfecting a pen that would function at zero gravity. The Russians used pencils
• The Oxford vaccine can be kept at regular fridge temperatures, much less cold than the mRNA products
• It has therefore gained global interest, with the likes of the Serum Institute of India teaming with AstraZeneca to produce a further 1 billion doses of the Oxford vaccine.
• The Oxford vaccine is currently behind Pfizer and Moderna in the development process, although not by much
• If it can achieve strong efficacy results it will be significantly easier logistically to distribute.
• It could also, as it uses existing technology, be easier to produce
• Ultimately, the faster the speed at which an effective vaccine can reach the most vulnerable the lower the death rate of the virus and the lower the pressure on the government to call for a third lockdown early next year.
• Taking the above analogy further, we would suggest that pencils can be made and transported quickly, cheaply and almost anywhere in the world – whereas a $1m super-pen might be a little trickier
Why does this matter?
• Saving lives will be critical but, from an economic point of view, options begin to open up once vulnerable people have been inoculated
• Even a partial inoculation programme means that the health downside of opening up the economy is reduced
• A third (or by that time perhaps a 4th) lockdown could perhaps be avoided
• Quick and dirty achieves most of the above more rapidly than would an elegant (but costly, slow and difficult) solution via a mRNA vaccine
PUBS & RESTAURANTS:
PM to update today on restrictions post 2 December:
• Cummings & Cain may have gone but the practise of floating ideas via the press before announcing them to the House of Commons and the public seems to be ongoing. Indeed, the PM was due to discuss plans that had already been leaked in the Press on Saturday, with his Cabinet on Sunday.
• The PM will outline a ‘tougher three-tiered system of local restrictions’ later today according to various sources.
• There will be an opening up over Christmas, probably for only 5 days, to allow relatives to see each other but, otherwise, restrictions will be ‘strengthened to safeguard lockdown progress’ says the BBC.
• The Sun says that pubs will still only be able to sell alcoholic drink if they serve food. It is suggesting that customers ‘must stay in household groups.’ It is not clear if this will be in all tiers or just in the top one (or two). Ministers yesterday ‘confirmed a major breakthrough with administrations in England, Scotland, Wales and Northern Ireland agreeing to a joint approach to Christmas.’
• Good news, however, on the 10pm curfew. This is likely to be re-classified as a 10pm last orders with up to an hour for drinking (or eating) up.
• The Sun tweets this ‘sounds like grim news for pubs despite 11pm shutting. T2 more in line with previous T3. Only serving alongside a “substantial meal” and punters will only be able to dine with people they live with indoors. Pubs in Tier 3: hear click and collect only.’
• A No 10 spokeswoman (which sounds very much like Allegra Stratton) says ‘everyone’s efforts during the current national restrictions have helped bring the virus back under control, slowed its spread and eased pressures on the NHS. But the prime minister and his scientific advisers are clear the virus is still present – and without regional restrictions it could quickly run out of control again before vaccines and mass testing have had an effect.’
• She says ‘that would put in jeopardy the progress the country has made, and once again risk intolerable pressure on the NHS.’ Hopefully, Mr Johnson’s Cabinet agreed with his proposals yesterday and we should hear about them formally this afternoon.
• The R rate, even during the current lockdown, is thought to be 1.1.
• Nonetheless, the loosening of the 10pm curfew and any other moves towards opening up the economy, at least for much of December, will be welcomed by the hospitality industry.
• The Telegraph says families could be allowed to meet for up to a week over Christmas. It says several families could join in one “bubble” and mix between 22 and 28 December.
• UKH has pointed out that relaxing the 10pm curfew will not have much of an impact unless different households are allowed to meet in pubs & restaurants.
• Mr Johnson is under pressure from SAGE, which points out that the pandemic is still growing, even under lockdown, on the one hand – and the newly formed Covid Recovery Group on the other. The latter, led by former chief whip Mark Harper and ex-Brexit minister Steve Baker, can muster around 70 Tory MPs who have said they are minded to vote against any continued lockdown post 2 December.
• Lockdown 2.0 does not have the support that Lockdown 1.0 had. There is some fatigue and some push back against regulations.
• Indeed, Sky reports that, ahead of the current lockdown, ‘something changed in England.’ It says that right across the country, people started to go out.’ It quotes Citymapper as saying that, on 30 October, travel in London was at 50% of pre-pandemic levels, but by 4 November it had moved up to 60%. It says that ‘the number of journeys being made across the rest of England also jumped’.
• Professor Paul Hunter of the University of East Anglia opines that, ahead of lockdown, ‘people increase sociability and increase transmission, undermining some of the value of lockdown.’ Prof Hunter says the above ‘could make us think twice about future lockdowns if it makes us increase the spread of the disease before lockdown.’
• Retired Supreme Court Judge Lord Sumption puts it differently. In a Cambridge lecture, he suggests that, rather than demonstrate in the street and throw things about, the British simply have a tendency to ignore rules that they do not agree with.
Other Covid news:
• UK Hospitality reports that scrapping the job retention bonus of £1,000 per member of staff that was promised for companies that took staff back off furlough and retained them until January, will cost the hospitality industry some £2.1bn.
• UKH says ‘this commitment from Government had been baked into company financial projections and in many cases had formed the basis of applications for borrowing.’ That’s a point. UKH continues ‘it’s removal creates a £2.1bn black hole in the sector’s finances in February. This is a material hit to hospitality businesses, more so than any other sector, given the number of staff involved and the trading restrictions we have faced.’
• Some of the large pub companies have 30,000 or 40,000 staff plus. The hit (or rather the income foregone) could be in the region of £30m or £40m.
• UKH is calling for a ‘successor scheme’, for the business rates holiday to be extended by another year and for VAT to remain at 5% for all of 2021. It says ‘with the right package of support, the Chancellor can help the sector navigate the challenging landscape ahead, protect as many viable businesses and jobs as possible, and allow people to enjoy safe and welcoming hospitality across the country.’
• Parts of western and central Scotland have been put in the country’s highest Covid alert level, level four (which is actually the 5th of five levels). The Scottish Licensed Trade Association says this might mean permanent closure for many licensed premises.
• KAM Media reports that there is still some good news out there in that consumers still ‘want to engage with hospitality’. KAM says that 25% of the people it contacted would be interested in purchasing a “Celebrate at home” food and drink box from a pub/restaurant if hospitality isn’t open- and 20% are still interested if it is.’
• Allegra says that the number of coffee shops in the UK could decline by 10% this year. There are CVAs and ad hoc closures going on out there. The Sunday Times suggests that, prior to Lockdown 2.0, Caffe Nero’s revenues were running at between 55% and 65% of last year, partly as a result of people working from home.
• Coffee innovation. Pret has introduced a subscription scheme. Starbucks is focusing on drive-through, some are pushing online sales or sales in suburban units and some others are seeking to reduce the number of units and cut rents via negotiations with landlords.
• The BBC says that office parties could be conducted over Zoom this year. Not that everyone isn’t sick to death of virtual meetings already.
• A number of UK food companies have attacked a plan that might ban the advertising of ‘junk food’ online.
• Amazon is advising customers to shop early, ostensibly so that deliveries can be scheduled over a busy period. Shopping early would also allow Amazon to clean up while other shops remain closed.
• Moody’s has said that the Stonegate Pub Company’s £120m private placement is a ‘fungible add-on to the £950 million 8.25% senior secured notes’. Moody’s says ‘the proceeds of the new notes boost a liquidity position that was in our view already adequate.’ It says ‘in the context of total debt of around £4 billion, the £120 million of new notes is not material and only around a quarter of a turn of leverage on the basis of pre-crisis EBITDA.’
• Moody’s says ‘the company has no term debt maturities until 2025, which means that it has several years before the need to refinance. In the short-term, market sentiment towards hospitality and leisure credits has improved materially on the positive news flow regarding potential vaccines for coronavirus. However, at this stage it remains uncertain when these developments might help Stonegate and other pub operators return towards pre-crisis levels of trade.’
• It says ‘we note positively the upward trend in like-for-like trading volumes in July and August across both the leased & tenanted estate and the managed estate, before increasing restrictions on social interactions were imposed from September. The volume trend in L&T was very solid at over 90% of prior year comparable in August, while in the managed business like-for-like revenues were nearly 85% of the prior year level by the end of that month.’
• Oakman Inns’ founder & chairman Peter Borg-Neal has been voted Individual of the Year at the virtual CGA Peach Hero & Icon Awards.
• Aldi is expanding its home delivery service via Deliveroo
• Naked Wines says that some of the move to online wine purchasing will stick post Covid.
HOTELS & LEISURE TRAVEL:
• Carnival Cruise brands Holland America Line and Seabourn have ‘joined sister Carnival Corporation brand Princess Cruises in cancelling more cruises into 2021’ says Travel Weekly. It says ‘all HAL departures have now been paused until March 31, 2021, from the previous date of the end of this year’ and adds ‘a series of 2021 voyages for two Seabourn ships are also affected as part of a broader redeployment in preparation for an eventual return to service.’
• Sir Stephen Hillier, chairman of the CAA, has said that consumers must be reassured of their rights to refunds if they are to be encouraged to forward book their holidays.
• The Global Business Travel Association says that a half of corporate travel managers believe their company employees are willing to travel again.
• Heathrow is to furlough all of its senior management team apart from its chief executive and may cut some jobs permanently
• EasyJet CEO Johan Lundgren says that he does not believe that the Covid crisis has done permanently damaged the aviation and travel industry. He says ‘there is an underlying need to travel. We see that when restrictions are removed.’ He adds ‘no one has visibility to say what demand will be next year. The pandemic is there, and we all see the infection rates. Hopefully, with a vaccine and testing customers will be confident to make travel plans.’
• TTG reports that Cosmos is set to introduce its own new river cruise programme.
• A Covid-19 screening centre is to open at Gatwick later this month. Travellers will be charged £60.
• The cruise industry is reported to have generated $55.5 billion in economic activity in the US last year, up 5.3% year on year.
FINANCE & MARKETS:
• Press spec ahead of Chancellor Rishi Sunak’s Spending Review on Wednesday. The Sunday Times goes with ‘Tax Pain Next Year’ whilst other focus on the likely £3bn of taxpayer cash that will be found for the NHS. Mr Sunak has said we “will not see austerity” when he makes spending announcements for public services this week. Next week, not so sure.
• Everyone has a view as to where the money should be found. Luke Johnson in the Sunday Times says not to raise it by taxing capital gains, as that might choke off investment.
• Sunak says people will soon see an “economic shock laid bare” as a result of the Covid pandemic
• Government borrowing rose to £22.3bn in October, the highest for that month on record per the ONS.
• Sterling up at $$1.3322 and €1.1215. Oil higher at $45.31. UK 10yr gilt yield down 3bps at 0.30%. World markets mixed but heading down on Friday. London nonetheless set to open up around 35 points.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front page headlines of most of the Saturday papers were dominated by the scandalous news that the PM had refused to sack the Home Secretary, Pritti Patel, despite her being found guilty of breaching the Ministerial code by bullying civil servants: the Guardian summed it up as “Fury as PM tells Tories to back “bully” Patel” and the Times flagged that “Defiant PM digs in over Patel bullying”. The Telegraph, however, buried the news on page 2 and ran instead with “A week of Christmas freedom on the cards”, whilst the Daily Mail relegated the story to page 12 (albeit via a double-page spread) and ran with the tiresome BBC Princess Di row (again). The FT went with a completely different story: “UK bets on space race against Musk”.
• Saturday’s Press and News (2): In terms of Retailing stories, there was plenty of uncritical coverage of the better than expected ONS Retail Sales figures for October (commonly attributed to early Christmas buying), eg in the Times, the Guardian and the Daily Mail. The veteran City Editor of the Daily Mail weighed in with a bullish column headlined “Lifting the Covid gloom”, noting that “the fact remains that there have been as many retail winners from the pandemic-indued slump as losers” and concluding that “we should not under-estimate the capacity of the UK’s supple economy to rebound”. The Business editorial in the Telegraph also looked at the ONS Retail Sales figures (“Online rise offers little Christmas retail joy”), but took a more cautious line, noting that the new lockdown may have simply brought forward Christmas shopping by weeks and that “Black Friday is likely to be a damp
• Saturday’s Press and News (3): In other news, the market report in the Times noted that M&S got a boost on Friday from the news that the City broker Redburn had taken the stock off its Sell list after 9 years…The Times also noted that the opticians Specsavers plans to open 40 new shops and invest more in consultation rooms. Ahead of next week’s in interims, AO.com was “Share of the Week” in the Daily Mail and the Daily Mail also flagged that Pets at Home is expected to deliver strong interims next week. The FT had a feature on the boom in the drive-through restaurant market, as chain like Greggs, Burger King and Starbucks battle for sites away from deserted High Streets. The News pages of the Guardian noted that Morrison’s £18 own-label champagne had come top of the annual Christmas tasting by the Which? consumer affairs magazine. The Guardian also had ana article about the sudden
• Sunday’s Press and News (1): The headlines on many of the front pages of the Sunday papers were about the planned end of the lockdown on Dec 2nd: the Sunday Telegraph went with “Lockdown to end next week but stricter tiers on the way”, whilst the Mail on Sunday flagged that “Boris to kill off 10pm curfew”. The Observer, however, ran with the latest “chumocracy” row (“Johnson “acted illegally” over jobs for top anti-Covid staff) and the Sunday Times focused on the warning from the Chancellor about his upcoming Spending Review: “Prepare for tax rises next year, warns Sunak”.
• Sunday’s Press and News (2): In terms of Retail stories, perhaps the most interesting news was the Sunday Times report that the small Online fashion retailer In the Style is gearing up for a £100m IPO next year, but the Sunday Times’ biggest splash was on the recently floated The Hut Group, leading its front Business page with the news that the founder Matt Moulding has quietly donated £300,000 to the Tory Party and has been lobbying the Chancellor for a change in the listing rules that prevent the group entering the FTSE 100 because of his “golden share” bid defence arrangement. The Sunday Times had a big follow-up feature on The Hut, via the story of how Matt Moulding kept an iron grip during the financial crisis on the group he founded in 2004 and then secured a massive post-IPO bonus: “How the Hut’s pumped-up tycoon landed a £900m payday”. The main Business story in the
• Sunday’s Press and News (3): In terms of all the Economics and comment columns in the Sunday papers, there were plenty of previews of Wednesday’s Spending Review and we would, as usual, highlight the thoughtful column by the Sunday Times Economics correspondent David Smith (“In a fiscal hole – and the Government keeps digging”), in which he noted that losses on COVID loans could be part of the public finances for years. We would also flag the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“Let’s not pretend that a vaccine will save us from hard choices”), in which he noted that “If we are facing stagflation, the public finances are in dangerous waters”.
• Today’s Press: Ahead of the PM’s statement today on the end of the lockdown, the front page headlines in today’s papers are mostly about the hopes that Christmas may not be cancelled; the Times says “PM to ease lockdown with Christmas shopping spree”, the Guardian says “PM promises mass testing to head off Tory revolt” and the Telegraph goes with “Isolation scrapped for contacts of Covid cases”. The FT focuses on the Chancellor’s latest plans for the economy (“Sunak funds schools and police in last hurrah before taxes rise”), whilst the Daily Mail claims to have exposed excessive public sector spending (“Waste that’ll make you weep”).
• News Flow This Week: Tomorrow brings the AO.com interims and the Pets at Home interims. The ScS AGM is on Wednesday, along with the Chancellor’s Spending Review. The Motorpoint interims are on Thursday, along with the ASOS AGM. The Hotel Chocolat AGM is on Friday, but Friday is, more importantly, the ghastly annual Online discount jamboree called BLACK FRIDAY…