Langton Capital – 2020-12-04 – PREMIUM – Redundant assets, vaccines, lockdown, MARS, TUI, Vue, confidence etc.:
Redundant assets, vaccines, lockdown, MARS, TUI, Vue, confidence etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
You’ve got to hand it to the advertisers, they do seem to be keen to solve our problems for us and, if said problems ever look close to being solved, they’ll find more for us to be getting on with.
No doubt there’s a place for that. I’m sure our ancestors didn’t know that bad breath & body odour and whites that failed to be whiter than white were ‘problems.’ Maybe they needed someone to educate them but there must be limits and I’m sure I saw Ariel last night advertising its ability to remove invisible dirt.
Which struck me as a bit odd. But maybe invisible dirt smells or presents a health risk? Maybe they’re doing me a huge favour by giving me something else to worry about, informing me of problems I didn’t know I had?
It’ll be odourless smells to cover up and invisible scratches to wax over next,
Setting out to solve the problem of dirt-less dirt, of course, is a work of genius because, as you won’t be able to see it or know when you need to deal with it, you will have to use the advertisers’ products all the time.
Anyway, it really is Friday today so, before we’re told that that’s a problem in its own right, let’s move on to the news:
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IF IT DIDN’T EXIST, WOULD YOU BUILD IT?
Some countries, or parts of countries, are choosing to skip landlines and go straight to mobile telephony. What about some of our other industries?
• We’ll keep this brief but here just a few thoughts on various industries.
• Covid has accelerated trends already in place and has put an absolute stop on some industries.
• This has given customers pause for thought about whether they really wanted them in the first place.
• Off our patch but, if they didn’t exist, would you build them?
• Similar comments apply not to the nature but to the volume of high street shops, retail parks etc.
• These have enjoyed a major renaissance over the last 20yrs.
• But, in an era of streaming with major competitors such as Netflix telling the studios that they should be going straight to TV, the future may be uncertain.
• Indeed, Warner Bros has ‘escalated tensions between Hollywood’s studios and US cinemas with a decision to make all releases available to stream as soon as they hit the big screen’ reports the BBC.
• The raison d’etre for cinemas is thus diminished.
• Typically, new releases are shown exclusively at cinemas for months.
• I’m sure they’re great but, in certain lights, they could be viewed as plague carriers, cruise ships or whatever.
• They’re not green but, as the lead time from ship ordering to launch can be many years and the things don’t wear out for decades, they will be around for years and could have to stimulate demand via price if it’s not there naturally
• Under pressure from bars (and from video games, Netflix etc) for years, the current environment isn’t positive and almost certainly not one in which you would build more of them
• This is a huge topic that must be exercising the mega-minds out there.
• The aim, as in football, has to be to put the ball where the player / consumer is going rather than where he was in the past.
• Other observations welcome
VACCINES, WHAT DO WE EXPECT?
What is in the price as far as the stock markets / economy is concerned and what isn’t? A brief summary is outlined below:
• Markets are meant to discount the future.
• Fans say, ‘they are never wrong.’
• But that is clearly incorrect as shocks can and do happen.
• So, what are they, the markets, saying about vaccines?
Much good news is already anticipated:
• The fact that markets did not rise sharply on the news that the UK is approving the Pfizer vaccine suggests that such a move was already discounted into share prices.
• They didn’t fall much, either, on tougher Tiers Two & Three. Perhaps they are looking beyond the short term.
• Maybe they are anticipating another of the three vaccines being approved pre-Christmas with a third in the New Year and a much larger rollout is also expected.
• The markets may be anticipating a wind-down in restrictions from March or so with very little room for backsliding
• The devil, however, is in the detail. Plans need to be executed.
What do all these numbers mean?
• Efficacy, safety, roll-out. We need ‘good’ answers to all of these constituent parts.
• With the Pfizer being passed for use in the UK, many are asking has enough research been carried out to truly know its efficacy and safety.
• As with most of the RNA vaccines in development to battle Covid, the groundwork for this research began in 2013 for the development of a vaccine against SARS and MERS.
• Although the implementation of the vaccine may have been sped up, the data looks promising.
• Usually, a vaccine would remain in phase 3 (the last stage of development) for a couple of years, however, due to the severity of the ongoing pandemic the Pfizer vaccine had only been at this stage for four months before its approval.
• This may sound alarming however when analysing the data, the picture becomes clearer and less intimidating.
The degree of efficacy (rather than safety)
• The initial 90% efficacy for the vaccine announced on the 9th Nov was based on the first 94 cases reported in the study’s 43,538 participants.
• Of these cases, 90% of infections were registered with participants that received a placebo.
• These findings were enhanced on Nov 18th when Pfizer reported that 94% of the first 170 Covid cases were among participants who had received the placebo.
• A ‘normal’ vaccine could wait for the first several thousand infections.
• Statistically, these should not diverge materially from the first hundred and, as time is deemed not to be on our side, decisions to move more rapidly have been bade
• Though these could ultimately change in the coming months, the findings so far point towards a very high efficacy rate.
• Pfizer hasn’t commented as much on safety (specifically any lack of safety) but, in this area, the idea is that you do not want to have anything to comment about
Confidence. Hard fought but easily lost:
• With Covid deniers and antivaxxers throwing stones from the side-lines, it is vital that public trust in the efficacy and safety of vaccines is built and maintained
• Speed should, arguably, be tempered with caution and surety
A disquieting row:
• Education Secretary Gavin Williamson, whose commercial background is in ceramic toilets, said (per Sky) that Britain was the first country to approve a coronavirus vaccine because it has “much better” regulators than France, Belgium and the US.
• He doubled down, saying “we’re a much better country than every single one of them.”
• This followed on from comments made elsewhere suggesting that approving the work of others wasn’t a race and didn’t prove much either way
• Speed and surety may be inversely correlated
• The US’s Dr Anthony Fauci said US regulators there follow a “gold standard” while the UK “did not do it as carefully”.
• Speaker of the US House Nancy Pelosi said two months ago that UK approval of a vaccine would not automatically mean it was safe by US standards
• Pelosi said, ‘my concern is that the UK’s system for that kind of judgment is not on par with ours.’ She may have been speaking to a domestic audience
• Fauci nailed it when he said, ‘if you go quickly and you do it superficially, people are not going to want to get vaccinated.’
• That would be a pity as it would cost lives and delay meaningful corporate and economic recovery
PUBS & RESTAURANTS:
Lockdown measures, compensation, impact etc.:
• The Scottish Beer & Pub Association yesterday called on the Scottish Government to ‘save thousands of pubs and other hospitality businesses by ‘at least’ matching the level of economic support the Welsh Government has committed to their pubs.’
• The SBPA says ‘currently, the economic support afforded to the average Scottish pub stretches to just £2,700 for the six-week Christmas period, whilst the average pub in Wales will receive £11,300. Some pubs in Wales will be eligible for upwards of £17,000 in grant support, whilst Scottish pubs will struggle to survive this Christmas.’
• CEO Emma McClarkin comments ‘as a sector, hospitality businesses are on their knees and are desperately crying out for meaningful economic support. Whilst any grant is of course welcome, the current level of funding does not come close to covering fixed costs, even when closed. In order to support jobs, the Scottish Government needs to at least match the support offered to pub in Wales.’
• Jersey Chief Minister John le Fondre says that pubs, bars and restaurants in Jersey must close early morning today for as long as a month to tackle a surge in Covid cases. The Minister says the rise in infections is ‘a real and immediate risk to health services… and islanders’ lives.’ The R number on Jersey is thought to be between 1.4 and 1.9, much higher than that on the UK mainland.
• The impact of the November shutdown has shown up in the latest Markit Services PMI, which shows a number of 47.6 (down from 51.4 in October) where any number below 50.0 implies contraction. Markit says ‘survey respondents almost exclusively linked lower activity to tighter restrictions on trade and temporary business closures due to the coronavirus 2019 (COVID-19) pandemic.’
• Markit says ‘the latest survey highlighted fragile labour market conditions across the service sector, with employment numbers falling sharply since October. Moreover, the rate of job shedding accelerated to its fastest for three months.’ It says ‘new lockdown measures and tighter pandemic restrictions unsurprisingly tipped UK private sector output back into decline during November.’
• Impact less dramatic.
• Market says ‘the collateral damage on areas outside of hospitality, leisure and travel has been far more modest than in the first lockdown period. Back in April, nearly 80% of all service providers reported a monthly drop in business activity, while the equivalent figure was only 30% in November.’ It says, on a brighter note, that ‘the final Services PMI reading is also almost two points higher than the earlier ‘flash’ estimate of 45.8, highlighting that the speed of the downturn was not as steep as suggested by the early responses to the survey in November.’
• Optimism impacted by vaccine news.
• Markit says ‘hopes that the pandemic will be brought under control from an effective vaccine resulted in a sharp improvement in business optimism during November. Across the UK private sector as a whole, confidence about the year ahead outlook reached its highest since March 2015. That said, survey respondents also cited rising business uncertainty in the short-term, largely due to ongoing restrictions on trade, which contributed to another round of job cuts and efforts to rein in discretionary spending during November.’
• Accountants Deloitte says the Chancellor’s prognosis for economic recovery is “overly pessimistic.” It forecasts the next two years will see some of the strongest economic growth in decades. The OBR forecasts that the UK economy will grow by 5.5% in 2021 and 6.6% in 2022.’
• Deloitte says a no-deal Brexit remains one of the biggest risks to recovery though it says ‘a successful and swift deployment of vaccines could turbocharge the recovery.’
• Many have not been able to pivot.
• Drinks Business reports that on-trade supplier Jascots has appointed administrators. It says ‘the challenges of Covid on an on-trade only wine supplier have proven too hard to endure despite the exceptional effort of a very talented team.’
• Marston’s has updated on its request for ‘a limited number of further technical waivers…during the first half of 2021 as a precautionary measure following the renewed lockdown restrictions introduced in Wales on 23 October, and in England on 5 November.’
• It says ‘the waivers being requested are required solely as a consequence of the enforced temporary re-closure of its pubs in England by the UK Government as a result of the COVID–19 pandemic measures, together with the continued uncertainty with regard to further potential lockdowns over the winter months.’
• Marston’s is able to add that ‘99.76 per cent of the total amount outstanding of the Secured Class A Notes and 100 per cent voted in favour of the Extraordinary Resolution regarding the Proposals, thereby giving their consent to the technical waivers and amendments requested by the Issuer.’ It says ‘as a result, the Issuer will now proceed with the implementation of the Proposals.’
• Cracker Barrel Old Country Store in the US has reported that its latest quarter same-store sales growth is still negative at -16.4%. This is an improvement on the last quarter’s -39.2%.
• The latest Business Confidence Survey from CGA and Fourth shows that only 18% of business leaders in hospitality are now optimistic about the market’s prospects for the next 12 months.
• The survey says that ‘the figure is 42 percentage points down on the pre-pandemic level of 60% in the February edition of the survey. Extended restrictions on trading and socialising over the autumn have led more than a quarter (27%) of multi-site business leaders to predict their groups will be unviable within the first six months of 2021 if current levels of support continue. Single-site businesses are at even greater risk of failure, the survey shows.’
• More operators are optimistic about their own prospects, at 35%, than are upbeat for the sector as a whole. CGA says ‘as we near the end of hospitality’s toughest year in memory, the bleak picture of the sector will come as little surprise. Suffocating restrictions across Britain will devastate trading in what should be businesses’ busiest time of the year. Leaders’ optimism is at least rising from the rock bottom level of our last survey, and news of a vaccine is a reason for cautious hope of recovery in 2021. However, this week’s Tier 2 restrictions in England and strict new limits in Wales could be fatal for smaller business in particular, making the case for more relaxed trading conditions and better government support even more urgent.’
• Fourth adds ‘the results clearly paint a stark picture for leaders’ optimism levels across the sector, as businesses look to negotiate the ever-moving goalposts of Government restrictions, during what is traditionally the busiest period of the year. With cautious optimism on the horizon, in the form of a vaccine, there still remain many challenges in the year ahead, such as the availability of goods and labour, after we exit the EU Customs Union.’
• The 2021 ProWein show in Dusseldorf, due to be held in March next year, has been cancelled.
• ASDA has joined its three UK-listed competitors, Tesco, Sainsbury and Morrison’s, in saying that it will repay £340m of business rates relief it has received during the pandemic. The four grocers alongside Aldi, will collectively return more than £1.7bn.
HOTELS & LEISURE TRAVEL:
• TUI Group has secured an extra €1.8 billion in funding from the German government, banks and its largest shareholder, the Mordashov family. CEO Fritz Joussen says ‘the financial package provides the security to look consistently ahead and to prepare the group strategically and structurally for the time after the pandemic.’ He adds ‘with these measures, the group is securing liquidity for a continuing pandemic in 2021, while at the same time improving our balance sheet structures in the long term. The overall package of different financing from various partners shows the broad confidence of all parties involved in the future of tourism and the Tui Group.’
• Jet2 has said it will not limit cabin bags in the way the EasyJet proposes to do.
• Travel Weekly reports that ‘the complexity of rules and regulations covering overseas travel during the Covid crisis is knocking the confidence of prospective holidaymakers.’ Research from Skyscanner finds that 56% of those surveyed found the rules difficult to understand.
• Manchester Airports Group has introduced testing facilities at Manchester, Stansted and East Midlands airports. Prices start at £40 for antibody tests, £50 for antigen tests & £99 for RT-PCR tests.
• Carnival Cruise Line has cancelled February 2021 departures from Miami, Port Canaveral and Galveston. It says ‘we apologise to our guests but we must continue to take a thoughtful, deliberate and measured approach as we map out our return to operations in 2021.’
• STR reports US hotel occupancy was down 28.5% year on year in the week to 28 November with average room rates down by 17.8%. REVPAR for the week was some 41.2% lower than the same week last year.
• The Highland Group says that extended-stay hotel occupancy has remained higher than that at other hotels.
• IdeaWorks has reported that intra-company business trips could fall by up to 60 per cent when the Covid pandemic ends. Such trips made up c20 per cent of all business air trips prior to Covid.
• Gran Canaria is advertising itself as not only good for ‘tourism, sun and beach, but it is also an ideal island that is attracting more and more teleworkers from all over the world.’ It says the island is ‘100% connected to the internet.’
• Vue International has demanded that its British landlords agree to defer rent repayments for up to three years or face a potential CVA.
• Warner Bros has announced that it will make all releases available to stream as soon as they hit the big screen during the whole of next year. This means that the forthcoming sci-fi films Dune and the Matrix sequel will be shown on HBO Max at the same time as their cinema release.
• Flutter has announced a placing to raise £1.1bn gross. It says ‘Flutter consulted with a number of its major shareholders prior to the Placing and has respected the principles of pre-emption through the allocation process insofar as possible. The Company is pleased by the strong support it has received from new and existing shareholders.’
• Gfinity has announced the acquisition of the trade and assets of Epicstream LLC.
FINANCE & MARKETS:
• An EU/UK deal is thought likely this week. The IEA says fishing cannot be allowed to prevent a deal. PM Boris Johnson ‘has also signalled that fish and Brexit are inseparable’ says the IEA. There are concerns that the potential trade deal between the EU and the UK is now in its ‘11th hour’.
• Sterling higher at $1.346 and €1.107. Oil up at $49.49. UK 10yr gilt yield down 3bps at 0.33%. World markets mixed yesterday. London set to open up around 30pts.
RETAIL WITH NICK BUBB:
Today’s News: The rush of retailers to follow the lead from Tesco in repaying Business Rates relief has become a flood: following the moves by Morrisons and Sainsbury, Asda fell into line at lunchtime yesterday, announcing that it was returning £340m, since “as the hope of a vaccine and a more ‘normal’ life returning in 2021 grows, we have confidence that we are in a strong position to again do the right thing for the communities we serve”. Then B&M came out with similar news at 4.20pm, announcing that it wanted to return £80m, although it also said that “The group calls on Government to create a level playing field that requires all essential and Online retailers to contribute proportionately in terms of taxation and business rates”. Interestingly, B&M also flagged that before the Business Rates adjustment, it was upgrading its guidance for full-year EBITDA to £600m-650m, given
BDO High Street Sales Tracker: The BDO High Street Sales Tracker today for medium-sized Non-Food chains flags that things dipped at last in w/e Sunday Nov 29th, despite all the Black Friday Online promotions, although the comp was tough: BDO Fashion LFL sales were down, as usual, by c6% (with Store Fashion sales down by c79%) and Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were down by nearly 4% (down c70% in Store sales, but only up c71% in Online sales).
Trade Press: Retail Week magazine has been published today and, although there has been a ton of big news this week to capture a flavour of, the front cover is simply an image of brain circuitry, with the headline “Think like a pureplay”, to flag up the main story about “How retailers can switch to whole new ways of working”. RW also have articles about “Fashion Victims” (“What next as Arcadia and Debenhams collapse?”), “Tiers and Fears” (“Retailers pin hopes on busy December as lockdown lifts”) and “Resistant vs Resilient” (“Shopify boss Finkelstein on the two worlds of modern retail”). In his column, the Editor follows up the comment from Shopify and thunders that “Stark Black Friday divide reveals two retail worlds”, noting that “Green’s retail empire and the 13,000 people it employs could now pay the price for short-sightedness”. The new monthly Drapers magazine is out and has a
Weather Watch: It has turned cold and wet recently, but memories about “the weather” are always notoriously short-term and often too London-centric…so, ahead of the BRC-KPMG Retail Sales survey for November on Tuesday, we turned to the Retail weather consultants Planalytics to check on how last month’s weather “should” have affected trading on the High Street (and Online) across the country…And their overview for the calendar month of November was headlined “Mild and Settled” (“Not Feeling Much Like November”), as high pressure prevailed across much of northern Europe during the month. Overall, the monthly mean temperature of 9.4C was 3.5C above last year, albeit it was only 1.5C above “normal”. Across the country, in terms of the sales of key seasonal products, Planalytics estimate that the theoretical impact on “weather driven demand” last month was +1% for Interior Paint and
News Flow Next Week: After a really busy week for Retail news, next week kicks off with the delayed Ted Baker interims on Monday. We then get the BRC-KPMG Retail Sales for November first thing on Tuesday, closely followed by the Studio Retail interims and the latest monthly Kantar/Nielsen grocery sales figures. The Ocado Q4 update is then on Thursday.