Langton Capital – 2021-01-08 – Marston’s Q1, M&B, Pat Val, C&C, holidays, hotels & other:
Marston’s Q1, M&B, Pat Val, C&C, holidays, hotels & other:
A DAY IN THE LIFE:
Friday is here.
It’s nearly the weekend and that’s got to be good because we can stop feeling guilty, hide the scales away in the back of the cupboard and have a beer or two because the concept of a tee-total Veganuary didn’t survive first contact with 2021 reality.
Indeed, we’d broken our beer fast by the early hours of 1 January, had snaffled several packets of Pork Scratchings before 1am and everything has gone downhill from there.
Because the beers in the fridge and the copious bags of crisps and the mounds of chocolate lying around everywhere were never going to consume themselves and we’ve been tucking into them ever since.
Have a good weekend and on to the news:
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IN TODAY’S PREMIUM EMAIL:
Here we consider the hot topics & hope to analyse as well as report. Below is an example.
MARSTON’S Q1 TRADING UPDATE:
Marston’s has updated on Q1 trading and our comments thereon are set out below:
• As a result of restrictions, lockdown 2.0 and now 3.0, revenue for the period was a much-reduced £54m. All of the group’s pubs are currently closed
• Marston’s points out that, during the period, it both concluded the creation of the Carlsberg Marston’s Brewing Company and agreed to take on the operation of the SA Brain estate of 156 pubs in Wales. See earlier notes for detail.
• The company makes plain its belief that, when allowed to trade, customer demand is there
Cash flow and debt:
• Marston’s says ‘during the quarter we have continued to focus on cash preservation with all non-essential spend avoided.’
• Marston’s reports that it has un-securitised bank debt, net of cash, of £104m
• This is from a facility of £280m (out to 2024), meaning that the group has some £176m of undrawn facilities, outside its securitisation
• Cash burn is between £3m and £4m per week before amortisation of debt. This is running at a flat £18m per quarter.
• The group is largely freehold but the cash burn figure is assuming full rental payments to the group’s few property owners. Rents are currently paid up to date
• Within the group’s securitisation, Marston’s has a debt facility of £120m, of which only £10m is drawn.
• There are no, short-term, financing requirements and both the cash burn and the £18m of debt amortisation can be paid from existing facilities well into 2022 – even if pubs do not reopen during that time
• The group has achieved a number of bond and bank waivers in recent months and it is confident that, if needed, it will be able to do so going forward. MARS says ‘our providers of finance have continued to demonstrate support by granting waivers and amendments to covenants when requested, and we are confident of receiving their continued support in the future if it is needed.’
• Marston’s concludes ‘as a consequence of our having significant liquidity in our financing arrangements, the absence of any near-term refinancing requirements, and in the expectation that the outlook for the second half-year is much more positive, we remain confident in our ability to navigate the current difficult environment.’
Outlook & company comment:
• Marston’s says that it remains confident in both its ability to trade, when allowed, and in its short and medium term financing
• The group says ‘we do not have certainty about the timing of reopening, but…we anticipate that pubs will be closed for trading until March at the earliest, and expect some of the previous restrictions to remain on reopening.’
• Marston’s says ‘when restrictions are lifted we expect consumer demand to be strong and that our pub estate, which is predominately located in suburban locations, will be well positioned.’
• CEO Ralph Findlay says ‘the pub sector has been closed for much of the last nine months and remains in a very difficult position.’
• He says ‘it is vital that the Government reviews urgently the opportunity to continue to support pubs as we reopen the economy in the coming weeks.’
• Specifically, Mr Findlay says ‘extending the business rates holiday and VAT cut for the rest of this year is a minimum requirement.’
• The company concludes ‘despite these challenges, Marston’s has a significantly strengthened balance sheet following the creation of the joint venture with Carlsberg and the financial headroom to weather the extended period of current trading restrictions.’
• It says ‘with the roll out of the vaccine programme now underway nationwide, we remain well positioned to rebuild trading momentum once restrictions are lifted, as well as to leverage potential market opportunities open to us.’
• Marston’s concludes ‘we have a clear strategy in place which leaves us confident for the future of our business over the medium term.’
• Marston’s has reassured that, post the Carlsberg JV & discussions with bondholders, it remains well-financed with liquidity headroom and substantial flexibility.
• M&B, which yesterday said that it was considering an equity raise, is one of the few pub companies not to have already done so. Marston’s Carlsberg JV, which brought in £233m in cash, meant that the company did not need to tap shareholders. It confirms here that it does not need additional funds. fs
• Across the whole of the hospitality industry, of course, trading is uncertain. Indeed, there is currently no trading going on at all.
• But Marston’s has shown that it can operate at profitable levels of turnover even under relatively severe restrictions and the freehold nature of its units means that trading outlet costs are reduced.
• The emergence of several effective vaccines – particularly the easier to transport and store AstraZeneca vaccine – gives real grounds for optimism that trading should be possible at profitable levels later this year.
• As mentioned earlier, forecasting is not yet possible but, looking longer term, pandemics are rare, hostelries have been popular for centuries, Marston’s debt is reduced, and it has a well-financed, largely-freehold estate.
• The hospitality industry is likely to see supply reduce going forward and Marston’s is well-positioned to prosper.
• The results therefrom have been bumped to Monday by the Marston’s news above.
PUBS & RESTAURANTS:
• Alun Thomas, partner at law firm Thomas & Thomas has told the drinks business that the ban on takeaway and click-and-collect alcohol sales from hospitality outlets in England will have a ‘brutal effect’ on the on-trade. Thomas commented: ‘The brutal effect of it is that is there’s less of a reason for those pubs that are staying open and not furloughing people to carry on doing takeaway’.
• The MA says that pubs have been ordered not to sell takeaway beer due to fears that such a move would lead to crowds forming outside their venues. The BEIS says ‘pubs and other hospitality venues cannot serve alcohol to takeaway to discourage people from gathering outside their premises, but they can sell alcohol as part of delivery services. They should not attempt to repurpose themselves as shops or off-licenses in order to circumvent these restrictions.’
• Phil Whitehead, MD for Western Europe at Molson Coors has called the ban of takeaway alcohol sales ‘needless’. Whitehead said: ‘The pub and brewing sector employs almost 1m people and plays a vital role in communities across the country, but unless action is taken committing to an extension of the 5% VAT rate to all drinks sold in pubs as well reducing beer duty rate, we risk losing large swathes of this essential ingredient of Britain’s unique hospitality culture’.
• The Scottish Hospitality Group says that hospitality businesses took in just 20% of their normal revenues in December. It says this is traditionally the busiest month of the year adding ‘without Christmas, when we earn around 30% of our entire annual income, most hospitality businesses just aren’t viable. We’ve had the worst December’s trading in living memory and we’re facing the worst start to a year ever.’
• The Pub Governing Body (PGB) has suspended all rent review negotiations. Sir Peter Luff, Chair of the PGB commented: ‘The PGB in conjunction with the PGB of Scotland has agreed with the pub companies who follow the Tenanted and Leased codes of practice and self-regulation that all rent review negotiations will be suspended until further notice while pubs remain closed again during the coronavirus epidemic’.
• McDonald’s has temporarily suspended its walk-in takeaway service for the duration of the lockdown in England.
• Whether it will be a source of comfort to Pret, Starbucks, Costa etc or not remains to be seen but PM Boris Johnson is reported in the Telegraph to have told 250 business leaders in an ‘upbeat call’ that ‘workers will flock back to offices and power an economic recovery once the Covid pandemic is over.’
• Johnson said that ‘fears the city centre is doomed are misguided and that firms will not change their business models to permanently rely on video calls and remote working.’ The Telegraph says ‘instead he said that employees are hankering for a return to normal – and this desire to move on from coronavirus will power a rapid recovery.’
• M&B finished yesterday down only 3% at 230p. The shares were down more than twice that much for most of the day. Press headlines focused on the ‘need’ for cash to ‘get through the pandemic’.
• The liquidators of Patisserie Valerie are to sue accountants and auditors Grant Thornton for £200m. The lawsuit is one of the largest ever brought against auditors. The firm audited Patisserie Holdings for 12 years but never found anything wrong, despite the fact that the company, chaired by entrepreneur Luke Johnson (who remains one of its largest creditors) was falsifying its numbers/
• Grant Thornton comments ‘we will rigorously defend the claim. Patisserie Valerie is a case that involves sustained and collusive fraud, including widespread deception of the auditors. The claim ignores the board’s and management’s own failings.’ The firm is suggesting that the management failed in its own duties of competence and professionalism. Six people have been arrested but no charges have yet been brought. The company was wiped out as a result of thousands of fabricated entries in its accounts.
• Deltic was sold to Rekom for £10m, administration documents reveal.
• Delivery Hero has raised 1.2bn euros in new equity in order to fund growth, increasing its current share capital by around 4.7%.
• Oakman Inns has stated it would forego its entitlement to £250k of government grants in exchange for using its sites as vaccination centres.
• Starbucks Corporation has announced that Patrick Grismer is to retire as group’s CFO, and will be succeeded by Rachel Ruggeri.
• The BBC wrote an article featuring Arc Inspirations, with its boss, Martin Wolstencroft saying the company is borrowing £4m just to survive. UK Hospitality said the lockdown is costing leisure business owners a total of £500m a month, even allowing for any government support.
• C&C has taken an 8% stake in brewer Innis & Gunn. The brewer is said to have now put its new Edinburgh brewery plans on hold due to uncertainty in the market. Founder Dougal Sharp says ‘the new manufacturing agreement leaves all options on the table to allow us to build our Edinburgh Brewery when the time is right and when there is less uncertainty in the market caused by the current COVID-19 pandemic.’
• Oakman Inns is offering customers and others the chance to invest in its shares. It says ‘by raising funds at this point we will be able to take advantage of a much more benign property market where we are seeing a higher availability of quality sites at attractive prices. Consequently, our plan is to not only reopen our existing estate but to also open new sites in Harpenden, Woburn, Wokingham, Buckingham, Epsom and hopefully a few more.’
• Staycations could be big this year. Young & Co tweets ‘the team @Parkteddington are taking this time to renovate their remaining bedrooms into boutique boudoirs ready for your next staycation.’
• Vagabond Wines appoints Matthew Fleming, formerly of Be At One and Stonegate Pub Company, as its new MD, taking over from Andrew Stones.
• December 2019 accounts, referring to an accounting period that now seems a lifetime ago, were due to be lodged with Companies’ House by end-December 2020. These are more than usually out of date. In addition to those companies mentioned yesterday, if anyone would like details on submissions by Chipotle. Five Guys or Papa Johns (December) or H. Weston (March), then we can forward them.
• London-based Kitchen Ventures has raised $2m in seed funding.
• M&B potential fund raise. Cash burn £100m in 6wks due 50:50 to burn & debt repayment. Equity raise likely rather than possible. Co didn’t go earlier. That is what it is. More knowledge now & higher share price. Expect further news in due course.
• Pub & restaurant equity raises. M&B ‘late’ to the table (but with higher share price than April, more knowledge re length of pandemic, timing of vaccines etc.) Could some other operators need to come twice? Absolutely not out of the question. Watch this space.
• Equity raises. CFOs will have slide-rules out. Cash burn x months minus facilities = what? Factor in a buffer, poss. vaccine roll-out botch-ups. Might be time for some to tap markets (again). Albert Camus, La Peste, says pandemics last longer than you hope / think / want
HOTELS & LEISURE TRAVEL:
• Jet2.com and Jet2Holidays has released its 2022 selection of summer holidays, its earliest release to date, in response to demand from customers to book far in advance.
• Hotelplan UK ski brands have extended winter travel cancellations until the end of February, with the company offering customers either a refund or an alternative holiday at a later date.
• STR reports that US hotel occupancy was down 17.2% year on year in the week to 2 Jan. It says room rates were 21.5% down and REVPAR was down by 35%. Numbers should turn materially better in about 10wks.
• National Express will suspend its entire national network of coach services from midnight on Sunday, prompted by tighter Covid restrictions and falling passenger numbers. This follows on from news that Grand Central and Hull Trains are to suspend services and LNER is to scale them back.
• Ryanair will reduce its flight schedule from the 21 January as it calls the latest lockdowns ‘draconian’. Ryanair also cut its full year traffic forecast from currently ‘below 35 million’ to 26-30 million passengers. EasyJet has also said that it will reduce flight numbers.
• HVS Europe has called for further support for the hotel industry. It says ‘further support could start with the hospitality sector being treated with the recognition it deserves, such as that afforded to retail (which was allowed 24-hour opening in the run-up to Christmas while severe restrictions were imposed on the hospitality sector). Hospitality could, with support, provide obvious opportunity for those legions of workers being lost from retail, especially as the effects of a post-Brexit UK gain momentum.’
• After entering administration in July last year, Wigan Athletic’s administrators have begun talks with three groups about a potential sale
• Donald Trump has been suspended indefinitely from Facebook. The move has been criticised by some as too little, too late. Jolyon Maugham tweets ‘there is a sense in which moral weathervanes – who wait to see which way the wind is blowing then point that way too – are worse than wrongdoers. Wrongdoers (can) believe they are doing right. But weathervanes can only ever have self-interest at heart.’
FINANCE & MARKETS:
• Bank of England Governor Andrew Bailey has said that the trade deal struck with the European Union could end up costing the U.K. economy the equivalent of more than 80 billion pounds ($109 billion) reports Bloomberg. It says ‘Bailey endorsed warnings from the Office for Budget Responsibility, the fiscal watchdog, that gross domestic product will be as much as 4% lower in the long term than it would be had the country remained in the EU.’
• IHS Markit has produced the December PMI for UK construction saying it was 54.6 in December, slightly down from the 54.7 in November but well above the standstill level of 50.0.
• Markit says ‘December data illustrated a positive end to the year for the UK construction sector, mostly fuelled by a sharp rebound in house building.’ It says ‘transport delays and a lack of stock among suppliers were the main difficulties reported by UK construction firms at the end of 2020, which contributed to the fastest rise in purchasing prices for nearly two years.’
• Bloomberg reports that ‘Scottish trawlermen have been told to catch fewer fish after new Brexit red tape caused long delays exporting their catch to the European Union.’
• The BBC reports that John Lewis has ceased making sales into the EU due to red tape in the form of the “rule of origin” clause. Debenhams has done the same. Some EU companies have stopped selling into the UK due to VAT complications.
• Stena reports that lorry transport through Holyhead to Ireland has fallen by around two thirds. It says that its ferry service from France direct to Ireland has doubled. The company says traffic should pick up again.
• The BBC reports that ‘British retailers are concerned at new trade barriers being applied after last month’s trade deal with the EU.’ It says ‘many traders now believe they will be paying taxes on exports and imports of certain types of food and clothing that are not fully made in Britain.’
• Sterling mixed at $1.3558 and €1.1056. Oil unchanged at $54.72. UK 10yr gilt yield up 4bps at 0.29%. Markets better yesterday and London set to open up around 24pts.
RETAIL WITH NICK BUBB:
• Today’s News: As well as the scheduled Marks & Spencer Q3 update, the high-flying Pets at Home has done a Sainsbury and brought forward its planned Q3 update (from Jan 23rd) to upgrade full-year profit guidance because of stronger than Christmas trading: after “high-teens” Group LFL sales growth during December, the company now expects full-year underlying pre-tax profit, including the previously announced repayment of business rates relief of c£29m, to be at least £77m, ahead of its previous guidance! There is no mention of profits in the M&S Q3 update (for the 13 weeks to Dec 26th), given the obvious impact of the lockdown, but the sales growth is a bit ahead of expectations, with Food up 2.6% LFL (despite reduced hospitality and “on-the-move” sales) and Clothing and Home only down by c24% LFL (thanks to reasonably good Online growth of c48%). The statement is headlined
• Boots Watch: Interestingly, Walgreen Boots highlighted in their Q1 results in the US yesterday (for the 3 months to end Nov) that “both Boots UK and Boots Opticians performed well ahead of our expectations”. Boots’ LFL Retail sales declined 9.1%, a useful improvement on the 17.5% decline in the prior quarter, despite the lockdown in November, benefiting from “an exceptional performance” from Boots.com (where sales more than doubled). And Boots Opticians’ Q1 LFL comp sales were down by only 4%: a sharp improvement on the 40% slump in the previous quarter, “as guidelines were eased and pent-up demand was addressed”.
• BDO High Street Sales Tracker: We flagged last week that the BDO High Street Sales Tracker for medium-sized Non-Food chains slumped in w/e Dec 27th, but last week wasn’t quite so bad…BDO Fashion LFL sales were down by c8.4% in w/e Jan 3rd, with Store Fashion sales down by 69%. And Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were down by c11% in w/e Jan 3rd (down 64% in Store sales and up 100% in Online sales). The BDO survey is, however, an unweighted average of percentage changes in the sales of reporting retailers, so it’s not to be taken too seriously.
• Weather Watch: It has turned cold and drier this week, 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 December on Tuesday, we have 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 December was headlined “A More Wintry Feel” (“Turning Colder With Snow in Spots”), noting that the month was marked by several strong weather fronts bringing colder air in from the North. Overall, the monthly mean temperature of 5.1C was 0.8C below last year, albeit it was only 0.2C below “normal”. Across the country, in terms of the sales of key seasonal products, Planalytics estimate that the theoretical impact on “weather driven demand” last
• Next Week’s News: The BRC-KPMG Retail Sales survey for December will be out first thing on Tuesday, followed by the JD Sports update, the Games Workshop interims and the THG Q4 update. Wednesday then brings the ASOS Q1 update and the Just Eat Q4, whilst on Thursday we get the Tesco Q3 update, the Boohoo update, the ABF/Primark update, the Dunelm Q2, the Card Factory update, the Halfords Q3 update and the Signet (US) update
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 5 Jan 21 Morrison’s Xmas update
• 6 Jan 21 Gregg’s Q4 update
• 7 Jan 21 M&B Q1 trading update
• 7 Jan 21 Constellation Brands Q3
• 8 Jan 21 M&S Q3
• 8 Jan 21 Marston’s Q1 update
• 11 Jan 21 Carnival business update
• 12 Jan 21 Nichols FY trading update
• 12 Jan 21 Games Workshop H1 numbers
• 13 Jan 21 Sainsbury Q3
• 13 Jan 21 Just Eat Q4
• 14 Jan 21 Tesco Q3
• 14 Jan 21 C&C EGM
• 15 Jan 21 Gym Group trading update
• 19 Jan 21 Premier Foods Q3 update
• 20 Jan 21 JD Wetherspoon H1 update
• 20 Jan 21 WH Smith AGM update
• 22 Jan 21 GfK Consumer Confidence numbers
• 26 Jan 21 DP Eurasia FY trading update
• 27 Jan 21 Marston’s AGM & Q1 trading update
• 28 Jan 21 Britvic AGM
• 29 Jan 21 Hollywood Bowl AGM
• 4 Feb 21 Compass Group AGM
• 4 Feb 21 YUM Q4 & FY numbers
• 5 Feb 21 On the Beach AGM & trading update
• 11 Feb 21 Pepsi FY numbers
• 3 Mar 21 Government Budget Statement
• 16 Mar 21 Gregg’s FY numbers
• 24 Mar 21 M&B AGM
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