Langton Capital – 2021-01-18 – PREMIUM – Outlook, insurance, Deliveroo, Tasty, Greene King, D&D, staycations etc.:
Outlook, insurance, Deliveroo, Tasty, Greene King, D&D, staycations etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The Daily Mash touched a nerve last week with a headline suggesting that your ‘shelf of Lonely Planet books is laughing at you.’
It says: ‘a man is wondering whether to throw his Lonely Planet guides away rather than allow them to mock him from the bookshelf.’
And there are plenty of us out here who know just how he feels because it seems as though life has well and truly hit the ‘pause’ button.
It could be worse, of course. And yes, the sacrifices we’re being asked to make should be seen in the context of the life-or-death decisions being made by health professionals – and livelihoods as well as lives are being lost out there – but, with travel corridors shut and the pandemic about to annualise in the next few weeks it’s all a bit of an aaargh.
Anyway, enough of that, mustn’t moan.
We’ve got to keep a sense of perspective because, as granny used to say when trying to get me to eat beetroot and turnip and spam and assorted other muck that she may have seen on her 1940s ration card, there are people starving out there. On to the news:
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FEEDBACK REPORT: WHAT CAN WE EXPECT FROM 2021?
Last week, we asked for reader comment as to how the year might turn out. We’ve covered points one and two below and now we’ll have a look at point four.
• How will the year pan out, by quarter?
• Different recovery paths by sub-sector, region, product-type
• Any permanent or long-lasting changes? Any other observations?
• Longer term implications for rents
• Major risks & other considerations
Major risks & other considerations:
• There are a lot, of course. But here we look at various ways that we could, but hopefully will not, grab defeat from the jaws of victory.
Botch up the rollout of the vaccine:
• This is probably the single-biggest concern.
• The early signs are good and, for every 100k vulnerable people who are vaccinated, we should see hospitalisations and deaths fall.
• The 2m a week is beginning to look achievable and Dominic Raab has said that the target of offering of a vaccine to every adult in the UK by September should be achieved. Raab seemed to suggest that hospitality could be open under some sort of tier system by ‘early Spring’.
• This would still leave us liable to pockets of outbreak. One injection is 70% immunity, two is 90% and those who refuse an injection will not be immune at all.
• But some degree of normality should be achievable under a ‘nearly fully vaccinated’ scenario.
• Travel would still be challenging because, if other countries lagged behind the UK in terms of vaccinations, travel to them would be risky for UK travellers who had not been vaccinated and there would still be a slight risk for those that had.
• We may ban or restrict overseas visitors.
• This would reduce demand for tourist facing businesses or regions. And, if 1.3m foreign workers have left the UK (see below) and travel remains problematic, staffing may be an issue.
• One contributor says it ‘all comes down to when govt allow us to open and with what restrictions and that will be vaccine dependent – if it means waiting for all over 70’s vaccinated then we will be closed for a while – Easter seems optimistic for full opening.’
Consumer behaviour is altered:
• There will be some changes. But hopefully this will still allow the hospitality industry to function.
• Some people have ‘enjoyed’ lockdowns allege a couple of readers.
• Large events may take longer to recover. Drink sales may respond faster than food (or events) and outside space could be at a premium.
• A reader writes ‘confidence is key’. He says the appetite of the public for hospitality will be critical.
• Another says ‘germ consciousness will reduce but not go away. Wearing of masks will be seen to be the decent thing when sick as is the case in Asia.’
• One reader says ‘I still ponder is whether the constant whinging and bleating from hospitality will alienate them from their public.’
Debt liabilities prove terminal.
• This is a major issue.
• Debt, in the form of loans, unpaid rent, unpaid VAT & duty etc will be a significant issue for many operators.
• One contributor asks ‘how many businesses will the government put into administration by calling in the CBILS or CLBILS? Not a headline I think they will likely want in the months of recovery we have all been promised.’
• Investment could suffer as liabilities are dealt with. A commentator says ‘those that have big rent deferrals have just kicked the can down the road, if they pay it back, they are using money they could be using for investment and the cycle of underinvestment, drop in footfall continues…’
• Another reader says, despite ‘recovery’, ‘some businesses will run out of cash.’
• Another warns a ‘lack of liquidity will probably mean more insolvencies than zombies (i.e., failures will go bust)’ but another takes the opposite view saying ‘zombies – There will be lots of these – but it will take time (years) until some are put out of their misery.’
• Staycations should be big. One says this market ‘will be a big opportunity for pubs and spending time on new website content and marketing to consumers how great a pub stay can be.’
• Staycations: Another reader says it ‘only takes 1 member of the family/party not to want to get on a plane for the whole main family holiday to remain in the UK.’ He adds this is ‘very likely to be the case this year.’
• Latent demand. One reader says ‘last summer’s pub trade was without a lot of older consumers who were shielding. If they’re vaccinated, and younger consumers returned as they did last year, it ultimately could be very good for pubs once we reopen.’
• Move the date of Mothers’ Day? This would, presumably, be possible. March 14th will be a complete washout. May 14th or June 14th needn’t be.
PUBS & RESTAURANTS:
• Glimmer of hope re insurance.
• Insurers will have to pay small businesses for lockdown losses, after a court ruling found in favour of the claimants. The ruling could cost insurers hundreds of millions of pounds, with Hiscox estimating a claims hit of $48m.
• The BBPA has welcomed the UK Supreme Court’s ruling that insurers should pay out on business interruption insurance. Emma McClarkin, Chief Executive of the BBPA, said: ‘The lack of pay outs over insurance claims has added to the terrible woes and uncertainty our sector has faced over the last 10 months. It is why the BBPA backed the FCA in its campaign to resolve the issue’.
• The Evening Standard reports that ‘Britain’s pub and restaurant trade faces a “tsunami of debt” as the economy shrinks under lockdown, losses that will take years to recover.’ It quotes ONS figures re the decline in GDP and says that the services sector as a whole is 9.9% smaller than it was a year ago. Hospitality will have been more acutely impacted.
• Where did all the kitchen and serving staff get to?
• A report by The Economic Statistics Centre of Excellence suggests that an ‘unprecedented exodus’ of foreign-born workers could have led to the UK populations shrinking by 1.3m last year. London alone could have seen its population fall by some 700,000. These will be mostly younger workers without dependents. It will have an impact on demand, output and the availability of labour.
• We may be all in this together. But that means different things to different people.
• And different things to different types of company, because, as Alex Reilley of Loungers tweets ‘if the pandemic had hit 12 years ago when we were a business with 9 sites I very much doubt we’d have survived. In the last 12 years we’ve opened a further 161 sites & in the process created over 4.5k jobs.’
• He asks, not altogether rhetorically, ‘how many small, viable hospitality businesses with enormous potential will fail as a result of the government not providing additional support at the 11th hour? Expecting these businesses who have no turnover, & nothing left, to pay employers NI & pension contributions is plain wrong. Everyone in hospitality will do everything they can to keep their teams together & you can guarantee the last penny that goes out the door before it’s ‘game over’ will be on ensuring staff are paid.’
• He says ‘however, the simple fact of the matter is that if there’s no business left there’s no jobs resulting in an unimaginable amount of jobs, that the government has fought to save, being lost.’ A half penny’s worth of tar, and all that.
• Reilley says ‘thousands of hospitality businesses will run out of money in the coming weeks resulting not just in the loss of hundreds of thousands of jobs but the loss of businesses that can create jobs.’ He says ‘our business will be fine, as will the great majority of big businesses in our sector, albeit we would like an extension to the VAT cut & business rates holiday as this will help us to plan making investments & creating jobs. But let’s give the entrepreneurs & job-creators of the future one last shot of support & let’s do this urgently as time is running out.’
• The BBC quotes bosses at the Caravan and Motorhome Club (in the UK) as saying that staycations will boom this year and that the lifting of restrictions would be like “a cork popping from a bottle”.
• Almost 4 million people in the UK have now received their first Covid-19 jab and should be 70% plus protected against the disease.
• Deliveroo is reported to have raised $180m at a valuation of $7bn. The funding, which is relatively light in the context of the overall valuation, is being led by existing investors such as Durable Capital Partners and Fidelity.
• The group is considering an IPO and virtual presentations to would-be investors could start shortly. As the Telegraph points out ‘as recently as April it was pleading poverty to competition watchdogs, claiming that if it was not urgently allowed to sell a stake in itself to Amazon it was at risk of collapse.’
• The IPO could come as soon as April. The pandemic has boosted demand for delivery. It will not be clear by April just how much or how little of this demand will evaporate when pubs and restaurant restrictions are lifted.
• The Telegraph suggests that IPO may not be all plain sailing, pointing out that the start-up has ‘burnt through most of the $1.7bn (£1.25bn) in private capital it has raised since 2013.’ Some say the business could be worth 10x revenues. That does seem to be something of a stretch, particularly if revenues themselves could ultimately come under downward pressure.
• Tasty reports that ‘since the Company’s Trading Update announced on 15 December 2020 (and as further updated on 23 December 2020), the UK has been subject to unexpected increased restrictions as a result of the third COVID-19 lockdown, leading to the closure of all in-dining at the Company’s restaurants.’
• It says ‘as a result, the Company currently has open approximately 38 units providing takeaway and delivery services only. The Company continues to monitor developments affecting its restaurants in line with the continually changing UK restrictions.’
• The company says it ‘has now been successful in achieving rent reductions and lease concessions on more than half of the estate. The Company is continuing consensual negotiations with landlords and other creditors in respect of outstanding rents and, given the current third lockdown, now anticipates that this process will continue into at least March 2021. The Company will again be relying on Government support for employees’ pay and VAT, and business rate holidays and grants, where available.’
• It adds ‘the bank facility secured in order to strengthen the Company’s balance sheet and provide additional working capital support as detailed in the announcement dated 30 September 2020, has now been drawn down by the Company.’
• Greene King Pub Partners has extended its 90% rent concessions for tenants for the duration of the third lockdown.
• Big Hospitality reports that restaurant company D&D is ‘considering expanding its suburban presence in light of the changes to people’s social behaviour caused by the Coronavirus pandemic.’ The move towards work-from-home may not altogether dissipate once the virus is under control. Boss Des Gunewardena says ‘our sites are often large, landmark restaurants – it’s what we’re known for and I don’t see any reason to change that policy as it’s what we’ve had great success with it. But one thing we are thinking and talking about, given the pandemic, is how the pattern of people’s social lives could change. If commuters are working from home more regularly in the long term, will they make more effort to stay local when they go out.’
• A start up, Clean Co, has raised £7m to expand into the market for low-alcohol drinks. The company says ‘nobody wakes up saying ‘I wish I drank more last night’’.
• Halfway through Dry January, and beer sales have risen by 49% according to data from the Sun. This is likely off-sales this year vs off-sales last year. In which case, there is a reason why they are sharply higher. The Sun also reported Waitrose wine sales are up a third on last year.
HOTELS & LEISURE TRAVEL:
• Blackstone is reported to be holding ‘exclusive discussions’ with Bourne Leisure, which also runs Warner Leisure Hotels, Haven & Butlins UK holiday sites. It is reported to be interested in taking a £900 million stake, per The Times.
• NewDog PR, founded by Katherine Doggrell and Emily Newman, launched last week to provide strategic PR for hotel operators ‘with a focus on the investment arm of the sector.’ Newman says ‘the last few months have shown us the power of communication. We’ve seen examples of triumph: honest and human tones, engaging and spirited language and collective and community minded approaches. We’ve also seen the dreadful, poorly timed, off pitch and insensitive.’ The founders says ‘NewDog, which is based in the UK and France, is working with companies across the hotel stack and is eager to talk anyone who feels they have a tale to tell.’
• Travel corridors to the UK have been closed in a move to decrease the risk of importing the new variant of Covid-19 spreading in Brazil.
• The head of the European Travel Commision (ETC) has warned that travel and tourism will not be able to grow as ‘Covid is here to stay’. ETC executive director Eduardo Santander said: ‘We don’t know what will happen. Let’s face the fact we can’t make any predictions. We can’t even rely on projections we made in 2020’.
• The inbound travel association UKinbound has called on the Chancellor Rishi Sunak to provide a support package for the sector in the March Budget.
• EasyJet holidays extends cancellations until March 24 due to ongoing restrictions on international travel. Those with holidays booked beyond March 25 are covered under a ‘protection promise’ enabling customers to change or defer their trip online up to 28 days before travel.
• Carnival CEO Arnold Donald says the cruise company has sufficient funds available to survive through 2021 with no revenue, having raised $19bn since the onset of the pandemic last March. Mr Donald also said ‘We reduced capacity by 13%. As a result we will be less reliant on new-to-cruise customers.’
• The head of the International Air Transport Association (IATA), Alexandre de Juniac, claims the world’s airlines need another $70-$80bn of government support to get through the crisis caused by the pandemic.
• The latest coronavirus restrictions have left the UK’s airports at ‘near-complete shutdown’, causing the industry to ask for more support from the government. All travellers entering the UK from Monday will have to self-isolate for 10 days – or receive a negative COVID-19 test result at least five days after arriving.
• Eurostar is facing collapse after travel restrictions have caused the service to see a 95% drop in passengers since March 2020. It has pared operations to just two services-a-day as it scrambles to preserve cash, with industry sources suggesting it could run out of money as early as April. A spokesman from the company now says ‘without additional funding from government, there is a real risk to the survival of Eurostar, the green gateway to Europe, as the current situation is very serious.’
• Per STR, staycation demand is outstripping supply in some markets with customers looking for remoteness, style and low-key luxury as travel restrictions force them to seek in-country holidays.
• Scandic Hotels Group has announced $102m of rent cuts as it concludes negotiations with its landlords. In December, Scandic’s average occupancy rate totaled 15%, which means that occupancy for the fourth quarter was approximately 23%.
• Google has completed its acquisition of Fitbit, with both companies set to address issues regarding data in their respective statements on the acquisition in a move to placate regulatory concern over the deal.
FINANCE & MARKETS:
• The ONS reported on Friday that the UK economy did not shrink as much as expected in November. The month featured Lockdown 2.0 but the economy shrank by only 2.6% in the month. Estimates had run to over 5.0%. The economy is still likely to suffer a double-dip recession.
• The NIESR has estimated that the UK economy will contract by 0.9% in Q4 of 2020. This would mean a contraction of 9.8% on the full year. The NIESR is looking for minus 3.4% in Q1 this year, after which the comps will get easier.
• A group of northern Tory MPs has called on the chancellor to extend his suspension of Stamp Duty on houses at the cheaper end of the spectrum. There will be many calls upon Mr Sunak’s purse in the coming weeks.
• China has reported that its economy grew in Q4 last year by 6.5%. The period of growth ensures that growth for the year came in at 2.3%.
• Sterling down at $1.3567 and €1.1234. Oil lower at $54.90. UK 10yr gilt yield unchanged at 0.29%. World markets mostly lower on Friday with London set to open down around 6pts this morning.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines of the Saturday papers were dominated by the Government’s belated decision to “close” the UK’s air borders, to control the spread of new Covid variants eg “Britain shuts its borders” in the Times, “UK shuts all travel corridors in bid to curb Covid variants” in the Guardian and “Borders closed to shut out new strains” in the Telegraph. The FT took a different tack, with “Insurers lose fight over Covid payouts”, whilst the Daily Mail ran with a silly story about Prince Harry…
• Saturday’s Press and News (2): In terms of Business news, there was plenty of uncritical coverage of the better-than-expected November GDP figures announced by the ONS. In terms of Retailing stories, there was little coverage of the N Brown update on Friday, although the share price slump was noted in the market report in the Daily Mail. Ahead of this week’s trading update, Dixons Carphone was the “Share of the Week” in the Daily Mail. The Times had a snippet on the news that M&S has completed the purchase of the Jaeger brand (for a rumoured £5m) and it also flagged the reduced dividend paid to the Rubin family last year revealed in the latest Accounts of Pentland (the privately owned footwear group that controls JD Sports), as well as the surprise news that the CFO of the shopping centre landlord Hammerson is stepping down after little more than year in the job. The FT had an
• Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were all about Covid in some way: the Observer went with “Staff “ordered back to work in breach of Covid rules”” and the Sunday Telegraph ran with “All over-18s could have jab “by end of June””, whilst the Mail on Sunday flagged that “America points finger at China lab” and the Sunday Times highlighted that “All arrivals to UK face hotel quarantine”.
• Sunday’s Press and News (2): In terms of Retail stories, the main news in the Sunday papers was the news that the takeaway food delivery business Deliveroo has received a cash injection valuing it at more than £5bn, ahead of the IPO expected in April (as flagged on the front of the Sunday Telegraph Business section for example, along with a Business editorial column headlined “Deliveroo set for tough ride despite carrot of tasty growth”). The front of the Sunday Times Business section said Next is now leading to race to buy Top Shop (with Boohoo now dropping out of contention), but the Mail on Sunday noted that the US clothing giant, Authentic Brands, is preparing its final bid for the whole of Arcadia, ahead of Monday night’s final deadline. The Sunday Times also flagged that #MadMike has bid up to £65m for the bankrupt fashion chain Peacocks, although the controversial former owner
• Sunday’s Press and News (3): In other news, the Mail on Sunday flagged that the ProCook kitchenware chain is eyeing up a £100m sale and that the former WH Smith boss Kate Swann will net over £7m if the IPO of the Online greetings card business Moonpig is successful. The Observer looked at the problems of Royal Mail and the competition it faces from other online delivery firms like Yodel and DPD, whilst the Sunday Times had a big feature on the boom in warehouse property market driven by the growth of Amazon etc. The Sunday Times also highlighted that the Labour peer Waheed Ali is facing intense criticism from shareholders in the collapsed Indian Online fashion business Koovs for allowing it to go bust and then buying it on the cheap. The Sunday Times also had articles about the problems that fashion businesses are having with post-Brexit supply chains in Europe (“Fashion retailers’
• Sunday’s Press and News (4): In terms of all the Economics comment columns in the Sunday papers, we would, as usual, highlight the column by the Sunday Times Economics correspondent David Smith (“In a post-Covid world, the UK can’t be a tech also-ran”), in which he flagged that Government R&D spending must be tilted towards the regions. We would also flag up the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“Can Johnson please give us a road map out of this wretched lockdown?”), in which he noted that “It surely has to be the case that once those most likely to be hospitalised have been given some immunity then the UK can reopen”.
Today’s News: There was no news scheduled today, but the cult footwear business Dr Martens has confirmed the plan announced a week ago to go ahead with its IPO. There will be no new money raised for the business, with the placing of the stake held by the private equity owner, Permira with institutional investors expected to result in a free float of at least 25% (with the normal 15% so-called “greenshoe” available, to manage demand). Things are clearly well advanced, with first dealings expected in early February and, according to the FT article today, the talk is still of a valuation of £3bn-4bn (a big premium to sales of £672m in the year to March 2020)…
This Week’s News: After the overload of company news last week, this week is a lot quieter, but tomorrow is expected to bring the Superdry interims and on Wednesday, on top of the inauguration of President Biden in the US, we get the Dixons Carphone update, the WH Smith AGM update and the Burberry Q3 update. Friday then brings the monthly GFK Consumer Confidence survey, the ONS Retail Sales figures for December and The Works’ interims.