Langton Capital – 2021-01-19 – PREMIUM – Outlook, balance sheets, closures, Dark Kitchens, Premier Foods etc.:
Outlook, balance sheets, closures, Dark Kitchens, Premier Foods etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
We’ve got our mind slightly on other things this morning but here’s a question for you, how many times have you burnt your fingers after being told, by a waiter or some other sensible adult, ‘it’s hot, don’t touch.’
Yes, we’d expect the answer to be ‘several’ although, as with all things, it could just be that we’re being coloured by our own response.
Anyway, we’ll leave you with that question as we move onto the news:
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FEEDBACK REPORT: SUNDRY COMMENTS:
Earlier in the month, we asked for reader comment as to how the year might turn out. Some comments fell neatly into categories & we’ve covered these over recent days.
Other comments were varied but interesting. We include several below.
Will Eat Out to Help Out be repeated?
• Feeling is no. it was ‘too incendiary.’ It cost quite a bit & Mr Sunak will soon have to move into tax and cut spending mode.
• It may, although this is a controversial comment, have helped to spread Covid-19. It certainly didn’t help to suppress it.
Is hospitality in other countries much better off than in the UK?
• The world is a big place but here a comment from France. A reader says ‘the current situation is that the hospitality industry in France is totally closed, other than for delivery and take-away, with neither an opening date (we only know that it won’t be before mid-February) nor a statement about what criteria need to be met in order for us to be able to open.’
• This is frustrating and financially damaging.
• The reader writes ‘nor is there any guidance on what the overall Covid strategy is – which I guess implies that it’s herd immunity.’ It may not be, but the lack of focus is somewhat familiar.
• The French operator says ‘I find myself…in the unfortunate position of trying to run a business without a budget, a business plan, or a cashflow forecast, but which I know is losing money and burning through cash every week.’
• The reader says: ‘I hope things are better in the UK.’
Will harsher measures speed recovery?
• Not necessarily. Recovery is dependent on the roll-out of the vaccine, not the number of people who die or are saved whilst it is rolled out.
• The lockdown is a move to restrict mortality, not speed recovery.
• Having said that, shutting much of the rest of the economy does put UK PLC in the boat with hospitality (which has endured restrictions for longer) and may focus attention on getting the economy open again.
Are some companies ‘holed beneath the waterline’?
• Easy answer is, in a world in which some companies are going bust, there will be others following unless the direction of travel changes dramatically.
• Damaged companies are not yet feeling the full impact of the damage that they have sustained.
• This will change (as things stand) at the end of this quarter.
• One reader, chillingly, refers to the period after 31 March (end of 5% VAT, the eviction moratorium & nil business rates) as ‘the killing zone.’
• This will be an opportunity for some but a problem for many others.
• The situation will not be helped by the ending of the furlough scheme a month later.
• Chancellor Sunak, with an eye on his libertarian back benches, has said that it isn’t the job of government to try to support unsupportable companies.
• The reader writes that ‘if Gov doesn’t release the lockdown and/or provide the financial support the outcome will be predicable for hotels, pubs and restaurants.’
• Mr Sunak has said that viable businesses will be supported. The implication is that others, will not be.
• This is harsh but it does allow market forces to operate in some fashion because, if companies were stretched going into the crisis, they should surely be expected to pay a higher price than those that were prudently financed.
• This view may not garner much vocal support.
• But, as JD Wetherspoon intimated back around the Millennium when imprudently financed companies undertook pre-pack administrations and came back to compete with a lower cost base, somebody has to pay the piper.
A note to potential investors:
• High level of investment risk, opportunity, or both? Bank rates are low and Sophisticated Investor and High Net Worth interest in the stock market may be robust.
• If any individual investors are interested in discussing with us the possibility of participating in IPOs, Secondary Placements and other fund raises across our and other sectors, perhaps they could let us know by replying to this email.
• To proceed, we would need to register interested parties as a Qualified Investor. But the first step is to drop us a line. We look forward to hearing from you. Here’s a bit of context.
Light at the end of the tunnel?
• 2020 was an easy year for the private investor to lose money but, as 2021 opens, with vaccines now being delivered, there are grounds for guarded optimism regarding recovery.
Surveying the battlefield:
• There have been corporate casualties. But there will be winners, and this could be an active year in the capital markets.
• Last year, with its c20 fund raisings in leisure alone and perhaps 100+ across other industries, was about survival.
• But 2021, though it will see its fair share of balance sheet repair activity, could also be about growth and expansion. Let us know if you are interested in getting involved.
PUBS & RESTAURANTS:
• Research from the Evening Standard has shown that 800 branded restaurants, bars and coffee shops have closed since the start of the Coronavirus pandemic. It is likely that many more will close in the coming months.
• The Caterer has reported that hospitality businesses whose insurance companies have refused to pay for businesses losses due to Covid, should seek damages for late payment after last week’s court ruling. Sonia Campbell, a partner at law firm Mishcon de Reya told the Caterer: ‘We would be advocating that [businesses] should be claiming damages for late payments because these claims should have been paid many months ago. [Insurers] should be paying damages and compensating for the fact they didn’t pay back at the beginning of the pandemic when these claims were put in’.
• The Advisor for Greater Manchester’s Night Time Economy has stated that hospitality in England has to reopen at the same time as non-essential retail, if the country is to return to a tiered system.
• The WSTA has called on the Treasury to reduce wine and spirit duty and extend the hospitality VAT cut to help businesses recover from the impact of Covid.
• UKHospitality chief executive, Kate Nicholls responded to the vaccine minister’s comments that lockdown measures will not be eased until the impact of vaccinating top priority groups is seen, stating that many pubs ‘will simply fail to survive that long’.
Longer term industry trends:
• Dark Kitchens. Too much money looking for a home?
o Foodservice analyst Peter Backman has commented on the continued expansion of Dark Kitchens. He says that planning permission has recently been lodged for one proposing 22 kitchens ‘in a bustling area of north London.’
o He says the area is ‘already served by two Deliveroo Editions and is not far from a Foodstars dark kitchen site – and it now looks as though it will gain another 22 kitchens. And my area is only one slice of an investment boom in dark kitchens – a boom in which Karma Kitchens, a small, two site, London-based dark kitchen operator has been able to raise a quarter of a billion in investment money for creating dark kitchens across Europe.’
o Money is clearly looking for a home. Not much of it is knocking on Langton’s door but it would appear that capacity is going on. As we have commented on many occasions, the market doesn’t have a braking mechanism, it has a crashing mechanism!
o Backman says dark kitchens ‘are driven by the growing role of restaurant delivery – and the fact that it’s very difficult for anybody to make money out of delivery.’ The risk to operators is that, by working with Deliveroo etc., they are letting the fox into the henhouse. They may find that it is their sites that are bypassed as delivery companies deal directly with customers.
Company & other news:
• JD Wetherspoon updates on trading in the first half of its year to July (period to January) tomorrow.
• Bella Italia has been named the best hospitality company to work for in this year’s Glassdoor Employees’ Choice Awards. Commenting on the result, Lisa Gibbons, Bella Italia Brand Director, said: ‘It is a wonderful feeling to have been voted the UK’s top hospitality company to work for and knowing that the recognition has come directly from members of our team makes it all the better’.
• SAWIS reports South African wine exports to the UK were up 23% by value and 7% in volume in 2020. The UK is the fastest growing of the top 10 key export markets for South Africa.
• Per The Pragmatist, the IMRG Capgemini Online Retail Index reports that the UK saw online sales up 37% YoY in December, compared to footfall across the UK being down by 46%. Retailers with strong multichannel offerings, online and offline, have been able to adapt to the pandemic.
Flip side of the pandemic:
• The pandemic has been dreadful for hospitality but it has boosted the sales of supermarkets and other companies that benefit when consumers stay at home rather than go out.
• Today, Premier Foods (Mr Kipling, Batchelors, Sharwoods etc) updates on trading for the 3mths to end-December saying ‘quarter 3 proved to be another period of exceptional growth, with Group sales up 9.0% and branded sales up 12.1%, as people turned to our product ranges in the face of heightened restrictions on out of home eating.’
• PFD says ‘we continue to deploy our branded growth model strategy, launching a series of new products in the quarter such as Sharwood’s low sugar stir fry sauces and supporting five of our major brands with TV advertising. Together with excellent execution both instore and online, we continue to take market share in volume and value terms. Online sales were up 90% in the quarter, ahead of the broader channel and we saw higher household penetration for brands such as Bisto, Oxo and Paxo, as more meals were eaten at home this Christmas.’
• Premier says ‘looking to the remainder of the year, out of home eating is likely to remain heavily restricted and we therefore expect to see continued high levels of consumer demand for our products. With more brand investment to come, we now expect trading profit to be in the range of £145-£150m this year and Net debt to EBITDA to fall below 2.0x by the year end.’
• The specifics re the numbers may not be of interest to those following hospitality stocks, but the direction of travel certainly will by.
• Premier and the hospitality industry face the annualization of restrictions on 23 March and the annualization of panic buying and the reluctance to go out, some time in early to mid-March.
• Premier says that it has increased ‘brand penetration’ across its product ranges. This is excellent news for the company but less so for hospitality. The $64,000 question is, how much of this will stick?
HOTELS & LEISURE TRAVEL:
• Hostelworld borrowing at rate ‘in the mid-teens’.
• Hostelworld yesterday updated on trading saying that ‘further to the announcement on 13 January 2021, the Company is pleased to announce that it is continuing to negotiate with a short-list of selected lenders in relation to a new €30 million debt facility.’ The five-year money has a cost ‘in the low to mid-teens, with other conditions, including a minimum liquidity covenant, security and warrants provisions, in line with current market practice for facilities of this nature.’
• The company says ‘whilst there is no guarantee that the Company will agree the terms of a debt facility, in order to draw down a facility of this size, the Company will be required to obtain shareholder approval to amend the borrowing limit contained within the Company’s Articles of Association.’ It says ‘if implemented, the current intention to borrow €30 million would exceed the borrowing limit.’
• Hostelworld says its ‘Board believes the proposed change to the borrowing limit is in the best interests of the Company and the Shareholders as a whole and is recommending unanimously that Shareholders vote in favour of the resolution at the General Meeting.’
• EasyJet says holiday bookings for this summer are up 250% on last year. The BBC reports CEO Johan Lundgren as saying ‘we know that people want to go on holiday as soon as they can.’
• Disneyland Paris has postponed its reopening to 2 April, if ‘conditions permit’, quoting the “prevailing conditions in Europe” as responsible for its delay. It had been set to reopen on 13 February.
• Airbnb is refusing to pay refunds for holidays that have had to be cancelled due to travel restrictions brought on by the pandemic.
• Port of Sunderland is ‘looking seriously’ at welcoming cruise ships on a regular basis with director Matthew Hunt saying ‘the port is looking at small to medium size ships and the expedition-cruise market’.
• The Gambling Commission’s CEO, Neil McArthur, has said a recent report stating that 200,000 people in the UK spend £1.4bn on black market sites every year was ‘not consistent with the intelligence picture’.
• Per the Telegraph, streaming giants are acquiring British studio space with CBRE reporting that some companies are on the hunt for at least 2 million square feet of studio space in the UK. For example, Netflix has exclusive access to most of Shepperton’s west London studios.
FINANCE & MARKETS:
• Industry observers have suggested that property asking prices have slipped as sellers rush to market homes before the end of the stamp duty holiday. Rightmove says prices advertised between 6 December and 9 January were down 0.9% on the previous month.
• Fishing businesses have been protesting outside Westminster about what they consider to be a bad Brexit deal.
• Sterling stronger at $1.3608 and €1.1247. Oil slightly up at $54.98. UK 10yr gilt yield unchanged at 0.29%. World markets mixed yesterday but Far East better in Tuesday trade & London set to open up around 31pts.
RETAIL WITH NICK BUBB:
Today’s News: On top of the Superdry interims and trading update, we have also had unscheduled updates today from AO.com and Hotel Chocolat and the latter two statements are much more cheerful than poor old Superdry’s…AO.com saw impressive sales growth of 67% in the UK and 77% in Germany in the 3 months to end Dec and although this surge in business brought extra costs, the company says “we look forward to the last quarter and the next financial year with confidence”, given the structural shift to Online, with AO boss John Roberts trumpeting that “Now that customers have experienced a better, digital-first way to shop for electricals, I believe the majority will never look back”. Over at Hotel Chocolat, Online trading made up for the loss of Store sales during the lockdowns and total revenue was up a useful 19% in the 3 months to Dec 27th, helped by successful expansion in the US and