Langton Capital – 2021-02-02 – PREMIUM – Confidence, more on Marston’s, rents, Just Eat, summer hols etc.:
Confidence, more on Marston’s, rents, Just Eat, summer hols etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
A big chunk of yesterday was spent trying to pay our Q1 VAT.
Calculating the liability wasn’t an issue. That’s a life-numbing and time-consuming but not unduly difficult task. No, it was paying it was the issue.
We’ve had to go digital you see, which was a bit of an odyssey in itself.
But we bought a package, paid for it and got it working last quarter only to be told that, from April, we would need to upgrade (or side-grade or downgrade) to something else.
Still, even that wasn’t the issue.
And nor was sticking the data into the cloud somewhere. It was only when we tried to sync it with the HMRC, something we’d successfully done 3mths ago, that we got some random error message which, after the fifth or sixth time we’d repeated the whole process, was burned onto my retinas such that it will take some intensive counselling to remove.
Thereafter, have you ever tried to ring an HMRC help desk?
Our advice is, don’t.
And the online help is useless, particularly if the Revenue’s servers are down because they won’t have a useful red box anywhere saying: ‘our servers are down’ (like the leccy does when you have a power cut), it’s something you need to find out for yourself by Googling something imaginative like ‘HMRC are your servers down?’
Don’t get us started on the national deficit, we’re trying to do our bit. On to the news:
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INTERPRETATION OF DELOITTE’S CONSUMER CONFIDENCE COMMENTS:
• As mentioned below, consumer spending is driven by both the ability to spend and the desire to do so.
• The first is impacted by income and the second, arguably, by potential changes thereof (via fears of unemployment, hopes for promotion, bonuses etc.)
• The latest Deloitte UK consumer confidence tracker says that consumer confidence fell by another percentage point to minus 17% in the last three months of 2020. It says most of its measures were below levels of a year ago. Personal finance was the one positive area. Deloitte says: ‘the easing of lockdown restrictions, coupled with vaccines being more widely rolled out and strong personal finances, should unleash pent-up demand to spend.’
• Deloitte has updated on consumer confidence re job security saying that it stayed at minus 15% whilst ‘sentiment around job opportunities and career progression gained one percentage points to minus 19%. We can work on the assumption that negative numbers are not good in this context.
• Deloitte says ‘confidence in personal finances improved with the extension of some of the major government and private sector income-support measures, such as lenders offering payment holidays on loans, mortgages and credit cards, plus overdraft support. With many consumers working from home and not having any commuting costs they have become forced savers unable to spend on holidays and socialising.’
• Why does this matter? The ability to spend is driven by actual employment and the ability to save whilst the desire to spend is impacted by confidence.
• Deloitte mentions ‘fear savers,’ which is interesting. Job confidence (or the lack of it in this case) could be pushing up the savings rate. This could help the economy longer term but, in the short term, it could depress spending.
• Deloitte, which was commenting on the situation before Lockdown 3.0, says ‘the lockdown in November and the reintroduction of tighter restrictions during Christmas, have negatively impacted consumer spending across most leisure categories.’ That’s certainly true. It says ‘eating out as an activity saw the biggest fall, dropping by 24 percentage points, followed by activities such as drinking in pubs and cafés (dropping by 18 and 10 percentage points respectively).’
Online can help some segments:
• Deloitte says ‘despite the closure of casinos and betting venues, the betting and gaming sector saw an uplift of three percentage points quarter on quarter, boosted by consumers accessing remote or online channels and the resumption of live sporting events.’
• This is raising the profile of the betting industry at a time when concern re problem gambling has been growing. See comments under ‘other leisure’ below.
• In-home entertainment (streaming and the like) has been positive. Deloitte says spending thereon is up 7% in Q4 (quarter on quarter) and it is up 10% on quarter four the year before.
Travel bad & not getting better in the short term:
• Deloitte says ‘in what should have been a busy period for the leisure, travel and hospitality sectors, most businesses had to endure tighter restrictions as a result of a new variant of the virus, forcing the vast majority to remain closed. Additional restrictions on household mixing and travel bans dampened sales further leaving the sector facing mass cancellations and refund claims.’
• Deloitte adds ‘spending on both short and long holidays fell to minus 38% (down -9 and -10 percentage points respectively), while going to the gym, playing sports and other leisure activities decreased marginally.’ All of this was before the latest lockdown. It’s to be hoped there is light at the end of the tunnel, but the stats from Deloitte’s next survey will likely be less buoyant than this one.
• Travel will be impacted by the speed of vaccine rollout in both source and destination markets. If immune travellers can still spread the virus, countries may not welcome visitors, even from countries such as the UK, where the vaccine rollout has been rapid.
• Deloitte does point out that Q1 ‘is an important booking period for the travel sector.’ This is true. Comments from ministers have both cautioned against booking travel (and have said that travel purely for holidays is illegal) and now seem to be suggesting that we will have a happy and free summer (Mr Hancock) or be expressing undefined optimism (Boris Johnson).
• Just how the consumer responds to these mixed (or perhaps evolving) messages remains to be seen.
The evolution of sentiment:
• Deloitte’s snapshot, by its very nature, is somewhat historic. The data was collected in the very early days of the current lockdown.
• It says: ‘with further restrictions, additional quarantine requirements and travel bans announced subsequent to our survey taking place, we believe that spending intentions will likely drop further, as consumers are left with few options for travel or leisure activities.’
• It repeats the suggestion that many hospitality operators may have only 3mths of cash reserves left.
MARSTON’S UNSOLICITED BID APPROACH UPDATE:
• Marston’s yesterday updated on the bid approach(es) that it has received from Platinum Equity Advisors saying that it had had three approaches, each at a higher price, and it had rejected all of them as even the highest of them ‘very significantly undervalues Marston’s’.
• Marston’s says its board ‘has considered the Proposal of 105 pence per Marston’s share with its advisers, and unanimously rejected the Proposal on the basis that it very significantly undervalues Marston’s. The Proposal followed two earlier proposals at 88 pence and 95 pence per share in December 2020, both of which were received prior to the Brains transaction, and were unanimously rejected by the Board.’
• The company adds ‘the Proposal represents a 19% discount to the Company’s share price at the start of 2020, pre-COVID 19; and since that time the Company has completed the transformative joint venture with Carlsberg to create the Carlsberg Marston’s Brewing Company, which realised significant value on completion and is anticipated to continue to do so as the benefits of the joint venture are realised. In December 2020 the Company also announced an agreement to operate 156 high quality pubs within the SA Brain estate in South and West Wales, in a transaction which is expected to be accretive to earnings in the first full year of trading.’
• Platinum has until 5pm on Friday 26 Feb to either make a firm offer for Marston’s or make clear that a bid will not be forthcoming.
• Langton Comment: The news being placed in the market here is that a) there have been multiple approaches and b) even the highest of them is not high enough to engage management.
• The very clear view appears to be that bidders will not be allowed to acquire quality assets on the cheap. Referencing pre-Covid prices as a starting point (to be adjusted upward by the strategic deals that have been struck since), sends a signal.
• A higher price means that Platinum’s return on capital invested will be reduced. Its cost of capital will be whatever it is and, at some point, the would-be investor may calculate that the deal does not work.
• Platinum has until the last working day of the month to comment further.
PUBS & RESTAURANTS:
Rents, evictions etc.:
• With the leasehold eviction moratorium due to end in 8wks or so, observers are beginning to comment on the potential implications.
• The Times suggests that landlords should consider granting rent free periods. This will no doubt have occurred to them. Landlords could be faced with business rates (after end-March) and maintenance costs if tenants are forced out.
• The Times points to L&G as one landlord that is offering rent frees. There are plenty of landlords who are not.
Other Covid news:
• The Isle of Man is to lift restrictions on hospitality venues. Health minister David Ashford says ‘I’m delighted we are able to turn suspended and reduced services back on without delay.’ The island closed its borders on 23 March last year.
• Labour has warned that around further 650k jobs are at risk in the hospitality industry. This in addition to the hundreds of thousands that have already been lost. Re the wider economy, Labour says ‘a million firms are struggling with a cash crisis threatening jobs and livelihoods just as the vaccine offers hope. The cost of business insolvencies and unemployment on this scale would take a wrecking-ball to our economy.’
• Italy is to allow restaurants & museums to reopen in certain regions.
• See comments above on the Deloitte survey.
• The Telegraph says that the tax burden is hitting ‘its highest level for 70 years.’ It is against this background that ‘chancellor Rishi Sunak is considering raising taxes even further in the next budget.’
• There is some concerted lobbying going on. Capital Gains Tax could be raised. Other taxes, such as death duties, which are often levied unnoticed, at least by the dead person, could also be increased. A wealth tax has been mentioned. Borrowing more money (which can be paid back some time in the future by young people) is also a favoured solution by many.
• The chancellor is less likely to impose taxes on spending or earning as they are too visible and could indeed discourage spending and earning, which would be inconvenient.
• The Taxpayers’ Alliance says: ‘in these difficult times, the Chancellor should give hard pressed families and businesses a respite from taxes, offer a rescue to struggling sectors and try to revive the economy.’
Company & other news:
• See Marston’s above.
• Paid to issue debt (but investor cash more secure & convertibility is the kicker).
• Just Eat Takeaway yesterday announced that it was placing €1.1bn of convertible bonds. Today it reports that the bonds will be issued at 101.5% (Tranche A) and at 100% (Tranche B) of their nominal value and redeemed at 100% of their nominal value. Interest on Tranche A will be yield no interest and Tranche B will be 0.625%.
• Just Eat Takeaway also updated on its Grubhub acquisition, announced in June last year, saying the deal ‘is expected to close after completion of the offering of the Convertible Bonds during the first half of 2021.’
• The company says it is issuing the convertible debt ‘to capitalise on the strong momentum from our investment programme, the Company will continue to invest heavily and prioritise market share over adjusted EBITDA, as also set out in the Q4 2020 Trading Update. The Company believes that a stronger balance sheet provides additional financial flexibility to act on strategic opportunities that may arise.’
• There is a degree of IPO froth about. Dr Marten’s is now listed and Moonpig commences trading today. Deliveroo will be coming shortly. The business models need scrutiny and some of these valuations look rather stretched.
• ASOS is not taking any physical Topshop, Topman or Miss Selfridge stores.
• Suffolk brewer St Peter’s has been bought by a group of private investors for an undisclosed sum.
• Chop’d has been acquired by Inc Retail, for an undisclosed sum.
• French company Chefclub has raided $17m in funding.
• Online retailers are reported to be facing a cardboard shortage.
• Up to £500m of Scotch whisky export sales may have been lost because of the trade dispute with the US reports the Scotch Whisky Association.
• Heineken has taken full control of Brixton Brewery. The latter says ‘to realise our original vision of helping thirsty people everywhere get a taste of Brixton, we’re today announcing that, following a successful three years’ working with the global brewers, Heineken, we are expanding this partnership in a deal that will see Heineken fully acquire Brixton Brewery.’
HOTELS & LEISURE TRAVEL:
• Ryanair is forecasting “a strong return” for European beach holidays this summer. That is a shade optimistic. CEO Michael O’Leary talks of “pent up demand”. He says ‘we think once all those high risk groups – the elderly, the NHS, nursing homes – have been vaccinated then the travel restrictions should be removed, particularly on short haul intra-European travel.’
• Boris Johnson says he is “optimistic” for the summer holiday season. He cautions ‘I understand the reasons for being optimistic – but some things have got to go right for us. The vaccine programme has got to continue to be successful.’
• ABTA says consumers seem prepared to accept vouchers rather than cash for cancelled holidays. Perhaps not happy, though.
• Business travel body, the GBTA’s, latest poll says 69 per cent of European business travel professionals see domestic travel as still suspended (up 7 per cent on the previous poll).
• Gfinity has updated on trading. CEO John Clarke says ‘the positive results in the last quarter of the 2020 calendar year demonstrates that the strategy we have implemented is starting to deliver. We recorded the first quarter of adjusted EBITDA profitability in the Company’s history, a significant milestone.’ He adds ‘whilst we are confident as to the prospects for the Company, we will continue to ensure Gfinity can navigate any potential challenges created by the current situation. We are well positioned to reap the rewards of being a leading player in one of the most exciting industry sectors in the world. The team is working hard and smartly to build value for shareholders. The fundamentals are strong and the foundations are now in place to enter a period of solid growth.’
• Sales of Nintendo’s Switch gaming consoles have now beaten those for the earlier 3DS.
• Sky reports CVC Capital is to strike a $300m deal with volleyball’s governing body to expand the appeal of the sport.
FINANCE & MARKETS:
• IHS Markit’s January PMI for the UK manufacturing sector reports that there was a fall to 54.1 from 57.5 in December. It says ‘output growth eased and new orders fell slightly as producers faced weaker inflows of new export work and temporary supply-chain disruptions caused by COVID-19 restrictions and transport delays (especially at ports) following the end of the Brexit transition period.’
• Markit says ‘whereas many countries are seeing manufacturers provide a much-needed support to economic growth as the service sector is hit by COVID-19, the UK’s manufacturing sector has come close to stalling.’ It blames ‘a mixture of harsher COVID-19 restrictions and Brexit led…supply-chain disruptions.’
• The much larger services PMI is today.
• The Bank of England has suggested that cutting official interest rates below zero would not boost the economy.
• Sterling mixed in light of dollar strength. Down vs dollar at $1.3682 but up vs Euro at €1.1332. Oil higher at $56.89. UK 10yr gilt yield up 3bps at 0.32%. World markets better yesterday & London set to open around 28pts higher.
RETAIL WITH NICK BUBB:
Today’s News: There is still no more news on the mooted JD Sports share placing, even though the shares rallied strongly yesterday on the back of the latest US acquisition, but the food delivery giant Just Eat has announced that it has easily raised Eur 1.1bn overnight on convertible bonds, “for general corporate purposes, as well as to provide the company with financial flexibility to act on strategic opportunities which may arise”. And the Online retailer Moonpig has confirmed that it has priced its shares at the top end of the previously indicated range of 310p to 350p, capitalising the business at c£1.2bn, with first dealings starting at 8am (via the ticker MOON): Nickyl Raithatha, the CEO of Moonpig, says: “As the leaders of a market undergoing an accelerating shift to online, now is the perfect time for us to bring the company to the public market, and we are excited about
This Week’s News: As we move on into February, there is not much Retail company news scheduled this week, but the Amazon Q4 results in the US are out after hours tonight and Watches of Switzerland issue a Q3 update on Thursday. First dealings in the Moonpig IPO start today (see above) and unconditional dealings in Dr Martens start tomorrow. In terms of the Economic outlook, the MPC meeting interest rate/QE news at mid-day on Thursday will be worth keeping an eye on.