Langton Capital – 2021-02-09 – PREMIUM – Uncertainty, expansion, consumers, meal kits, TUI etc.:
Uncertainty, expansion, consumers, meal kits, TUI etc.:
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A DAY IN THE LIFE:
Bright and clear this morning, minus three in the garden and a covering of snow. Proper winter and all that. Bit busy this morning so on to the news:
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• We mention in Pubs & Restaurants below that corporate activity may pick up once some of the uncertainties in the sector are removed.
• But ‘removing uncertainty’ is a big ask.
• Uncertainty will always be a feature of business but, right now, the degree of uncertainty is at almost unheard-of levels.
• Although below represents a list of problems rather than solutions, it’s worth considering even in the absence of any obvious answers.
• Known unknowns may be less toxic (or at least less of a surprise) thank unknown unknowns.
• We don’t know when it will end.
• And then there is no clarity on what trading will look like on reopening. Can pubs sell alcohol without a substantial meal? Will groups be allowed to meet? Is ‘the rule of six’ still a thing? What about all those other snappy soundbites?
• What about outdoors? Will any of the rules be different?
• We don’t know if the Tiers will come back.
• This depends critically on lockdown (above) but it is ultimately driven by the behaviour of the consumer.
• Will the consumer splurge (because he/she has been saving) or hoard cash because the UK is in recession and jobs may be lost?
• How confident (or cautious) re Covid cleanliness etc will the consumer be?
• Will the habit of eating at home be easy to shift?
• Will staycations represent a windfall?
• Will VAT return to 20% on 1 April?
• Will business rates return on the same date?
• Will the furlough end, as planned, at the end of April?
• How will government supported loans be repaid – and when?
• Will accrued VAT and other taxes need to be paid immediately?
The competition / micro vs macro:
• The above can’t be considered in two dimensions as the behaviour of competitors needs to be accounted for.
• How many will survive? Will they be cash strapped (or bust) and will they discount? Will you, for that matter?
• How will landlords behave? Will there be a flurry of evictions?
• Will banks force administrations?
• Will delivery go back to 10-15% (from its current c100%)?
• What about meal kits?
• There isn’t really a conclusion.
• Looking back on this period, what is going to happen will look obvious.
• If nothing else, this is a written record that, looking forward, the word ‘obvious’ is not one of the first that springs to mind. Comments gratefully received.
PUBS & RESTAURANTS:
Potential corporate activity:
• Franco Manca owner The Fulham Shore yesterday said that it had cash available for expansion and today, foodservice analyst Peter Backman says ‘money is being mobilised to invest in the sector and is waiting for the off.’ There may be more action when a definitive re-opening date has been announced. There are perhaps just too many uncertainties at present – see premium email.
• There have been some moves (Platinum has tabled an indicative offer for Marston’s & others, such as Rooney Anand and former managed house directors elsewhere have raised money to buy freeholds) but much remains to be committed. It doesn’t help that the assets for sale are not attractive to buyers and the assets desired for buyers are not for sale.
• The Bank of England seems keen on the ‘wall of money’ argument saying that savers will, at some point, feel the need to spend. Bank of England governor Andrew Bailey says that consumers will ‘go for it’ when the economy reopens.
• Foodservice analyst Peter Backman points out that the ONS’s index of Happiness, slipped in the last six months, despite there being some light at the end of the pandemic tunnel.
• Barclaycard has reported that spending on takeaway meals has shot up over the last year. Given lockdown action over the period, that is perhaps hardly surprising. Barclaycard says that home cooking had also taken share of spend. Barclaycard says that, overall, spending was down by 16.3pc year-on-year in January.
• Barclaycard says that meal kit spend was up by 92.1pc and grocery spend was up with online grocery spending up by almost double. It says that nearly four in 10 Britons have reported struggling to land delivery slots. The card provider says ‘from meal kits and subscription services, to online grocery shopping, Brits have continued habits they formed in the first lockdown.’
Company & other news:
• Danny Meyer’s Union Square Hospitality is to raise $250 million in an initial public offering for a Special Purpose Vehicle that will look to make investments in the restaurant space. On the SPAC’s advisory board are Clarence Otis, former CEO of Olive Garden parent Darden Restaurants Inc. reports Nations Restaurant News.
• DoorDash Inc has bought Chowbotics, the fresh food robotics company. DoorDash says ‘with the Chowbotics team on board, we can explore new use cases and customers, providing another service to help our merchants grow.’ It says ‘bringing Chowbotics’ technology into the DoorDash platform gives us a new opportunity to help merchants expand their current menu offerings and reach new customers in new markets — which is a fundamental part of our merchant-first approach to empowering local economies.’
• Sky reports that Cain International, which owns Prezzo, is considering ‘an insolvency process amid continued uncertainty about the industry’s reopening timetable.’ Sky says Cain, working with FTI Consulting, is ‘in discussions with scores of landlords about future rent arrangements and the payment of arrears.’
• Cain only bought into Prezzo last December. At the time, CEO Jonathan Goldstein said ‘we firmly believe that strong hospitality and leisure brands with disciplined leadership will thrive in a post-COVID landscape.’ He said ‘Prezzo has a clear vision for how to best serve its customers and communities and I am confident that the combination of Cain’s operational and financial expertise, the exceptional management team led by Karen [Jones], and the commitment of Prezzo’s entire workforce will enable the business to realise its full potential.’
• Elsewhere, Big Table Group, which owns the former Casual Dining Group brands Las Iguanas, Bella Italia and Café Rouge, is reported to have agreed a new long-term partnership deal with Center Parcs. It is said that the deal will include a significant investment program across its 12 restaurant locations.
• Drinks Business comments on AB InBev’s desire to spend US$1 billion on relatively new markets including Hard Seltzers. It points out that ‘the biggest loser in the drinks spectrum over the past year has been beer’ and, for AB InBev, that is something of a problem.
• DB points out that ‘in 2018 hard seltzers accounted for just 0.85% of alcohol volume sales in the US: a year later it was 2.6%, and IWSR predicted that by 2023, demand would more than triple.’ Re the UK market, DB says ‘hard seltzers are in their infancy in the UK but even so IWSR predicts the category will witness the highest growth rate within the UK’s ready-to-drink sector, with a forecast volume compound annual growth rate of 71.7% up to 2024.’
• Punch Pubs are offering two and three course Valentine’s Day meals in a box for £16.99 and £19.99 respectively. A single rose bottle of Prosecco is £12 extra.
• The Telegraph reports that landlords are left with ‘a hole’ now that the empty Arcadia shops on the High Street are no longer paying rent.
HOTELS & LEISURE TRAVEL:
• TUI has reported Q1 numbers to end-Dec saying that it has completed its third support package for €1.8bn including fully subscribed rights issue and now sees ‘liquidity bridged to Summer 2021 travel recovery.’ It says ‘Q1 result reflects minimal operations due to extended travel restrictions.’
• TUI Q1 revenue is down 87.8% at €468.1m with the group making an underlying loss before tax of €709m. The loss per share is 136c. TUI says 116 hotels were open (last year 229 hotels) and the cruise operation was down to five ships. Re liquidity, TUI says it has ‘pro forma cash and available facilities as at 3 February 2021, including third support package, would amount to €2.1bn (post €300m senior notes redemption).’ It says ‘our assumption for Q2 FY 2021, is for working capital development to correlate with vaccine programme rollout and lifting of travel restrictions, with significant upside anticipated should travel restrictions be lifted ahead of Easter (early April 2020). We anticipate net cash fixed costs outflow to be in the range of €250m to €300m per month.’
• The group expects ‘significant positive working capital inflow and net costs moving towards cash break-even as both operations and bookings begin to normalise’ in Q3 this year. Winter 20/21 bookings are down 89%. Summer 21 bookings are down 44%.
• TUI concludes ‘our strong customer base and scale gives us an advantage in terms of brand awareness and distribution, securing attractive terms from suppliers, and in gaining greater insight into customer behaviour. In addition, selling into a range of source markets helps to diversify our customer base, meaning we are not reliant on a single market.’
• There have been calls for tighter border checks ahead of the imposition of quarantine regs next Monday. Sky News reports Matt Hancock will say in a Commons statement that, from next Monday (February 15), all passengers arriving in the UK will be required take a test on days two and eight of their isolation.
• Professor Jonathan Van-Tam has said it is too early to say whether it is too early to be making summer holiday plans.
• A study carried out by the University of Aberdeen has suggested that international travel was the major factor behind the severity of the first wave of Covid-19 infections in spring last year. This may be stating the obvious to some extent because, since the virus didn’t originate in the UK, it had to get here somehow.
• The study found a 3.4 per cent increase in the mean mortality rate due to Covid for every 1 million increase in the number of international arrivals.’
• STR says that events will prove to be something of a bright spot for UK hotels. Of course, there are precious few events out there. One, the UN Climate Change conference, is said to be responsible for pushing Glasgow’s hotel occupancy to around 90%.
• Intercontinental Hotels has reported that 50% of travellers intend to re-book, or have already re-booked, cancelled trips from last year, this year. It says 60% of travellers cancelled between 1 and 4 trips last year. It quotes 40% of travellers as saying that they need a trip to look forward to. And 50% of business travellers ‘miss creating meaningful relationships through work travel’. Not the parties, then?
• IHG says ‘travel is the only thing you buy that makes you richer’ and adds ‘our survey results prove that people are hungry for those rich experiences again. But the world has changed, and travel decisions must be made more thoughtfully.’
• Leeds Bradford Airport aims to provide its own hydrogen via a new industry partnership with ITM Power. Leeds Bradford aims to be ‘a carbon net zero airport for ground-based operations.’
• Pragma Consulting reports ‘online gaming [not gambling] has undergone an explosion during the pandemic and gaming lounges are now a significant opportunity for high street and commercial locations.’ This may be a longer term play but, in the short term, gatherings are not possible.
• Pragma says ‘smaller gaming lounges or arenas have been increasingly appearing throughout the UK, with large brands such as Game now operating 25 Belong Esports locations across the UK. Venues likes these are popular among novice and experienced gamers and allow them to try their hand at the latest games and consoles within a social and fun environment.’
FINANCE & MARKETS:
• The NIESR has cut its forecast of UK economic growth in 2021 to 3.4% from 5.9%. This after a decline of 9.9% last year.
• NIESR says ‘early indications are that the lockdown in the first quarter is having a larger impact on activity than in November, but a smaller impact than the Spring 2020 lockdown.’
• The NIESR says ‘by 2025, the level of GDP is forecast to be around 6 per cent lower compared with pre-Covid19 expectations.’ This reflects ‘lower consumption caused by higher unemployment’ and increased barriers to trade.
• The Road Haulage Association says exports to the EU are down 68%. The government says they are running at 95% of normal. They can’t both be right. The government yesterday announced a trade deal with Albania. The deal will allow terms on a par with those the UK had pre-Brexit.
• Sterling stronger at $1.378 and €1.1408. Oil up at $61.18. UK 10yr gilt yield down 2bps at 0.48%. World markets better yesterday but London set to open around 10pts lower.
RETAIL WITH NICK BUBB:
Today’s News: On top of the Ocado finals for y/e Nov (which are headlined “Further strong progress supporting our partners”), there has been a surprise announcement from the fashion lifestyle brand Joules, about the acquisition of an upmarket Online business called Garden Trading. In y/e Nov, Garden Trading did revenue of less than £17m, so the upfront cost of £9m (in cash and shares), rising to a possible £12.5m dependent on this year’s results, seems a tad high and, although Nick Jones, the CEO of Joules, says that Garden Trading “is a fast-growing and highly complementary brand to Joules in the attractive home, garden & outdoor category” management are holding an analyst call at 8.30am to talk about it. On a more cosmic level, as Ocado is capitalised at £20.6bn vs £170m for Joules…Ocado has announced improved Group EBITDA of £73m, reflecting the strong revenue growth and
BRC-KPMG Retail Sales survey for January (the 4 weeks to Jan 30th): As has been the case in recent months, “Food good/Non-Food bad” was always likely to be the main theme of today’s figures and that was certainly the case, but the overall figures were a bit weaker than might have been expected, with total sales down 1.3% (after 1.8% growth in December), despite further strong Online sales growth. The exact Food/Non-Food split of total sales last month is buried within the 3-month moving averages (of +7.9% and -5.6% respectively), but it looks to us as if total Food sales growth was at least 8% and that total Non-Food sales were over 10.5% down. As usual, the overall weak Non-Food performance masked further good growth in Home-related sub-sectors like Computing, TV/Gaming and Electrical Appliances, but was pulled down by poor Clothing and Footwear sales, as well as by weak Health and