Langton Capital – 2021-02-11 – PREMIUM – Marston’s, empty shops, SSP, Coca Cola & other:
Marston’s, empty shops, SSP, Coca Cola & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I’ve decided that if you can’t have a long weekend in Venice or a stroll down the Ramblas to freshen you up a bit, you should move the furniture around in your home office.
Because it’s like a whole new world, a short break of sorts, a holiday, 2021 style.
And, whilst you may not be woken by the gentle murmur of Provencal being spoken outside your gite or the rattle as the market sets up in Girona or the kids, if you’ve got them, telling you it’s time to get your skis on – but the sun will slant in from an altogether different direction, you see the left aspect of the cobwebs rather than the right and the drip on the flat roof is miraculously behind you rather than in front.
Sadly, the enjoyment half-life is measured in minutes rather than weeks and then it’s back to reality.
Anyway, the link to our Month in the Life didn’t work yesterday – but this one, HERE, should. On to the news:
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See our additional comments on vacancy rates, the City, proposed online taxes, Deliveroo and market growth below.
MARSTON’S – PLATINUM WILL NOT BID:
• No bid for Marston’s from Platinum.
• Platinum Equity Advisors says that ‘after careful consideration, it does not intend to submit a revised proposal and it will not make a firm offer for Marston’s.’
• It will not be barred from bidding unless there is agreement (unlikely) or a third party makes a bid.
• Marston’s had said that even the third of Platinum’s cash bids, at 105p per share, very significantly undervalued the company which, since the pandemic struck early last year, has radically reduced its debt profile (via the brewery JV with Carlsberg) and initiated the innovative and capital-light management deal with SA Brain.
• As mentioned previously, freehold pub assets remain extremely attractive. There are a number of buyers around and not many sellers. Trading is non-existent at the moment but, when pubs are allowed to open, as we saw last July, the demand is likely to be there.
• We said in early Feb that any bid for Marston’s (or any other company with significant recovery potential) should be based, at least in part, on a pre-Covid price. This should then be adjusted for the £m cost (as a one-off) that the pandemic has caused (not yet ascertainable but the current burn rate for Marston’s is c£3m to £4m per week). This would then need to be adjusted upward for the Carlsberg deal, any additional synergies and the Brain’s deal.
• Any lower price that that implied above would represent opportunism on the part of the would-be buyer and, unless the company was in a pickle, which Marston’s clearly is not, would not be attractive to shareholders.
PUBS & RESTAURANTS:
• The Local Data Company (LDC) has reported that the number of vacant units in the City of London has risen by 47% during the COVID-19 pandemic. It says there were 255 vacant units at the end of 2020 (versus 174 a year earlier).
• LDC says this represents an increase in the vacancy rate of 3.5% in the City ‘compared to an average increase of 1.3% for Greater London and 1.6% for the whole of GB.’ It adds ‘this reflects how this location has been impacted more by COVID-19 than the rest of London and GB as a whole. Vacancy is now at the highest level in five years in the City where retail stock is densely supplied with food to go units, pubs, bars and restaurants, usually serving the busy working population, which for almost a full year, have been working from home, often in the outer, more residential areas of London.’
• All true.
• Langton Comment: Given the high concentration of pubs, bars, restaurants and grab & go outlets in the City, the stat is perhaps not too surprising. LDC says ‘54% of all closures seen in the City in 2020 were hospitality and leisure units, of which 83% were national chains.’
A heady mix:
• High costs, severe competition and an absent customer base.
• Rents in the City are high. Labour costs likewise. If an operator needs to cut material cost (in a market that may lag the UK when the pandemic is ‘behind’ us), then the City is a sensible place to start.
• Competition is fierce. Coffee shops, sandwich shops, Far East grab & go & many other concepts are very heavily represented.
• City workers have been well-positioned (if ‘well’ is the right word) to work from home during the pandemic – and most have done so.
The short-term reaction:
• There have been a number of CVAs and straight administrations (see Prezzo below) and many of these have involved operators with sites in Central London. LDC says ‘many brands have had to rationalise their London estates, closing locations where footfall has declined significantly.’
• Lucy Stainton, Head of Retail and Strategic Partnerships at the Local Data Company says ‘the City of London has been dramatically hit given that the vast majority of the worker population, on which these businesses are almost solely reliant, went away overnight as the Government’s initial work from home order kicked in. The fact that a significant number of retailers deemed ‘essential’ have chosen not to open in this location throughout various lockdowns, despite their ability to trade, is a further indication of just how low current consumer demand is in the City.
• LDC says ‘looking forward we might expect that once people are able to safely return to offices, the need, and demand, for this supporting economy will return just as quickly as it went away, presenting a real opportunity for agile operators especially in those key categories such as take away food shops, bars and restaurants.’
• Timing will be everything.
Longer term considerations:
• Many unknowns. How will landlords react? Will rents fall? And if so, when? When will commuters come back? How many of them? Do we ‘need’ all of these office buildings? Will the City lose out from Brexit? Will operators demand a higher return on investment to operate in the City? Tangentially, what will happen to labour costs (in the face of higher domestic unemployment but fewer EU staff to source from)?
• City AM, which as the name suggests, has a dog in this fight, questions ‘is central London finished?’ It says that overseas investors appear to think otherwise.
• In the short term, however, it says the City is not an attractive place to invest. That, as it is from the landlords’ perspective, may be an opportunity for some operators. A tenant will deal with repairs, maintenance costs and business rates.
• City AM says that ‘London is still very much an attractive destination for investors. Due to long leases, upwards only rent reviews and Full Repairing and Insuring leases, London is a landlord-friendly jurisdiction, with its safe haven status for international capital.’ We would suggest that, just possibly, all of those selling points are in retreat and the high-water mark for landlords may have passed.
Other Covid-19 news:
• The proposed digital taxes have been given momentum by the pandemic. The Institute of Economic Affairs isn’t a fan, saying that ‘the thinking behind the current proposals still seems fundamentally flawed. For a start, it is plain wrong to assume that online retailers are making unreasonable profits, even during the pandemic. Amazon and Ocado are good examples.’
• Langton comment.
• The above is true but, if a disruptor comes into a market, it is possible for them to make everything worse for everybody, including themselves. Against that backdrop, it might still be ‘right’ to level the fiscal playing field.
• Deliveroo is about to IPO. The desire for ‘growth’ is so acute that it looks to be able to nip in after its one and only period of profitable trading and engineer a massive payday for its founder and early shareholders.
• Looked at through a different lens, Deliveroo stepped into a market that was functioning pretty well and made restaurants, customers and, until recently, its own shareholders, all poorer. We wouldn’t bet against it doing well on IPO but, if it couldn’t make a significant return during lockdown, it will be hard to see how it can grow the market sufficiently to produce attractive returns for restaurants, delivery staff and itself at any sort of price that the consumer is willing to pay.
• Staycation uncertainty. See below. Transport Secretary Grant Shapps has said that it is too early to say whether holidays, at home or abroad, will be permitted in the summer.
• On online petition calling for the 5% rate of VAT to be extended until at least March 2022 & the suspension of business rates to be extended to the end of this year has attracted more than 13,000 signatories.
• UK Hospitality’s Kate Nicholls has warned that the scale of the problem faced by the hospitality industry is being disguised by government help. Some help is better than none but the issue will become acute as VAT is scheduled to return to 20% at the end of next month, business rates will come back into force & the furlough scheme will end on 30 April.
• Nicholls says the industry is facing a brick wall. She says ‘we are rapidly running into a situation where we just don’t have the cash to get through.’ UKH adds ‘we need a clear staged exit strategy. If we’re not able to have precise dates we need an indicative line of sight for reopening parts of the sector progressively.’
• The Institute for Public Policy Research has said that over half of the UK’s hospitality firms now have less than three months of cash reserves left.
• The BRC has said that shuttered shops may never recover the income that they have lost during the Covid pandemic. The Telegraph reports ‘retailers are nursing a £22bn hit from lockdowns and restaurants, pubs and bars broke even in just four weeks after Covid struck last year according to damning new figures [from the BRC] which highlight the damage wrought by Britain’s coronavirus crackdown.’
Company & other news:
• SSP may issue equity.
• SSP has commented on ‘recent press speculation regarding its draw down on the Bank of England CCFF and the possibility of the Group undertaking an equity raise.’ It says that its ‘liquidity position is strong, with cash and undrawn available facilities of around £520 million, as at 30 September 2020.’ Since then, cash has been leaving the business.
• SSP says ‘whilst SSP is confident in the medium-term recovery of the travel market, there remains significant uncertainty with regard to COVID-19 and associated travel restrictions. In that context, the Group continues to evaluate the merits of a range of funding options, both debt and equity, that would further strengthen its balance sheet.’
• Coca-Cola HBC AG has reported full year numbers saying that ‘our business adapted quickly to changing consumer behaviour as a result of COVID-19 restrictions, delivering resilient financial performance reflecting strength of brand portfolio, operational agility and strong execution.’
• CHBC said it saw ‘improving volume trends in second half, with Q4 like-for-like volume down 0.7% and full-year like-for-like volume decline contained at 4.6% YoY. CEO Zoran Bogdanovic says ‘the numbers we released today demonstrate how far our business has come in building both operational agility and lasting margin resilience.’
• CHBC says ‘the improved second-half trading was driven by a return to growth in the at-home and greater resilience in the out-of-home, despite a resurgence of infections in many of our markets towards the end of the year. Partnering closely with The Coca-Cola Company team on rigorous prioritisation of our joint market investments, coupled with our rapid adaptation of the route-to-market and excellent execution, resulted in strong value share gains in both Non-alcoholic ready-to-drink and Sparkling across the majority of our markets.’
• The company says ‘while the economic outlook remains uncertain, we are clear on the opportunity and direction for our business and are investing to strengthen our capabilities which will drive our long-term performance, underpinned by further advances on sustainability. Looking to 2021, we will continue adapting fast in a dynamic market and partnering with our customers to drive a strong recovery in FX-neutral revenues, along with a small increase in EBIT margin. In recognition of our business’ strength and future opportunities, the Board has proposed a dividend of €0.64, a 3.2% increase compared to last year. We move forward with confidence and resolve to continue adapting to win.’
• Global brand owner Coca-Cola Co yesterday in the US reported numbers to end-Dec saying that it should return to organic revenue growth this year after a very difficult 2020. Coca Cola says ‘it is still early days in the vaccination process, and we’d expect to see further improvements in our business as vaccinations become more widely available over the coming months.’
• Coca Cola says 2021 adjusted earnings should grow in the high-single digits to low-double digits and organic revenue to rise in the high-single digits.
• Prezzo owner Cain International has agreed a pre-pack administration whereby some 22 Prezzo restaurants are to permanently close with 216 of the chain’s 2,900 jobs being lost. Cain says ‘we firmly believe that strong hospitality businesses, such as Prezzo, have a bright future and will play an essential role in reviving the UK economy. However, to do so we must get through this current crisis of mounting liabilities and no revenues.’
• Honest Burger Ltd owner, Honest Group Ltd has reported overdue results to 26 Jan 2020 accounts to Companies House. The numbers relate to a period prior to Covid-19. Revenue was £40.4m (2019: £30.7m) and operating profit was £618k (2019: £518k. The company bears the interest cost of the investment in Honest Burger and the loss before tax was £1.3m (2019: loss £1.4m). Accumulated losses since incorporation (as at over a year ago) were £7.3m.
• Honest Group’s comment on trading now relates to a period so long ago as to be not very meaningful. However, it does cover the Covid period to some extent (the accounts were signed on 14 January this year – 2021) saying ’when the Covid-19 pandemic hit in March 2020, the Group temporarily closed all of its restaurants for 6 weeks until the situation became clearer.’
• More comment in Premium Email. The company cut costs, secured extra debt and furloughed its staff. The company says it ‘deferred opening its pipeline of committed sites, agreed repayment plans with a number of key partners and underwent a substantial rationalisation across its variable cost base.’ It has increased delivery and says ‘in any reasonable scenario, the Group has sufficient cash to continue in operations and to meet its liabilities as they fall due.’
• Honest Group, however, does anticipate covenant breaches. It says ‘this indicates the existence of a material uncertainty which may cast significant doubt over the Group’s and the company’s ability to continue as a going concern. The directors are confident that due to the strong relationship with Santander and the anticipated renegotiation in Spring 2021, it is appropriate to prepare the financial statements on a going concern basis.’
• Heineken is cutting nearly 10% of its workforce after a fall drop in sales due to the coronavirus pandemic. Some 8,000 jobs will be lost.
• NRN (in the US) reports that ‘Nathan’s Famous has more than doubled down on the growing industry trend.’ It says the operator has now opened its 100th ghost kitchen, this one is housed in The Black Iron Burger, an independent Brooklyn restaurant.
• Meat-free London start-up Hoxton Farms has launched a £2.7m round of funding.
• HMRC stats show that the number of distillery numbers in the UK rose by 28% to 560 last year. The number in England has tripled since 2016.
• Consumers may benefit (at least in the short term) as Sainsbury has now followed Tesco’s Aldi price-match scheme.
HOTELS & LEISURE TRAVEL:
• Transport Secretary Grant Shapps has said that it is too early to say whether holidays, at home or abroad, will be permitted in the summer. Shapps told Sky ‘it’s not about the prevalence of the virus elsewhere now, it’s about the variants.’ He adds ‘I don’t want to unnecessarily raise people’s hopes.’
• Boris Johnson has also said it is “too early” to say if people will be allowed to take summer holidays abroad or in the UK. Johnson did not go quite as far as Grant Shapps. AITO suggests ‘we’re talking about the end of May or June, which is a long way off.’
• Despite the above, TUI has reported that more than half of the summer bookings it has taken globally for this summer have come from UK customers. TUI boss Fritz Joussen says ‘people are sitting on their suitcases waiting to see what will open.’
• The thought of a mandatory 10dy stay in a UK hotel on return from a holiday in Portugal (which at present would be illegal anyway) at a cost of £1,750, does not sound currently very appealing.
• European travel association ETOA has said that European destination markets could suffer ‘dramatic loss’ if the EU does not open its borders to the US this summer. Given the lead times involved, the summer (in logistical terms at least) is closer than one might think.
• Airlines have complained to the PM that they look set to perhaps lose a second summer.
• BTN Group has moved the Business Travel Show Europe from June to the end of September. This may still be somewhat optimistic.
• Uber yesterday reported a lower loss for fourth quarter saying that it had seen a return to travel during that quarter. The shares had been up 6% during the day but lost much of that in after-hours trading.
FINANCE & MARKETS:
• Bank of England Governor Andrew Bailey has said there are signs the EU will cut off trade with London financial markets. Bailey says ‘I’m afraid a world in which the EU dictates and determines which rules and standards we have in the UK isn’t going to work.’
• Sterling up at $1.3846 and €1.1416. Oil higher at $61.11. UK 10yr gilt yield up 3bps at 0.49%. World markets broadly better yesterday with London set to open up around 9pts.
RETAIL WITH NICK BUBB:
• Today’s News: The Ted Baker Q4 update today covers the 13 weeks to Jan 30th and is pretty gloomy in tone, with group sales down 47%, given the lockdown store closures (as well as “selective permanent closures where commercial lease agreements could not be reached with landlords”). One surprise is that Online sales were only broadly flat in the period, given the “lack of demand for outerwear and occasionwear over the festive season”. Shareholders will also be dismayed to hear that management now assume that UK stores will remain closed until the end of May and that there will be “up to £5m of incremental costs associated with Brexit, reflecting extra duty and shipping costs partially offset by a new customs warehouse capability”. If you don’t fancy investing in Ted Baker shares for recovery, then how about its rival Superdry, given the return of “the prodigal son”, (aka Shaun Wills) to