Langton Capital – 2021-03-16 – PREMIUM – Gregg’s, C&C, delivery, lost pubs, High St, business confidence etc.:
Gregg’s, C&C, delivery, lost pubs, High St, business confidence etc.:
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A DAY IN THE LIFE:
Deliveroo is all over the news and we’re sure the tech is impressive, a £7bn valuation says that it must be. The company must be a lot more than just a bloke on a bike with a pizza strapped to his back.
But then again, isn’t a ‘sustainably powered, timeless, versatile & reliable driving implement for the 21st century’ still a hammer? And, if it is, then I have no end of them spawning rust in the shed. I’m attached to them, sure, but, for £7bn, they’re yours.
We have a bit more to say on the matter below but, for the moment, let’s move on to the news:
DELIVERY: WHO WILL STEAL WHO’S LUNCH?
• We’ve been thinking. Often dangerous but, if Deliveroo is going to move upstream into food prep and Restaurant Group (and others) are moving sideways into Dark Kitchens to try to head them off, who’s going to be the winner?
• There are a lot of highly paid advisors on the ticket to tell us how Deliveroo, the food disruptor, is going to be the winner but, we can’t help thinking, they’re not playing chess against an empty seat and the incumbents will make moves of their own. See comments on Restaurant Group.
• We won’t critique the company in detail but note that it formally released its Intention to Float notice yesterday. Many of the details had been pre-released.
• Deliveroo says there will be a book-building process and says that the offer price will not be determined until after that has taken place.
• A few brief notes: It will be a full listing. There will be £1bn of new shares – in addition to shares to be sold ‘by certain existing shareholders.’ Shares will be offered to customers. There will be two classes of shares. Will Shu’s shares will have 20 votes each. This structure will last for three years. More detail ‘will be disclosed in the Prospectus.’
• It’s worth noting the marketing & financial firepower the company has lined up. it has ‘engaged Goldman Sachs International and J.P. Morgan Securities plc…as Joint Global Co-ordinators, and Merrill Lynch International…Citigroup Global Markets Limited…Jefferies International Limited and Numis Securities Limited as Joint Bookrunners for the Offer.’
• Much smaller in scale (though still substantial), Restaurant Group announced last week that, in addition to the £500m of debt facilities that it had reorganised, it was to raise £175m in new equity.
• The company mentions that its burn rate is £5.5m per 4wk period and that it saw a £40m working capital outflow (which should flow back when trading recommences).
• The company says it will reduce debt and improve liquidity headroom. But it will also use the funds to increase its ‘flexibility to capitalise on selective site expansion in its Wagamama (UK restaurants, UK delivery kitchens) and Pubs businesses, where TRG expect there to be good and profitable opportunities.’
• There could indeed be opportunities. But we could see quite a bit of cash going into delivery kitchens in a move that would put them in direct competition (for sites and share of stomach if not in brands) with Deliveroo.
The state of the delivery market:
• Just Eat said that the pandemic had supplied ‘tailwinds’.
• Deliveroo has announced its IPO against the backdrop of favourable trade but increased losses
• Some will be due to expansion into new territories but, at some stage, would-be investors will have to persuade themselves that the core model can generate a profit
• We would reiterate at this point that Deliveroo does not operate in a vacuum. Restaurants will be open again soon and delivery, as a percentage of total non-food retail food sales will likely fall.
• It may not go back to pre-pandemic levels but, if anything, RTN’s move suggests that Deliveroo could have more competitors (at least in Dark Kitchens if not in physical delivery) post pandemic than it did pre.
• More on Deliveroo. Its competitors. The use of funds etc.
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PUBS & RESTAURANTS:
In the Premium. Deliveroo vs Restaurant Group & peers. Deliveroo valuation, Gregg’s FY numbers and other morning news:
• The BBPA has reported that, as the initial shutdown is about to annualise, some 2,000 pubs have been ‘lost forever’ and around ‘£8.2bn in trade [has been] wiped out.’ Some taxpayer aid should maybe be netted against that figure.
• The BBPA reminds us that ‘since the first lockdown in March 2020, pubs have faced a further two lockdowns. They have also faced severe restrictions to their trade during other periods of being “open”, including tier restrictions that ultimately forced many to stay shut regionally or open but under conditions that made their trade unviable due to the 10pm curfew and substantial meal rules.’
• As for the future, outdoor opening should commence from 12 April, followed by indoors from May 17th at the earliest and with all restrictions lifted by June 21st at the earliest. The BBPA says whilst it ‘has welcomed continued support for the sector in the most recent Budget, in the form of £2 billion worth of measures including grants and furlough support, it stated that longer term investment in the sector was still needed.’
• Langton comment. This appears to be the BBPA putting a marker down in order to hold the government, if such a thing is possible to its dates.
• To be fair to HMG, it said that the dates, 12 April outdoor, 17 May indoor and 21 June for dropping all restrictions, were indicative and aspirational rather than promises. BBPA CEO Emma McClarkin says ‘sadly, we still haven’t seen the full extent of the damage yet and won’t do for some time until things really do go back to normal. And by normal, I mean a return to what life was like pre-covid.’
• She makes a good point re ongoing damage. As yet, it isn’t possible to quantify. Ms McClarkin says ‘whilst we continue to assess the full damage to our sector, I urge the Government to look at providing more support for our wet-led community pubs who, although grateful for all the support they received in the Budget, will not benefit from the VAT cut to food in the same way restaurants will. Local wet-led pubs have been amongst the worst affected by the virus so it’s important the Government goes that little bit further for them.’
• Telling the government what it must and must not do might a) work, b) be a waste of breath and ink or c) backfire. The BBPA says that it’s ‘becoming all the more clear that the Government must ensure all our pubs are fully re-opened on June 21st as indicated in the roadmap. This is when their recovery will really start and until then we stand to lose more pubs and community assets.’
• Taking a) above, the government has maybe made intense lobbying more likely (and we have seen it in large quantity) because it has flipflopped so much during the crisis sometimes, it would appear, correlated to the volume of abuse it was getting. The rights and numerous wrongs of the Covid response will no-doubt be scrutinised in due course.
• Drinks Business reports that a number of Scottish pub trade bodies including the SHG, UK Hospitality Scotland, SLTA, NTIA and the Scottish Beer & Pub Association have suggested a number of changes to Scotland’s reopening plans that could save jobs across the sector.
• The bodies ask the Scottish Government to mirror reopening plans in England as closely as possible. That may not go down too well politically, but it would add certainty and put dates on a number of the proposed measures. Beer, food and staff cannot be sourced immediately and any notice period would be an improvement on none. The bodies ask for last admissions to pubs & restaurants at 8.30pm and venue closing times of 10.30pm.
• A poll by Accenture & Markit has found that business optimism is at its highest in almost six years. Business believes there may be a way out of lockdown.
• Why does this matter? Business confidence leads to investment, which provides jobs and it is jobs that influences consumer confidence and, ultimately consumer spending. Optimism may be fragile but this is, hopefully, one of those valuable things – a lead indicator.
• Only 11% of businesses interviewed expected a decline in activity this year. Over two thirds of companies expected to expand activity. Accenture says ‘although we are not out of the woods yet, it is important for UK business to take advantage of this confidence in order to build a sustainable recovery.’
• Langton comment. We wouldn’t want to over-egg it but do agree with Accenture when it says ‘a positive mindset can be a self-fulfilling prophecy so hopefully companies will follow through on the investment and growth plans we see in this survey to take us through the economic downturn.’
• Hiring intentions rose to a positive balance (adding staff less cutting staff) of 30pps. This should help support consumer confidence and spending.
• The poll highlights the buoyancy of the mood in leisure finding that hotels and restaurants moved to being the most confident sector after being the least confident last autumn.
• Foodservice analyst Peter Backman notes that the three largest players in the UK delivery market released their 2020 figures in the past week. He notes that ‘Deliveroo recorded 65% growth in the UK and Ireland, Just Eat Takeaway (JET) rose 54% globally and even industry veteran, Domino’s Pizza Ltd increased online delivery order values by 21% in UK and Ireland.’
• The operators overlap but do not cover completely the same geographies. Nor do the ‘turnover’ or ‘revenue’ figures equate exactly as they may be system sales, commission revenue, or a mix of the two.
• Backman notes that the sales run rates of ‘all three companies was higher at the end of the year than their annual figures primarily because of the inclusion of figures for the first three non-covid, slower growth months in 2019 but also because of strong growth towards the end of the year.’ See comments on Deliveroo above and below.
Gregg’s full year numbers:
• Gregg’s has reported full year numbers for the 53wks to 2 Jan saying that the group is well-positioned for growth having held the decline in total sales for the year to 31%. Sales for the year were £811m (2019: £1.17bn) and like for like sales were down by 36.2%. the company says that it saw a ‘progressive recovery in sales levels through second half of year.’
• Gregg’s reports a pre-tax loss of £13.7m, including government support for job retention and relief from business rates (2019: £108.3m profit). The company says it had a ‘positive cash position at end of year and additional liquidity available under new £100m revolving credit facility.’ See premium email for detail and comment.
• Gregg’s says it has accelerated its multi-channel development strategy with its ‘delivery and wholesale channels providing alternative routes to access Greggs products, with delivery contributing an increasing proportion of total sales.’ It says ‘Click & Collect [has been] rolled out across the entire estate and delivery made available from more than 600 shops.’
• The shop opening pipeline has been reactivated ‘demonstrating confidence in long-term growth opportunity.’ The company says there were 84 new shops opened in 2020 with 56 closures. The group plans circa 100 net new shops for 2021.
• Current trading. The co is seeing ‘positive sales trend [with a] better-than-expected start to 2021 given the extent of lockdown conditions.’ The company managed shops’ LfL sales were down 28.8% year-on-year in the ten weeks to 13 March 2021. Comps will shortly get much easier. Gregg’s says delivery is ‘particularly strong, at 9.6% of total company-managed shop sales in the first ten weeks of 2021.’
• CEO Roger Whiteside says ‘Greggs has made a better-than-expected start to 2021 given the extent of lockdown conditions and is well placed to participate in the recovery from the pandemic. It has a clear strategy to extend its digital capabilities and to grow further in new locations, channels and dayparts. These opportunities will benefit all of its stakeholders in the years to come.’
• Re management, the company says ‘we continue to plan for succession for both Executive and Non-Executive directors.’ The chairman, who has been in his role for 9yrs, will stay on for a while ‘during a period when we are likely to address CEO succession as Roger Whiteside (62) approaches retirement age. We are grateful to Roger for his willingness to be flexible regarding his retirement date to ensure the best possible succession and transition process.’
• There is no dividend (the final for 2019 was also cancelled). The company says, since the 2019 cancellation, that ‘it has not been possible or appropriate to pay any further dividends since.’ Gregg’s says ‘in order to recommence a dividend distribution, the Company will need to return to a level of profitability and cash generation sufficient to support its investment programme whilst maintaining appropriate liquidity.’
• C&C Group has updated on full year trading for the 12 months ended 28 February 2021. CEO David Forde says ‘while our ability to trade has been severely restricted in hospitality, our brands have performed strongly in the off-trade. The Group has been working hard to ensure that we are primed and ready to serve our on-trade customers as and when the hospitality sector is allowed to reopen, from a more streamlined base and with new brand partners, in the post pandemic market.’
• The company says it has cut costs and moved to secure its liquidity. It has postponed non-committed capex, furloughed colleagues and taken advantage of other government support, where available. Dividends have been paused.
• C&C says ‘notwithstanding the current trading conditions, the Group looks to FY 2022 with increased optimism as continuing progress with COVID-19 vaccine programme is expected to see an eventual easing of on-trade restrictions as laid out by the respective governments across the UK and Ireland.’ It says ‘the strength of the Group’s business model together with reduced operating costs will support a stronger return to trading cash flows and profitability as and when restrictions ease and the hospitality industry reopens.’
• The Telegraph reports ‘Deliveroo cut a quarter of its staff in 2020 as pandemic bit.’ It says ‘the reduction in roles came as the company warned over its finances last year.’ The company has now launched an IPO with a valuation of c£7bn.
• The Telegraph says the company ‘reduced its headcount for sales and marketing staff by around three quarters, with numbers falling from more than 800 at the end of 2018 to just 202 at the end of 2020.’ It says ‘the company warned regulators at the time it would face collapse if they did not approve an investment worth hundreds of millions of pounds from Amazon.’ The pandemic clearly changed the landscape.
• Star Pubs & Bars is reported set to move its licensees on leased and tenanted agreements in England back to full rent from 21 June, the date on which all restrictions on gatherings is due to be dropped. Star has extended its 90% rent concessions to 16 May, when pubs should be allowed to open indoor spaces.
• The Caterer reports that US chicken chain Wingstop is to open three further UK restaurants this year.
• Joe & the Juice has reported that it sees ‘strong potential’ in the UK & it is planning to open more sites.
• Thornton’s has said it will shut all of its 61 shops in the UK, putting over 600 jobs at risk. Retail director Adam Goddard says ‘the obstacles we have faced and will continue to face on the High Street are too severe.’ The company has been on the High Street for over 100yrs.
• Pub is the Hub highlights the versatility of pubs pointing out that pubs can diversify and provide essential local services. It refers to the case of a pub opening a village shop in Northamptonshire.
• The Drinks Trust is launched a new initiative, the Drinks Community. The platform is intended to be ‘where people from the UK drinks industry can share knowledge on work and wellbeing and raise sector-specific questions, and will provide the bridge between disciplines, specialisms, and product channels.’
HOTELS & LEISURE TRAVEL:
• Jet2.com and Jet2holidays have raised capacity to several Mediterranean destinations for summer 2021. Travel Weekly quotes CEO Steve Heapy as saying the ‘number of customers booking flights and package holidays with us to the Canary Islands, Spain, Portugal, Greece, Turkey and Cyprus tells us that many people want nothing more than to get away this summer.’
• He adds ‘this demand is there, and as ever we are quick to respond to what our customers are telling us, making sure we take them from our rainy islands to their favourite holiday choices.’
• TUI has delayed its first river cruises until the end of June. The first departures will be from Budapest, on the Danube.
• Ski operator Silver Ski Holidays Ltd has ceased trading
• Blackstone Real Estate Partners and Starwood Capital Group are to buy Extended Stay America alongside its REIT ESH Hospitality for around $6 billion in cash. The boards of the target companies have approved the deal. Starwood says the extended-stay hotel segment has continued to perform despite the pandemic hit to hotel demand.
• Blackstone says ‘travel and leisure is one of Blackstone’s highest conviction investment themes, and we have confidence in the extended stay model.’
• MiNT Festival is reported to have bought a 136 acre site near Leeds in what will be Yorkshire’s “first ever dedicated festival site”.
• Payment system Stripe has raised another $600m at a valuation of $95bn. That’s a very big number. The group is said to be considering expanding its European footprint.
FINANCE & MARKETS:
• Sky reports that the EU has launched legal action against the UK for making changes to Northern Ireland’s trading arrangements.
• Sterling weaker at $1.3864 and €1.1621. Oil lower at $68.30. UK 10yr gilt yield down 3bps at 0.80%. World markets broadly better yesterday with London set to open up by around 32 points as at 7am.
RETAIL WITH NICK BUBB:
Today’s News: Despite the adverse impact of the pandemic lockdown on High Street trading, shares in Greggs have nearly doubled over the last 6 months, defying the bears, so the business needed to deliver good news with today’s finals for calendar 2020 and it appears to have obliged. As expected, Greggs crashed into a loss of £14m last year, with LFL sales down 36%, but Roger Whiteside, the CEO, says that “Greggs has made a better-than-expected start to 2021 given the extent of lockdown conditions and is well placed to participate in the recovery from the pandemic”, with LFL sales in the last 10 weeks only down c29% (down c22% ex-Scotland). The sofa retailer ScS has had an easier time of it, given the focus of consumers on household goods spending and today’s interims (for the six months to end Jan) flag that, on the back of a near 14% increase in gross sales, pre-tax profits urged to
This Week’s News: Tomorrow brings the Dignity finals. On Thursday we get the Ocado Q1 update, the MPC meeting news and the Nike Q3 and the Signet Q4 are out in the US. Friday then brings the widely followed monthly GFK Consumer Confidence survey.