Langton Capital – 2021-03-18 – PREMIUM – SSP, gig workers, revenge spending, YNGA, GAW, JDW, Punch etc.:
SSP, gig workers, revenge spending, YNGA, GAW, JDW, Punch etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
There’s no doubt that the coronavirus pandemic has put some of us into a Reggie-Perrin-like rut that it might be hard to climb out of. I mean:
• Alarm, two, three, dog, two, three, tea, two, three, breathe.
• Emails, two, three, Zoom, two, three, emails, two, three, breathe.
• Bread, two, three, fruit, two, three, emails, two, three, breathe.
You get the picture.
Maybe it was ever thus but, when you get to the point that you’re taking the same cups out of the same cupboard at the same time every day, perhaps it’s time to do something different.
Like have a coffee instead of a tea or even go wild and lightly toast your bread.
Aargh. Thank goodness nobody’s said ‘I could set my clock by you’ because, if they did, I wouldn’t be responsible for my actions.
Anyway, not alone in this, I’m sure so, two, three, onto the news, two three…
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SSP RIGHTS ISSUE:
SSP is the third leisure company (alongside JD Wetherspoon & Restaurant Group) to come to the equity market for additional funds twice.
SSP Group yesterday announced the launch of a fully underwritten Rights Issue to raise £475m and our comments thereon are set out below:
• SSP Group is launching a fully underwritten Rights Issue to raise £475m. The issue is 12 shares for 25 held at 184p per share. This is a 37.3% discount to yesterday’s share price. A material discount makes underwriting the issue easier. This has been done. SSP says that extending its bank facilities was dependent on getting the Rights agreed.
• The company says ‘alongside and conditional upon the Rights Issue, the Group has secured the extension of its bank facilities that were previously due to mature in July 2022 to January 2024, and secured waivers and modifications of the existing covenants under those bank facilities and its US private placement notes.’ It says ‘this holistic set of balance sheet measures will significantly strengthen SSP’s financial position and resilience, and will position SSP for the next phase of the pandemic.’
• The company adds ‘these measures will protect the business if the global travel sector experiences a more prolonged recovery from the pandemic, whilst under SSP’s base case scenario, they will strengthen the Group’s balance sheet and provide increased capacity for investment as the travel market recovers.
• SSP says ‘the Board is confident in the medium term outlook for the Group’s end markets, but the profile of the recovery remains uncertain.’ You can say that again. SSP adds ‘notwithstanding the rapid approval of Coronavirus vaccines and the global roll-out of vaccination programmes, new variants of the virus, vaccine supply constraints and various lockdown and travel restrictions mean that the pace of the recovery in 2021 has been delayed relative to the Group’s expectations towards the end of 2020.’
• CEO Simon Smith says ‘over the past year the Group has experienced an unprecedented period of disruption in the travel sector. Early and extensive action has enabled us to protect the business and put ourselves in the best possible position to emerge strongly as the market recovers.’ He adds ‘strengthening the balance sheet now will underpin the business if the recovery in the travel sector is slower than we anticipate and it gives us the capacity to invest in growth opportunities as we emerge from the pandemic.’
• The company adds ‘our current expectation is that the early recovery will be led by domestic and leisure travel from which we are well-placed to benefit.’ It concludes ‘looking further ahead, the actions we’re taking will allow us to capitalise on the recovery as well as future new business opportunities, enabling us to deliver long term sustainable growth for the benefit of all our stakeholders.’
• See premium email.
• The equity raise and debt restructuring give the group a) flexibility and b) a war chest. We said exactly the above words with regard to Restaurant Group’s fund raise last week. And we could have said the same for JDW recently, which is the third of the three major leisure companies to come to the equity markets not once, but twice. With regard to SSP, there is little doubt that travel is in a tougher spot than, say, suburban pubs and restaurants
• And, on the basis that it’s better to mend your roof when the sun is shining, SSP has taken pre-emptive action. Just how much this was forced by the banks, we are unlikely to ever find out. But great minds (or at least the minds of bankers and prudent company executives) think alike.
• We would highlight the comment by SSP that the outlook has deteriorated since it last spoke (but, with the vaccine, has arguably got better in the more recent past). We would also point to the material discount. The shares have dropped by 6% on the news and they don’t go ex-dividend until 7 April.
GIG ECONOMY – UBER RULING ON PAY, CONDITIONS & BENEFITS INCLUDING PENSION PAYMENTS, ACCRUED HOLIDAY PAY. COMMENT ON DELIVEROO ETC.:
• Uber said yesterday that it would guarantee its 70,000 UK drivers a minimum hourly rate alongside holiday pay and pensions. Sky reports that Uber Eats riders will be excluded from the deal but one of the obvious questions is: ‘is there a read across for Deliveroo?’
• The GMB says yes. Mick Rix at the union says ‘other gig economy companies should take note – this is the end of the road for bogus self-employment. Uber had to be dragged kicking and screaming to do the right thing, but finally they’ve agreed to follow the ruling of the courts and treat their drivers as workers.’ The Guardian quotes TUC general secretary, Frances O’Grady, as saying that other private hire companies now needed to recognise trade unions.
A few thoughts:
• Many have questioned whether the gig economy was a real thing. Was it a new innovation that would add value to workers, bosses and customers alike? Or was it exploitation akin to the piece workers of the 18th and early 19th century, who got to ‘spend more time with their families’ but who found themselves working by candlelight from 8am to 10pm every day?
• And what was the difference (other than an exciting new word) between the gig economy and zero hour contracts? The former was deemed new and innovative whilst the latter was deemed exploitative and was ultimately reviled and withdrawn by many operators, despite workers and bosses being broadly happy with the situation?
• Langton analysis & comment: It would appear that the pendulum is swinging and this has implications for operators and new-tech companies that have built their models around structures whose legality had not been established. See premium email for further detail.
• In the area of accommodation, Airbnb has competed with hoteliers and cottage rental companies but is now facing some pushback. There may be zoning legal questions and it’s not clear whether the right people – or indeed anybody – is paying any tax. But, with the £7bn IPO of Deliveroo currently underway, perhaps one of the biggest questions is: does the above have any read across for Deliveroo and, if it does, what might happen to the company’s cost base?
• The Guardian, maybe not a natural fan of flirting with labour laws, points out that ‘Gig economy companies, including Uber and Deliveroo, have faced at least 40 major legal challenges around the world as delivery drivers and riders try to improve their rights.’ This intended ‘improvement of rights,’ if successful, would lead to an increase in costs for the companies concerned. If prices could not be raised (and Uber has said they will not be), then margins will fall.
• This could be mitigated if volumes rise sufficiently but, in the case of Deliveroo, where it is hard to see delivered food prices being pushed much higher and where restaurant competition is likely to intensify once the latter are allowed to reopen, taking more market share could be far from easy.
A rather unstructured argument – but you know where we are going with this. :
• The Press has picked up on Deliveroo having provided £112m to cover the legal costs of delivery rider cases. The Guardian says ‘the London-based firm works with more than 100,000 riders worldwide, which it argues are independent self-employed contractors not entitled to benefits such as holiday pay and national minimum wage, except in parts of the Middle East. Cases over delivery rider status are on-going in the UK, France, Spain, the Netherlands and in Italy where it could face a significant pay-out if an appeal fails.’
• Yes, quite. In the excitement of a £7bn IPO, with £1bn of new money being raised, a backward-looking £112m provision could sneak under the wire but, arguably, the bigger impact is what it does to future costs and profitability.
• Uber boss, Dara Khosrowshahi, writing in the Evening Standard, says the move to holiday pay, sick pay, pensions, minimum wages etc ‘is a significant improvement in the standard of work for UK drivers. But I know many observers won’t pat us on the back for taking this step, which comes after a five-year legal battle. They have a point, though I hope the path that we chose shows our willingness to change.’
• This is an interesting comment. The company has to abide by the laws of the country in which it operates but, at the end of the day, Mr Khosrowshahi is transferring shareholders’ money to his workforce. This is never an easy thing to do – but Uber is already listed, it isn’t in the process of persuading new shareholders to buy stock from existing shareholders – and Deliveroo absolutely is.
PUBS & RESTAURANTS:
Covid developments – revenge spending:
• The Centre for Economics & Business Research and Scottish Friendly have suggested that around £50bn of the savings built up by British consumers over the last year could be spent in a spree between now and Christmas. Scottish Friendly says ‘the extra cash that many Brits have been fortunate enough to save over the past 12 months has been sat idle in bank accounts while people wait for restrictions to be lifted.’
• Scottish Friendly adds ‘a large proportion of Brits clearly intend to enjoy the opportunity to finally spend some of that cash over the comings months on holidays, meals out and in the shops. This will provide a welcome boost for many businesses, but it could lead to a sharp spike in prices during the remainder of 2021, which risks hurting many savers.’
• Research undertaken by Airship, Toggle and Sheffield Hallam University has concluded that 39% of consumers are ‘intending to eat and drink out more often when the lockdown restrictions are lifted, compared to before the pandemic.’ The study suggests 66% of 18-24-year-olds and 55% of 25-34-year-olds will spend more. Regionally, the North East and Yorkshire head the list of would-be high spenders.
• Airship’s Dan Brookman says ‘of all the industries that have been affected by Covid-19, the hospitality sector has been one of the hardest hit.’ He says ‘valuable relationships with even the most loyal of customers have, in most, cases been put on hold.’ Sheffield Hallam says ‘the findings of this report highlight how customers are keen to return to eating and drinking within hospitality businesses, once restrictions are eased. This gives operators a great opportunity to regain much-needed customer patronage and secure their loyalty.’
• Langton comment. Talk is cheap but it is likely that there will be a sharp bounce back in spending. It won’t so much be catching up of foregone earlier spending (as it might be with furniture, motor vehicles or even clothing – basically anything durable) but it will be welcome nonetheless. The idea that the young and people outside London are keener to spend than older consumers in the south is a) not new but b) potentially meaningful for the companies serving the geographies and the demographics concerned.
Covid – Scotland:
• The MA says that ‘pubs in Scotland have been served a “bitter blow” after it was announced they can reopen from the end of April but cannot serve alcohol indoors.’ One of the main asks was a date. That has now been delivered (26 April). This is half way between the opening outside and inside dates in the UK and, in that light, it does seem to make some sense. The MA quotes the Scottish Licensed Trade Association as saying ‘with restrictions set to continue into the summer, businesses will still be worried about rising debt.’
Covid – deserted city centres:
• The All Parliamentary Group for Hospitality and Tourism is launching a consultation into the impact of and possible remedies for the decline in town and city centre business activity that has been accelerated by the Covid-19 pandemic. The consultation will solicit comments on the ‘hollowing out’ that has been happening across the country.
Covid – the death of cash:
• ATM oversight company Link has reported that withdrawals from cash machines has fallen by 43% over the period of the Covid pandemic, or by £37bn. The average withdrawal has increased from £67 to £84.
Covid – events:
• Events have been hit harder than most hospitality businesses and the BBC warns that some wedding plans between mid-April and mid-May may end up being cancelled. The Weddings Taskforce, an industry representative body, says ‘the roadmap [to reopening] indicated weddings and receptions could resume on 12th April. We have now discovered, not by being offered the information but by analysing the small print and repeatedly seeking clarity, that this is not the case.’
Company & other news:
• After the government failed to introduce any new evidence as to why indoor hospitality cannot open the same day as non-essential retail, Sacha Lord said yesterday ‘we’ll now be working through the night to take our case to the High Court for a Judicial Review.’ Hugh Osmond tweets ‘the Parliamentary Committee seems to agree that Sacha Lord and I are right. Hospitality industry has been closed without any supporting evidence for the decision ever having been revealed.’
• In the US, restaurant sales in February continued to improve reports National Restaurant News. It says ‘harsh winter storms caused havoc in large regions of the country during the second and third weeks of February, severely hurting restaurant sales. Same-store sales were down by more than 40% year-over-year in Texas during the third week of the month; sales were down by close to 30% in the Southwest region that same week.’ However, it says ‘sales during the rest of the month reflect a performance improvement from the results during the last months of 2020. Clearly the industry turned a corner since the first week of the year and is on a new path to recovery.’
• Fevertree Drinks has reported full year numbers to 31 December 2020 saying that its ‘proactive actions strengthened our position as the leading global premium mixer brand.’ The company says ‘despite widespread On-Trade closures, a channel which has historically accounted for c.45% of Group revenue, Full Year revenues reduced by only 3% year-on-year due to a very strong Off-Trade performance.’ It says ‘off-Trade sales exceeded expectations across our regions, even during periods when the On-Trade was reopened.’
• Fevertree reports that it ‘maintained position as number one brand in the UK retail mixer category, with 40.1% value share.’ It says it achieved ‘significant momentum in the US as the brand continues to gain traction with retailers and consumers.’ The group had a ‘very strong second half performance in Europe, driven by strong Off-Trade sales, importer restocking and GDP portfolio brand revenue.’
• Fevertree reports group revenues of £252.1m, down 3% on the year. Adjusted EBITDA is £57m, down from £77m and diluted EPS is down by 29% at 35.8p. Re 2021, the company says ‘whilst there remains continuing uncertainty relating to COVID-19, especially regarding the pace of both vaccine deployment globally and the lifting of restrictions that continue to impact the On-Trade across our regions, we believe it is appropriate to reintroduce guidance for 2021.’ It says ‘the first months of the year have seen a continuation of very positive trading in the Off-Trade across all our regions.’ It adds ‘we remain well placed across our regions and across channels as the recovery occurs and we expect the Group to deliver revenue growth of between 12% to 16% in 2021, with gross and EBITDA margins consistent with FY20.’
• CEO Tim Warrillow says ‘whilst our On-Trade business remains impacted by the continued shutdowns and restrictions across many of our regions, we have had a very positive start to 2021 across the Off-Trade. The momentum seen in 2020 has continued in the first part of the new year with strong sales in our major markets, most notably the UK and US.’ The CEO concludes ‘our confidence in the future is underpinned by the long-term trend towards premium spirits and long mixed drinks which accelerated during 2020 and a trend that Fever-Tree, with our category leadership position, range and relationships, remains uniquely placed to continue to benefit from.’
• JD Wetherspoon has announced that it is to open 60 of its pubs in Scotland from April 26. The company says ‘in accordance with Scottish government rules the pubs will serve food and non-alcoholic drinks inside the pubs and the pubs will also be able to serve alcohol (without the requirement for a meal) in external areas. It adds ‘we are looking forward to welcoming both customers and staff back to our pubs. Our pubs play an important part in the social life of their respective towns and cities and it is great news that they will be able to reopen soon.’
• Young & Co has updated on reopening saying it ‘Young’s expects to reopen about 140 of its managed pubs with outdoor spaces on or around 12 April. Assuming the Roadmap timetable is followed, the rest of the Company’s managed estate should open on or around 17 May with restricted indoor trading, ultimately leading to the Company operating under more normal trading conditions from 21 June. If this reopening schedule proceeds as planned, the Company expects to deliver a positive cash flow in May.’
• Young & Co says it ‘will not be paying any dividend for the current financial year.’ Regarding financing, the company says ‘the noteholders and the Company’s banks have agreed to extend the Company’s monthly available liquidity test up to and including March 2022, with a headroom requirement of £25 million.’ As a result of this and other moves, YNGA ‘will have committed available facilities of £255 million (inclusive of the £25 million required to meet the available liquidity test referred to above).’
• Punch Pubs has announced that it is investing £1m in Outdoor Spaces to help make the outdoors, indoors. It says ‘the success of the scheme will allow many pubs to open outdoors on the 12th of April, including plenty that previously would have not had the capacity. This has contributed to a fantastic total of 662 (72%) Punch pubs in England set to welcome guests back to their local on 12th April.’
• Shake Shack is teaming with Uber Eats to launch delivery nationwide via its ordering app for a 99c flat fee. There can’t be a lot of margin in that.
• Sky reports that McDonald’s is investigating claims Covid safety rules are being ignored in restaurants “as a matter of urgency”. The company says ‘we continue to work hard with our franchisees and third-party safety experts to ensure robust safety measures are in place and being followed, to help protect our people and customers. We have regularly reviewed and updated these procedures since the start of the pandemic.’
• Other: The All-Party Parliamentary Beer Group has launched an inquiry into the future of cask beer in the UK. Gordon Ramsay has acquired a second site for his burger brand Street Burger. Vinitaly has been cancelled for the second year running.
HOTELS & LEISURE TRAVEL:
• The EU is reported likely to OK vaccine passports.
• TUI says the recovery in the long-haul market could be ‘patchy’.
• Some 62,000 aviation and aviation-related jobs have been lost in the last year.
• STR reports that all-inclusive resorts are seeing increased demand.
• Top Hotel News says >100 new hotels, c20k new rooms, are due to open in London over the next few years.
• French rail co SNCF has told the FT that ‘we are getting closer to the moment when Eurostar will have real cash flow problems … by next month, we have to conclude these discussions.’
• The Gym Group has announced full year numbers saying that revenue for the year fell by 47.4% to £80.5m. the loss before tax was £46.5m (2019: profit £14.0m) and the loss per share was 22.9p (2019: profit per share 7.7p). There is no dividend. CEO Richard Darwin says ‘during 2020 we demonstrated the resilience of our business and its culture even in the most challenging of times.’ He says the company froze subscriptions when closed. He concludes ‘we are ready to start rebuilding our memberships levels and growing our estate from 12 April, extending affordable fitness at a time when health and fitness has never been more important.’
• 888 has reported full year 2021 numbers saying that the group increased revenues by 52% to $849.7m with adjusted profit before tax of $116.0 million (2019: $53.2 million). Adjusted basic earnings per share was 27.3c (2019: 13.5c). The total dividend for the year is 18c (2019: 6c). CEO Itai Pazner says ‘2020 was a landmark year for 888.’ He says ‘we are pleased with our continued progress in the U.S.’ and says ‘we enter 2021 with strong momentum, with a record level of customers, and with a positive reaction to our suite of new products and innovations. As a result, as well as the Group’s strengths as a product-centric, responsible, and diversified operator, the Board believes that 888 has an outstanding platform to deliver continued strategic progress during 2021 and beyond.’
• Disney is to re-open its two theme parks in California next month.
• Games Workshop Group yesterday announced that its Board had ‘declared a dividend of 45 pence per share, in line with the Company’s policy of distributing truly surplus cash. This will be paid on 30 April 2021 for shareholders on the register at 26 March 2021, with an ex-dividend date of 25 March 2021.’ GAW says ‘trading in the three months to the end of February 2021 has been in line with expectations, notwithstanding the majority of our UK and European retail stores were subject to Covid-19 closures and distribution disruption during the period.’
FINANCE & MARKETS:
• A poll of fund managers polled by Bank of America now sees inflation and a possible rise in interest rates as more of a threat to global markets than Covid-19.
• Sky reports trade friction between GB and Northern Ireland is adding costs and complexity to businesses
• The Guardian reports pressure is building for a formal enquiry into the government’s response to the Covid-19 pandemic. It says ‘senior doctors, government scientific advisers and a former head of the civil service have spoken out in favour of a public inquiry.’
• The US Fed has said that bounce back in the US economy this will be stronger than they had previously forecast. The Fed is looking for growth of 6.5% this year – up from 4.2% it predicted in December.
• Sterling up vs dollar at $1.3953 but slightly lower vs Euro at €1.1660. Oil lower at $67.77. UK 10yr gilt yield up 4bps at 0.83%. World markets broadly better yesterday (though the UK was lower) with London set to open some 19pts higher.
RETAIL WITH NICK BUBB:
This Week’s News: At lunchtime today we get the latest MPC meeting news about future interest rates/QE and this afternoon/this evening the Signet Q4 and the Nike Q3 results are out in the US. First thing tomorrow we get the widely followed monthly GFK Consumer Confidence survey for the UK.
Today’s News: The Ocado Q1 update today covers the 13 weeks to Feb 28th and looks strong, with Retail revenue nearly 40% up, despite average order growth of only 2.5%, given a whopping average basket size of £147 (of which M&S products comprised 25%). Interestingly, Ocado say a minimum of 12 new micro sites are being sought, primarily in London, to support the roll-out of the Ocado Zoom immediacy concept which offers deliveries within one hour of ordering. Ocado boss Tim Steiner is bullish, needless to say, flagging that “the first international partners to go live, Sobeys and Groupe Casino, have reported a very encouraging customer response” and UK boss Melanie Smith says that “we expect strong growth over the coming years as we continue to lead the charge in changing the UK grocery landscape, for good”. In other news, JD Sports has confirmed the completion of its acquisition of