Langton Capital – 2021-03-19 – PREMIUM – JD Wetherspoon H1 numbers, R rates & interest rates, holidays etc.:
JD Wetherspoon H1 numbers, R rates & interest rates, holidays etc.:
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A DAY IN THE LIFE:
I think that, in common with most of the population, lockdown’s starting to get to me.
Because I’ve graduated, if you could call it that, from betting with myself which raindrop will make it to the bottom of the window first to counting the bricks on the outside privy (now a wood-shed, it has to be said, since we got running water in the house) and I don’t know which is the more interesting.
However, whilst the above isn’t altogether riveting, there are some compensations to living on the edge of town in what might charitably be called a ‘brownfield site’ because the wildlife, for better or worse, is a mixture of country and town and there’s more of both than there is in the heart of either – if you know what I mean.
We have plenty of verminous foxes, squirrels, magpies (they eat poo, you know, they really do) and deer. And, as they are fed by our neighbours to the west and shot by the farmers to our east, they tend to live in our garden and hereabouts and, just this week passed, we’ve seen roe deer, sparrow hawks, buzzards, a barn owl, a greater spotted woodpecker, treecreepers, no end of finches and thrushes and more than our fair share of t-one-t-s.
I’m talking here of the great, blue, long-tailed and coal varieties which, though two legged, aren’t the two legged ones that you sometimes meet in the workplace or when you’re buying a car, etc.
Anyway, the weekend is nearly upon us and it’s time to move on to the news. Incidentally, if a brick privy has a broadly square base, is 5 bricks wide and 20 bricks high and one wall is taken up by the door, there will be about 300 bricks. Call it 320 for cash.
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JD WETHERSPOON – H1 NUMBERS:
JD Wetherspoon has reported H1 numbers for the 26wks to 24 January and our comments thereon are set out below:
• JDW reports that revenue in the half year was down by 53.8% at £431.1m. Like for like sales were down by a similar 53.8%
• The group is reporting a pre-IFRS 16 loss before tax of £46.2m (prior year: profit £57.9m) with an operating loss of £20.7m (prior year profit £76.6m)
• The loss per share is 36.4p vs a profit per share in the prior year of 44.3p
Cash & balance sheet:
• The company reports that as at 24 January 2021, net debt, including bank borrowings and finance leases, but excluding derivatives, was £811.9m (2020: £817.0m).
• Including accrued payments, it says ‘net debt plus ‘trade and other payables’ have remained at approximately the same levels from year end 2019.’
• The group says ‘as a result of the pub closures, the normal net-debt-to-EBITDA covenant has been waived by the company’s lenders. The net-debt-to-EBITDA ratio has been replaced by a minimum liquidity covenant of £75m. As at 24 January 2021, the company had liquidity of £225.0m.’
• The company previously stated that its intention to keep the net-debt-to-EBITDA ratio at around 3.5 times for the foreseeable future. The company says ‘the ratio might rise for a temporary period, if there were, for example, a sudden deterioration in trading, in which instance the company would seek to reduce the level in a timely manner.’
• JDW raised £93.7m via a placing of new shares at 1120p on 19 January. The company said ‘the net proceeds of the placing will be used to further strengthen the company’s balance sheet, working capital and liquidity position during the period of disruption.’
• It said it ‘will provide sufficient liquidity to deal with very low sales after reopening, helping the company to return to growth as the market normalises.’
• There were no share buybacks during the period and a dividend is not being recommended
• JDW said in January ‘additional capital will facilitate the acquisition of new properties, which are likely to be available at favourable prices, as a result of the pandemic.’
• During the year, JDW says ‘we opened two new pubs and closed or sold two, bringing the number open at the period end to 872. Following a review of our estate, in recent years, we placed around 100 pubs on the market, most of which have now been sold.’
• The company updates ‘ten years ago (FY11) our freehold/leasehold split was 43.4/56.6%. At the half year end, it was 64.4/35.6%.’
• JDW chairman Tim Martin says ‘Wetherspoon and its employees, along with the hospitality industry, have worked very hard to comply with ever-changing government guidelines.’
• Mr Martin says ‘it is disappointing that so many regulations, implemented at tremendous cost to the nation, appear to have had no real basis in common sense or science – for example, curfews, “substantial meals” with drinks and masks for bathroom visits.’
• When it raised money from equity holders, JDW had four potential scenarios. The central assumption is that pubs are closed to end-March. It said sales could be down 50% on reopening and rise by 5% per week thereafter. As it turns out, pubs will open (outdoors only) a little later than that and inside areas will not be open until May.
• This is an industry-wide issue, of course but, on this basis, sales this year (to end-July) will be down more than the previously indicated 30%.
• EBITDA may be a shade worst than the indicated £13m with a loss before tax of £112m. Debt may peak this financial year a little over the indicated £969m.
• JDW’s ‘reasonable worst case’ scenario may be a little nearer to what we now expect. The company said this would see pubs reopen early-April at minus 50% and stay at that level for the remainder of the financial year. Under these circumstances, sales would be down 43%, EBITDA would be minus £33m and the loss before tax would be £159m. Debt would peak this year at £1.02bn.
• JDW has both defensive and potential expansionary reasons for having raised money and these remain valid. There is no trading to comment on at present and numbers (other than the critically important debt and cash-burn numbers, see prior emails) are not entirely meaningful at this stage.
• But pubs and JDW have weathered previous recessions and the opportunity to add freeholds is a real one. We have said before that JDW’s assets recently earned £105m to £110m in PBT and we see no reason why they should not do so again. Debt has increased but so has the opportunity to take market share. Having said this, the group’s shares have been strong recently and a pause for breath may be called for.
PUBS & RESTAURANTS:
Covid in retreat. Yes, but caution required…
• The NIESR conducts its own research into the pandemic, specifically the R-number, on a weekly basis. It reports, for the week to 16th March, that the R-number had edged up again to a central range figure of 0.925 from a figure of 0.9 in the week prior. The NIESR has ‘controlled out’ the testing in schools, which is picking up more cases (but wasn’t in operation in prior weeks). Inclusive of school testing, the R-number would be 0.975 in the centre of its range.
• The NIESR says ‘based on our model, by 12th April when non-essential retail is scheduled to reopen, we expect trend value of daily cases to be around 2,900, admissions to be around 100 and deaths to fall below 50. Regarding schools, it cautions that infections may increase further. The NIESR says that, even if cases pick up, ‘the path of hospital admissions and deaths will depend on the follow through from increased transmission due to the reopening, countered by the efficacy of the vaccination programme as the roll out continues at pace.’
• Langton comment: Including more tested children in the mix is comparing apples with oranges and the NIESR has, understandably, controlled this out. However, to the extent that kids (who aren’t on the whole badly impacted by the illness) pass it on to adults (who often are), the numbers will still come under scrutiny as we all head towards the 12 April outdoor reopening date. So far, it seems as though numbers are on track and outdoor trade should still be happening.
Pub reopening, practical issues:
• Cask Marque has pointed out that, ‘with pubs being closed for over three months there is much preparation to undertake to welcome customers back and give them a great beer experience.’ Cask Marque provides a brief tick list towards reopening that is available here – https://cask-marque.co.uk/Re-opening-Checklist.pdf. Cask Marque director Paul Nunny stresses the importance of preparation saying ‘three months is a long time with equipment not being used. Would you leave your car for 3 months? Pubs need to test their equipment and get the cellar fit for use. If there are any issues call into technical services for support. Don’t leave it to the last minute.’
Covid – other issues:
• GfK has reported on March consumer confidence in the UK saying that the overall index score has risen by ‘a robust’ 7pts to minus 16pts. GfK says ‘spring is in the air on the back of well-received Budget announcements, the successful vaccine roll-out and roadmaps in place for ending lockdown. All measures jumped in March with the Overall Index Score up a robust seven points to -16. This marks an improvement each month into 2021.’
• GfK says ‘the scores looking ahead one year are recovering especially well. The personal finance measure for the next 12 months is now at +10, the first time in three years it has been this high. Our measure on economic prospects for the next 12 months is up by 13 points to -17, a strong result following February’s equally strong 14-point boost. If this improved mood translates into spending, it might help reverse some of the economic damage the UK has suffered. And the eight-point fillip in our major purchase measure to -11 suggests this may well happen. It’s highly likely this upward trajectory on all measures will build over the next six months and beyond.’
• Big Hospitality quotes a survey undertaken by The Compensation Experts which finds that only 39% of hospitality employees working during the pandemic think their employers take social distancing rules seriously. It’s easy to criticise without the right to reply and this may be slightly unfair on employers. Most operators, though admittedly not all, have gone to some length to make their sites Covid-secure and have communicated this to staff and customers.
• Is there a ‘wall of money’ and is the consumer itching to spend? Yes, probably many consumers are but work by Scottish Friendly and the CEBR suggests that the area where the largest number of consumers say they will spend money post lockdown is on going on holiday. Fortunately, staycations will claim a larger-than-average share of that spending this year and the ‘holiday-spend’ should include visits to pubs & restaurants. Some 29% said they expected to spend more on domestic holidays in 2021 and 28% specifically mentioned restaurants and cafes. Some 19% said they would increase spending in pubs and bars.
• Langton comment: We believe large ticket spending is more likely to be ‘caught up on’ than are ‘affordable treats’. This is likely to advantage holiday companies whilst pubs and restaurants, though they should be busy, may not benefit to quite the same extent. A pizza forgone is lost, whilst the purchase of consumer durables may not be. Scottish Friendly says ‘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.’ It says ‘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.’ It says ‘if interest rates are kept low, there is a real threat that inflation could rise rapidly above the Bank of England’s 2% target and be difficult to control.’
• Step Change has warned that some 460,000 private renters have fallen behind on payments during the coronavirus pandemic. These consumers may not be contributing to the wall of money mentioned above. Step Change says 150,000 renters are at risk of eviction when rules change to allow repossessions. The charity is calling for emergency government support.
Company & other news:
• Big Hospitality reports that Pizza Pilgrims is set to open four new pizzerias in London by late summer with four more in negotiations. The group currently has 15 units. It says it will delay its opening in the UK regions until next year.
• Private company Open House, which has the Percy & Founders and The Lighterman sites in London, has reported rather historic results to the end of December 2019 to Companies House saying that turnover rose by a short 2% to £11.78m with EBITDA up by 28% at £0.78m. Open House says it ‘will be opening one new site in 2021 with the lease for that site completed in July 2019. The company continues to actively seek additional sites to expand the company’s brand within its preferred location of Central London.’
• The accounts were signed on 9 Feb this year and do comment on Covid. The directors say they ‘remain confident that they can meet the external challenges affecting the hospitality’ but concede ‘the outlook for the UK economy has become increasingly uncertain during 2020 due to the spread of COVID 19. The hospitality industry is facing various and changing restrictions on trade which have never before been experienced and this is likely to continue into 2021.’ The group made an operating loss in the year of £69k (2018: operating loss £305k. The loss after interest charges was £599k. The group issued £5m of new shares during the year.
• Texas Roadhouse has announced that its founder and Chief Executive Officer, Kent Taylor, has died. The company says ‘Kent Taylor founded Texas Roadhouse in 1993 and held various positions, including most recently Chairman of the Board and CEO.’
HOTELS & LEISURE TRAVEL:
• Travel Weekly quotes sources close to talks with government as saying it is “too early to tell” if travel will restart as tentatively planned on 17 May. TW quotes a second source as saying that ‘it is really uncertain. Health experts are most worried about the ‘variants of concern’. The UK government strategy is to keep quite high barriers and the vaccination approach [in destination markets in the EU] is hampering our ability to reassure the government.’
• Portugal has said it will welcome UK visitors as soon as the UK government allows citizens to travel. Greece, Cyprus, Turkey and Spain have made similar comments.
• Jet2 has put on capacity for the next ski season, reports Travel Weekly.
• With the impact of the pandemic now annualising, STR reports US occupancy down only 1% on last year in the week to 13 March. It says room rates were 15% off and REVPAR was some 16% lower. STR spells it out, saying ‘year-over-year percentage changes are now more favourable as comparisons have shifted to pandemic-affected weeks from 2020. When indexed against 2019 levels, the U.S. has recaptured between 70-75% of occupancy in recent weeks.’
• Other news. TUI has suggested that its Marella Cruises business could operate some UK domestic routes this summer. Some 23 days of strikes are being planned at Heathrow starting over the Easter long weekend. BA parent IAG is raising €1 billion through two bond offerings. MSC Cruises has announced that its UK cruise departures will not require guests to be vaccinated.
FINANCE & MARKETS:
• The Bank of England’s MPC yesterday decided unanimously to maintain Bank Rate at 0.1%. It also voted unanimously to keep QE purchases and stocks of assets unchanged. Bank Economist Andy Haldane says we should see a “rapid recovery soon”. The Bank says the outlook for the UK economy remains “unusually uncertain” and ‘continues to depend on the evolution of the pandemic, measures taken to protect public health, and how households, businesses and financial markets respond to these developments.’
• Sterling mixed at $1.3909 and €1.1673. Oil sharply lower at $62.61. UK 10yr gilt yield up by 5bps at 0.88%. World markets mixed yesterday but London set to open down by around 48pts.
RETAIL WITH NICK BUBB:
Today’s News: The US jeweller Signet Q4 results yesterday (for the 13 weeks to Jan 30th) reported US sales up by 10.4% LFL (driven by eCommerce sales growth of 66%), but UK sales (ie for H Samuel and Ernest Jones) slumped by c28%, despite c115% eCommerce growth. And the mighty Nike disappointed Wall Street with its Q3 results last night (for the period to Feb 28th), as North America revenue declined 11% on a currency-neutral basis, largely driven by global container shortages and US port congestion, which delayed the flow on inventory in the quarter by more than three weeks. Back in the UK, Halfords has announced an acquisition for its Autocentre business today, picking up the Kent-based Universal Tyres and Autocentres chain for £15m.
BDO High Street Sales Tracker: Despite the impact of the lockdown on “non-essential” stores, the comps are getting easier now and the BDO High Street Sales Tracker for medium-sized Non-Food chains paints a very bright picture for w/e March 14th…BDO Fashion LFL sales were nearly 16% up (even though Store Fashion sales were down by c90%) and Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were c17% up (down c79% in Store sales, but up 163% in Online sales). As normal, however, we would note that the BDO index is simply an unweighted average of percentage changes in the sales of their reporting retailers, so it shouldn’t be taken too seriously.
Next Week’s News: A relatively quiet week kicks off on Monday with the Kingfisher finals (whilst Monday is also the start date for the new Ocado CFO). Tuesday brings the McColl’s finals and the Pendragon finals are on Wednesday, with the belated ONS Retail Sales for February out on Friday