Langton Capital – 2021-03-30 – Deliveroo, vaccine passports, WFH, staycations, AG Barr, Redcat, JW Lees etc.:
Deliveroo, vaccine passports, WFH, staycations, AG Barr, Redcat, JW Lees etc.:
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A DAY IN THE LIFE:
Good weather yesterday and better today.
But we didn’t manage it very well, yesterday. Work all day & sit outside from 5pm but it’s pretty chilly at this time of year when the sun sinks below the tree line so we’ll try harder today. Indeed, if the forecast is anywhere near right, we could get heatstroke and, at not far off 54 degrees north in March, when it was sleeting a week ago and could be again by Easter weekend, that would be a first.
Anyway, there were lots of out of office email responses yesterday and there could be more today so, whilst we’ve still the chance of finding a reader or two, we’ll get this sent. On to the news:
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PUBS & RESTAURANTS:
• This probably sounded like a good idea when it was rattling around in somebody’s head, but it hasn’t done too well when it comes to practicalities. Pubs are due to open in two weeks and there isn’t enough time to prepare anything. Virtually nobody under 50 has had a jab and the only people who have had two jabs for full immunity are over 80 or otherwise vulnerable. Younger people who may have had Covid & have antibodies may not be too keen to give blood and, in any case, it wouldn’t be practical to swamp the NHS with requests to have blood drawn in the middle of a pandemic.
• Also, the industry would be faced with 35yr old unvaccinated door-staff welcoming in older, not to say old, customers who would then be served by 20yr old unvaccinated bartenders. The measures would discriminate against younger people, anti-vaxxers (maybe considered a legit target), those with medical reasons not to get a vaccination and those suffering from trypanophobia (fear of giving blood). It would add expense, remove spontaneity and not be a sensible use of resources (either by the NHS or the pub companies themselves). Apart from that, all good.
• JDW’s Tim Martin has said that vaccine passports would put bar staff in the front line of a civil liberties debate not of their own making. It would be another sharp pivot. Martin says pubs have already been ‘devastated by G-force changes of direction’ and would create a two tier system for customers. Mr Martin says that at no time in the 41yr history of the company ‘have government actions seemed so arbitrary and capricious as today, and at no time has real debate been so ruthlessly curtailed – facilitated by extensive use of emergency powers.’ Martin says ‘suggestions for vaccination passports follow September’s moon-shots and pub curfews, October’s baffling tier systems, November’s circuit-breaker, December’s “substantial meals” with a pint, and January’s winter lockdown.’ He suggests that enough is enough.
• Langton comment: Everyone getting vaccinated is a good idea. Discriminating against those who, through no fault of their own, have not yet been vaccinated is distasteful. Suggesting that it can be done at some time in the next fortnight, potentially using up millions of hours of medical time in order to draw blood from youngsters keen to go to the pub, is ludicrous.
• It maybe sounded good. You do something at your expense that makes me look proactive & professional. And it sounds good. Snappy and modern so what’s not to like? But, when held up to the light, the policy doesn’t make much sense. Not now and perhaps not ever. The idea is likely to be quietly dropped (or consigned to the wasteland that is comment by junior ministers) as have so many of the other policies, for example, those highlighted by Tim Martin above.
• We’re not suggesting that nobody should do anything but, here’s an idea, have a plan. Sound bites don’t cut much ice with a virus. Well-thought-out practical measures need to be put in place and the on-trade has been preparing for a safe reopening a week on Monday for some time. Shifting the goalposts is an unwanted and possibly dangerous distraction.
• Other comments. Trade journal the MA says that 8 out of 10 publicans it contacted opposed the vaccine certificate idea requirement. The journal reports some publicans as saying that the plan implied they were not to be trusted.
• CGA reports (as we covered yesterday) that 38% of licensed premises have outside space but, as always, it’s sometimes interesting to look at what isn’t said (or is implied) as well as what is. Because 62% of premises presumably do not have outside space. They will not be able to open until the second half of May at the earliest. And of the 38% of units that ‘can’ open, not all will do so. Looking at who can open and who cannot, and at where consumers want to be and where they do not, pubs, particularly suburban rather than city centre pubs, look to be the relative winners on a number of counts.
Working from home:
• Pragma Consulting points out that any new ‘hybrid’ working models – with employees splitting their time between home and the office – would have significant implications for the retail sector. It would also impact on-trade operators with venues in or near travel hubs and operators (including coffee, sandwich and grab and go operators, who service the commuter market.
• Langton comment: Trading for the latter two categories above has often been challenging. Because they need to make enough in a two hour slot over lunchtime, five days a week, in order to pay property costs that are running 24/7 and where they have had to compete for space with other operators who might be taking money from 6am to midnight.
• Pragma says ‘as employees spend fewer days in the office, city centre locations will be deprived of an important source of footfall, and increased home working will have a profound impact on people’s spending.’ It will also impact where they spend their money and what they spend it on. Barclaycard has found consumers spending closer to their home addresses and that isn’t at all surprising during a lockdown.
• Keeping it simple, the impact of the Covid pandemic will not drive more office attendance. It will not leave things unchanged and the only other alternative is that there will be a reduction. Operators, government, the landlords, commentators (like us) etc can either get with the programme or be left howling at the moon. Either way, que sera, sera.
• We’re not clear whether first movers will have an advantage or be at a disadvantage and we’re not even sure who it will be. We’re pretty sure the first mover won’t be the government, so that leaves tenants (who may go bust, have a rent strike or do nothing) or the landlords (who may evict tenants to get ‘better’ ones or, horror of horrors, they may be proactive and cut rents or at least move them to some sort of turnover basis.
• Pragma says ‘changing patterns of work are also likely to impact F&B in city centres. Functional grab and go units, which have expanded rapidly over the past decade to cater for high visit frequency office workers seeking convenient lunchtime options, will become less relevant in the future.’ That’s very true. Accurate but useless advice to such operators is ‘don’t be you’. The value of break clauses and the like has arguably never been higher.
Other Covid news:
• Foodservice analyst Peter Backman says that Q2 this year, which starts this week, is going to be the period of maximum danger for UK pubs & restaurants. He says, however, that much has changed for the better over recent weeks with the vaccination programme on track, VAT rises and business rates rises pushed further out and positive news on consumer confidence (and possibly on the staycation market for later this year). Backman suggests that unpaid rent is becoming a bigger problem relative to other issues.
• Staycations. See Holidays below. It’s looking increasingly as though holidaymakers will be staying in the UK this year.
• Deliveroo has cut the price range for its IPO from 390-460p to 390-410p. It refers to ‘volatile’ market conditions. Some IPOs recently have struggled but Deliveroo says it has nonetheless seen strong demand. Some potential investors have declined to take part over regulatory concerns or because of the dual share structure, the proposed valuation or the potential for costs to rise if riders become employees. Deliveroo says it wants to price its issue ‘responsibly’. The issue will be priced overnight into Wednesday and first trading will be Wednesday morning under the ticker ROO. Some £1bn of new shares will be issued and existing shareholders including founder, Will Shu, are thought likely to sell over £500m worth of stock.
• Langton comment: It is unlikely that the venture capital owners of Deliveroo cut the price because they wanted to transfer value away from themselves and to incoming shareholders. We tweeted yesterday ‘Deliveroo. So much for talk of pricing being at top end of range. Co has cut range from 390-460p to 390-410p. Wants price to be ‘responsible’ and ‘long term’. Not down to valuation, litigation fear from riders, split share structure, increased competition, end of lockdown then?’
• The FT refers to ‘a backlash’ from some would-be investors ‘including the investment arms of Aviva, Aberdeen Standard and Legal & General — over Deliveroo’s business model, working practices and regulatory risk.’ After the ruling that Uber must treat its drivers as employees (with holiday pay, minimum wages, sick pay etc), there are concerns that this may be applied to other ‘gig economy’ companies over time. Sky refers to Deliveroo’s dual share structure (Will Shu’s shares will have 20 votes each). Deliveroo has been loss-making since incorporation but it refers to profitable trading in some pandemic months.
Company & other news:
• AG Barr has reported full year numbers for the period to 24 January saying that revenues fell by 11.2% to £227.2m with PBT (before exceptional items) down by 12.3% at £32.8m. The group reports that its EBITDA margin rose slightly, from 20.0% to 20.5%. The company reports basic EPS down by 15.8% at 22.3p. The company is not recommending a dividend, but it expects to resume payments in the current financial year. The group says it took ‘swift and decisive response to Covid-19 challenges’ and says that it ‘ended the financial year with a stronger balance sheet than previous year, with £50.0m net cash at bank* (2019/20: £10.9m).’
• AG Barr CEO Roger White says ‘we delivered a resilient financial performance in a year that was difficult for all.’ The CEO says ‘across the year, we continued to focus on our key strategic initiatives’ and adds ‘we closed the year in strong financial health, with our brands and business poised for growth on a like for like basis, and with the clear intention to recommence dividend payments in 2021.’ The company says ‘whilst there now appears to be a route out of lockdown, the immediate future remains uncertain. Notwithstanding this current backdrop, our strategy for the year ahead is to support our core growth initiatives with significant investment.’ White says ‘we have exciting plans to deliver across the Group and are confident of continuing to make further progress in the coming year.’
• Chairman John Nicholson adds ‘in April 2020, given the unprecedented circumstances arising from Covid-19, we communicated our decision to temporarily suspend dividend payments, one of a number of important actions we took to conserve cash and maintain balance sheet flexibility.’ He says ‘we expected to resume dividend payments in the 2021/22 financial year’ but says the pandemic worsened. However, ‘we remain committed to our plan to recommence dividend payments during the course of this financial year ending January 2022.’
• Sky reports that ‘pubs industry veteran Rooney Anand is close to toasting the inaugural acquisition of his new consolidation vehicle as the sector prepares for a tentative reopening next month.’ It says his RedCat Pub Company ‘is on the brink of buying approximately 40 venues from Stonegate, owner of the Yates’s and Slug & Lettuce bar chains.’ The deal is said to be awaiting the approval of the Competition and Markets Authority. There is no price mentioned. Stonegate had previously told the CMA that it dispose of 42 sites as a condition of its takeover of Ei Group (Enterprise Inns).
• BrewDog has said that it plans to open a beer hotel in Edinburgh. Co-founder James Watt tweets the company believes it would be ‘great to open a beer hotel in the capital of our home country. Watch this space.’
• Gregg’s CEO Roger Whiteside and his wife sold shares in Gregg’s to the value of £2.8m last week. Mr Whiteside told Reuters earlier this month ‘I am 63 this summer so at some point, certainly not this year, I’ll be retiring.’
• JW Lees yesterday filed its annual accounts for the year to 31st March 2020, with Companies’ House declaring a profit before tax of £2.2m (2019: £6.8m). The company says turnover decreased by 3% to £76.0m (2019: £78.4m). JW Lees says ‘the year to 31st March 2020 only included 11 mandatory days’ closure owing to the first Covid-19 UK closure of pubs and subsequent lockdown, so the impact of the crisis will not be felt in full until the current year.’ It says it ‘chose to open some of its pubs on 4th July but our gradual opening programme meant that we did not re-open our last sites until mid-September and, even then, Greater Manchester pubs were closed again by the government on 5th November, with our sites in Wales closed on 17th December and then all the rest of our remaining sites closed on 25th December following various restrictions with tiers, the 10pm curfew and the requirement
• Re the future, JW Lees says it will be on the lookout for new sites and says ‘we hope that we will be back to growing the business in this way as soon as the crisis is over.’ It says it has ‘strong support from our bank NatWest and our long established policy of owning the freeholds of our pubs and hotels has been an enormous benefit to our 193 years old family business, allowing us to support our Pub Partners who have benefitted from 100% rent concessions during the time that their pubs have been closed.’ The company says ‘we think that when we re-open there will be a strong demand for pubs and we have a great team in place, ready to welcome guests back but we will be cautious.’
• UK whisky exports fell by c£66.5 million, or nearly two thirds, in January 2021 compared to last year, per the HMRC. Food & drink sales in general were down in the month with sales to the EU down by more than three quarters. Some of this may have been down to stocking up ahead of the end of the Brexit transition period.
• Research company Datassential has said that over 10% of restaurants in the United States have closed permanently since the Covid-19 pandemic began. It says some 79,438 restaurants in the United States have closed, which is 10.2% of the total of 778,807 restaurants that were in operation a year ago.
HOTELS & LEISURE TRAVEL:
Staycations vs overseas holidays:
• An Opinium poll conducted for the Observer has found that 68% of consumers have not booked any summer holiday this year. Government ministers have been dampening expectations, although the message more recently has been unclear. Culture Secretary Oliver Dowden has said it is possible that not all restrictions will be removed, even by June though Matt Hancock has said ‘the door is not shut’ on international travel this summer. He says ‘it’s just too early to say, but what we can say with confidence is that the unlocking at home is on track.’ The government is due to update on 12 April, though PM Boris Johnson has said he hopes to comment by 5 April. Of those who have booked holidays, domestic cottages were the most popular venues, either in the countryside or by the coast. Only 13% had booked city breaks.
• BA boss Sean Doyle, writing in the Mail on Sunday, warns ‘we cannot delay the planning process that needs to get under way to restart complex airline operations. If we do, we risk missing the entire summer, a near-fatal blow to the industry.’ He says ‘people who are vaccinated should be free to fly, just as they were in 2019, before the pandemic. People who are not vaccinated should be free to travel too – provided they have proof of a recent negative test result.’
• Langton comment: This seems tone deaf. The fact that BA ‘needs’ people to travel doesn’t mean much to most people. Phrased slightly differently, say ‘if we want to have an airline industry longer term, then it needs to be supported through this period,’ it might get more traction. The ‘vaccinated people should be allowed to travel’ comment is similarly missing the point. Vaccinated people can bring back variants, such as the South African variant, for which the vaccine does not give protection. Any impervious bug that was brought back to the UK could undo all the good work of the vaccination programme. This analysis a) could be wrong but, if it isn’t, then b) it’s good news for the staycation industry.
Company & other news:
• Jet2.com and Jet2holidays have published polling results showing there is “buoyant confidence” remains across all age groups. The company says ‘our polling shows that customers continue to look ahead with real confidence when it comes to taking their much-needed holidays.’ This runs counter to some other comments noted in yesterday’s email.
• The government of Cyprus confirms it will welcome UK travellers as soon as restrictions (or if) are lifted.
• Airlines UK says delaying a return to international travel until September would cost the UK £3 billion in lost tourism spend and put 500,000 jobs at risk. This may not be a net figure as, if would-be outbound travellers stayed in the UK, some UK-facing leisure operators could do well.
• Celebrity Cruises and Saga have joined the list of cruise operators saying they will operate UK sailings this summer.
• STR says ‘United Kingdom hotel performance remains weak, in large part due to the government’s continued guidance that hotels remain closed until May 17 — a date that could shift if the pandemic becomes worse.’ It says ‘future bookings have picked up for that date and afterwards, but for now hotel occupancy remains flat.’ STR says ‘for those hotels open and operating, occupancy during the week is in the low 40s percentage-wise, while weekends fall into the high teens or low 20s.’
• Carnival-owned P&O Cruises Australia has extended the suspension of its operations from 18 June to 30 July 2021. The company says ‘we are sorry that some of our guests will be unavoidably inconvenienced by these changes to the existing schedule at a time when we remain optimistic about returning to service as society keeps opening up.’ It adds ‘we are continuing our discussions with governments and health authorities to develop a framework for the staged resumption of cruising.’
• A Grade-II listed former Fenwick department store in Leicester is reported set to be turned into an up-market, 133-bedroom aparthotel following a £17m transformation.
• A YouGov study has found that one in eight people in the country is at risk of problem gambling. The study finds that men are twice as likely as women to have a gambling problem. There is little difference across social groups although ethnic minorities are three times as heavily represented. Some 2.4% of people are already classed as problem gamblers. This represents 3.3% of men and 1.5% of women.
• Shares in Chinese video platform Bilibili have slumped following the company’s IPO.
FINANCE & MARKETS:
• Sterling up at $1.3778 and €1.1712. Oil up at $64.86. UK 10yr gilt yield up 2bps at 0.78%. World markets broadly better yesterday with London set to open around 28pts higher.
RETAIL WITH NICK BUBB:
Today’s News: The big news yesterday morning was that Deliveroo now expects to price its IPO tomorrow towards the bottom of the previously guided 390p-460p range (at 390p-410p), despite the Sunday Times suggestion to the contrary. We have been unable to find any official announcement from the company, but according to the press their position is that they need to price the float responsibly in the light of volatile global market conditions, rather than that they need to bow to the boycott by UK fund managers…In other news, the struggling Online retailer MySale has come out with strong interims for the 6 months to end Dec and flagged that full year EBITDA is now expected to be “significantly ahead of market expectations”, whilst the embattled funeral services business Dignity has issued a strongly worded notice of an EGM to vote on the management changes requested by its key shareholder
Retail Sales Watch: The Retail Sales month of March (the 5 weeks to April 3rd) will soon be over and with the comps getting tougher for Food retailers and easier for Non-Food retailers, it will be interesting to see how sales turn out overall, notwithstanding the lockdown…but we haven’t seen the final word yet on how bad February was. The Office of National Statistics (ie the ONS or what we mockingly call the “Planet ONS”) reported on Friday that non-seasonally adjusted total Retail Sales by value were down by 1.3% in February (ex-petrol), but the BRC measure of gross sales for last month was 1.0% up. So, who was right? Well, the Retailing consultancy group, Retail Economics (RE), which was founded by Richard Lim (who used to run the monthly BRC Retail Sales survey), has just come out with its own detailed overview of February (the 4 weeks to Feb 27th) and their estimate is that gross
This Week’s News: The latest monthly Kantar grocery sales figures are out at 8am. Tomorrow brings the start of conditional dealings in the Deliveroo IPO and the Topps Tiles Q2 update, plus the Walgreen Boots Q2 results and the Kroger Investor Day out in the US. The highlight of the week, however, will be the Next finals on Thursday.