Langton Capital – 2021-04-26 – PREMIUM – Reopening, delivery, Adnams, Remy, Star Pubs, Accor etc.:
Reopening, delivery, Adnams, Remy, Star Pubs, Accor etc.:
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A DAY IN THE LIFE:
Langton lost half its runner beans to frost mid-week and then, after looking brave but rather limp for a couple of days, most of the survivors succumbed on Saturday night.
Same reason, frost again, so when we read that French wine producers have lost an estimated €2bn to the cold weather as well, we can sympathise as we’re in the same boat.
Only their boat is rather a different size to ours and the above, of course, is an example of ‘false equivalence.’
A phenomenon beloved of ‘balanced’ reporters. It includes putting somebody from the local fruit & veg stall up against an economics professor to discuss Brexit or the balance of payments deficit or quantitative easing or whatever and then saying, if they disagree with each other, that opinions are divided. Like saying the murder was nice to his dog, so he wasn’t all bad. Like saying we’ve lost thousands of City, pharma and tech jobs but there’s plenty of demand for fruit pickers etc.
Which is all nice and balanced but, at the same time, rather misleading. But we’re not really going anywhere with this so, before we completely lose the plot, let’s move on to the news:
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PUBS & RESTAURANTS:
Reopening – trading to date:
• Trade has remained strong and the weather has been kind. This is pay week and we have a Bank Holiday coming up. The path to allowing indoor trading looks clear and, though there may be issues with international travel, there are grounds for guarded optimism. The Sunday Times suggests that operators are bouncing back strongly – though this is far from the whole story as the majority of pub & restaurant sites in total remain closed. Those that are open are trading only outside and for delivery. This suggests for some restaurants – and these the relatively fortunate ones that have any space at all – perhaps less than a quarter of their covers are available. Whilst the space available to suburban pubs is greater as a percentage of their total capacity, the industry is still being held back and levels of turnover will be very weather-dependent.
• Pent up demand? There is evidence of pent up demand on the ground. It’s pay week this week with a Bank Holiday to come. Looking to the near term future, the latest quarterly Deloitte Consumer Tracker has shown that UK consumer confidence jumped by a record amount in Q1 this year (although it remains in negative territory) boosted by vaccine rollout success and the path out of lockdown. Deloitte says that confidence rose six percentage points in the first quarter to minus 11%. Deloitte cautions ‘although 12 April marked what many hope will be the permanent reopening of non-essential retail stores, mass remote working will continue to impact footfall on the High Street.’
• Deliveroo shares rose by around 1% on Friday to close last week at 233p, some 40% below the company’s IPO price. Short positions have reportedly been opened – but shorting is a symptom rather than the disease and an important question is ‘why do traders believe it right to take a negative position on the group’s shares?’ Meanwhile, competition from other delivery companies remains intense. Uber is encroaching on Just Eat’s German market, for example, but competition has re-emerged from restaurants themselves as they (restaurants) are now allowed to serve customers directly for consumption outdoors.
• Langton comment: And restaurants have a strong incentive to encourage customers to dine with them rather than at home. The can avoid Deliveroo (and other companies) charges – and potentially curtail or slow the growth of a dark kitchen competitor – and, if they can encourage customers into their units, they can upsell olives, bread, water, alcoholic & other drinks etc). Restaurants also have the potential to increase dwell time (which leads to the above upselling) in a way that cannot happen if food is delivered.
• And, as regards fees and charges, the restaurant operators have been in no position to quibble when Deliveroo, Uber and the others provided a lifeline. Now that there are alternatives, there may be downward pressure on delivery company fees. The Guardian, amongst other papers, runs stories suggesting that restaurants were having to pay 35% plus VAT on orders with other stories suggesting up to 50% (inclusive of additional charges). Certainly, there is less washing up and less need for waiting staff but packaging costs money and it is hard to see how profits, if any, would have been as high on delivered food as they were previously on dine-in meals.
• Furthermore, Deliveroo’s venture into dark kitchens has perhaps put it on a collision course with some of its restaurant ‘partners’. We have commented on the past that, if you let the fox into the henhouse, certain unpleasant things are likely to happen. The Guardian quotes the consternation of restaurateurs in North London watching Deliveroo build kitchens. The paper says ‘the newly installed units had no windows, people said, and a security guard was posted on the door.’ Maybe it has dawned that Deliveroo has certain fox-like qualities. It may know little about cooking but it is trying to learn. Working out friend and foe, partner and competitor may not be easy – particularly during a pandemic. But, as Jeff Bezos has chillingly said in the past, ‘your margin is my opportunity.’
• Adnams on Friday released full year numbers to 31 December 2020 saying that sales fell to £50.7m from £74.7m in the previous year. The company says that the number of trading days were down 61% on 2019. Beer volumes were down by 23% and the group reports an operating loss of £3.7m against an operating profit of £719k in the prior year. The group reports a loss before tax of £4.3m against a marginal profit of £39k in the prior year. Chairman Jonathan Adnams says ‘the business has been able to weather this most challenging of years, avoid significant job losses, retain cash in the business and pay down borrowings’. There is no dividend for the year.
• Adnams says ‘there was strong underlying demand for Adnams products when the business was able to be open.’ It says ‘online sales rose 245% and off trade grew 15%’ but says that the ‘environment on which we trade has changed significantly with the advent of the inevitable consequences of Covid 19 and the temporary closures in hospitality.’ The company says that it has had a ‘strong focus on cost control and investment in the available mechanisms that support cash flow have been successful in mitigating the financial impact of the pandemic.’
• Langton comment: Adnams spells out what has been the experience for most operators, both retailers and drinks producers. It says ‘this has been a year like no other’ and adds that closures ‘significantly impacted the business and we saw beer volumes fall by 23% and spirits volumes fall by 31%.’ The company cut costs and says that the reported loss ‘should be seen as a good result given the restrictions the business has been operating under for almost a year.’ Adnams is pointing out what has been the case across much of the industry, that the last 12mths has been a period during which operators have had to work extremely hard just to moderate the almost inevitable use of red ink.
• Adnams outlines the closures, the access to furlough and government help in other areas, the impact of EOTHO and the moves to refinance debt that will be familiar to operators across the industry. It also points out that online and the off-trade have been strong saying ‘our online business and our sales to supermarkets were the mainstay of the business during the initial period following closure and we are grateful that our diversified strategy allowed us to maintain sales and cash coming into the business. As the pandemic progressed, we were able to reopen shops in June and they enjoyed a good trading period despite operating under social distancing restrictions.’
• Looking to the future, despite the success of the vaccine rollout to date, Adnams says ‘it is the Board’s view that there remain significant material uncertainties as the economy begins its path to recovery. How specifically this relates to the hospitality industry and under what restrictions it will be expected to adhere to as it reopens remains an unanswered question.’ It says ‘we therefore do not expect demand to reach normal levels for some time and further expect government stimulus and support schemes to be withdrawn during the year. Given these uncertainties, the company has decided not to pay a 2020 final dividend, although the Board will keep the payment of an interim dividend under continual review.’ Cash husbandry, cost cutting and caution may be the order of the day.
• Remy Cointreau on Friday reported on full year (to March) sales saying that the company had turned in a ‘good performance in a challenging environment.’ It says it saw a ‘sharp sales acceleration in the second half.’ The company reports sales of €1,010.2 million in full year 2020/21, up +1.8% on an organic basis. It says that reported sales were down 1.4%. Remy reports that ‘after declining in the first half of the year, business bounced back strongly in the second half, including +15.1% organic growth in the fourth quarter.’
• Community pub company Hawthorn has announced the acquisition of 14 pubs from Everards of Leicestershire predominantly located in suburban and neighbourhood locations in the East Midlands. Hawthorn CEO Mark Davies says ‘we are really pleased to announce the purchase of 14 high quality community pubs from Everards. All of the pubs which are fully let have been very well operated by Everards and its Business Owners and we share a strong community ethos with Everards that makes this a seamless transaction for both parties.’ Seller Everards says ‘following a review of our pub estate, we presented 14 pubs as an acquisition opportunity to Mark and his team and are pleased to get a deal done during lockdown.’ Hawthorn operates around 700 leased and tenanted, and operator managed, community pubs across England, Scotland and Wales.
• Star Pubs & Bars has said that it will continue with its rent reduction support measures until restrictions are fully lifted for its tenants. The company says ‘we know the rent relief, which represents a significant investment on behalf of Star Pubs & Bars during challenging times for the whole industry, will have a significant bearing on the future sustainability of our licensees’ businesses – and clearly we want to see our pubs thrive in the long-term. We’re delighted that the Scottish Government has allowed us to reopen but the restrictions are onerous. Pubs are in a fragile state. The Scottish Government urgently needs to provide additional financial assistance or scrap the nonsensical curfews and restrictions on drinking alcohol indoors that will hamper the recovery of Scotland’s pubs.’
• Rick Stein has permanently closed its fish and chip restaurant in Falmouth.
• Risk Capital Partners has appointed a new management team to lead its newly acquired Curious Brewery business. Mark Crowther and former UK head of Budweiser Budvar Simon George join the business as chairman and managing director, respectively.
• Nestle reports that enforced home working has boosted coffee demand. Certainly, there will have been less of it purchased and drunk out of home in the last year.
• Urto Food & Beverage Co will provide food and drink products to local independent restaurants, venues and shops in the Teesside area, starting with artisan ice creams and wines.
• Fentimans has reported operating profits of £260.5k for the year to the end of December, up from 2019’s £8.95k.
Other pub & restaurant news:
• Some allegations of price gouging. The Mail goes with £7 per pint for Peroni. Langton paid £6.40 a pint for IPA last week, admittedly inclusive of a 12% (now unavoidable) service charge.
• Some feedback suggesting that sales of cask ales have been very strong. Given that it is a product that isn’t easy to replicate other than in a pub environment, this would make some sense.
• Concerns that kitchen staff could be in short supply post reopening.
• Charity Only A Pavement Away has partnered with TV personality Fred Sirieix to launch the ‘Sponsor a Kitchen’ campaign, which will be aimed at finding ex-offenders employment in the outside world.
HOTELS & LEISURE TRAVEL:
Potential leisure travel restart:
• Specific story in The Guardian that Covid passports could be made available by 17 May. The paper says the documents are likely to be different from domestic Covid certificates. Thomas Cook has told Sky News that it remains confident that Britons will be allowed to holiday abroad from 17 May. Meanwhile, BA CEO Sean Doyle has described the traffic light scheme as “too complicated.” He says that would be travellers should be allowed some credit for the success of the Covid vaccination programme in the UK.
• Langton comment: The devil will be in the detail. Who will be allowed to travel, where will they be allowed to go, what will they have to do to be allowed to get there and what will they have to do when they get back. If only fully vaccinated (two jabs) people are allowed to travel, it may be just the over-70s and health workers. If they can only travel to green list countries, then demand will very much depend on what those countries are.
• If they have to pay for tests before they go, when they get there and when they come back, demand will be constrained – and enforced quarantining in resort or back in the UK would be similarly negative. Meanwhile, for UK hospitality businesses, inbound visitor restrictions remain of interest. The concern re variants means that a complete reopening is unlikely. Further details are required.
Other travel news:
• Travelzoo has reported that almost half the people it has signed up on its site are very keen to take a holiday. They say they would be willing to “go anywhere” to have a holiday. The site may have been asking older consumers as some 30% of people on their site have had both Covid jabs with 92% having had at least one. Travelzoo says 68% would travel within the UK but less than 40% would be willing to travel internationally.
• Accor has reported Q1 revenues of €361 million for 2021, down 53% on the prior year and down 57% on Q1 2019. Accor says ‘there were no surprises in our first-quarter performance.’ It says ‘global business trends are improving slightly and the ramp-up of the vaccine rollouts bodes well for a particularly strong rebound. As it did in 2020, the group continues to keep a close eye on protecting its cash and cutting costs. Today, all our efforts are focused on the strong recovery expected this summer.’ Comps are about to get much easier.
• Seabourn has cancelled more sailings in Europe this summer
• Turkey has lifted its suspension of direct flights from the UK
• The Global Business Travel Association has reported “multiple positive signs” of a recovery in business travel
• Forecasts produced for Network Rail show the UK rail network could be short of up to two million passengers per day for several years as the work from home trend may continue. This will have a direct impact on town-centre coffee and sandwich shops as well as those located at rail hubs.
• Re the stillborn European Super League, Real Madrid president Florentino Perez has suggested that the 12 clubs that agreed to have “binding contracts” and “cannot leave”. The lawyers may be the only ones certain to make money.
• Concern re festivals. Millions of tickets have already been sold, says The Guardian. The Boomtown festival has just been cancelled due to a lack of insurance.
• Exhibitions company Informa has reported a 2020 loss of £1.1bn
• Oliver Dowden has committed £7m of taxpayers’ money to support British cinema
• Mattel has reported Q1 sales up 47%
• Snap has reported Q1 sales up 66% with users up 22% year on year.
• The Telegraph reports ‘the Premier League is in talks to scrap its television rights auction in favour of rolling over existing deals with Sky, BT and Amazon.’
• Semper Fortis Esports is to list on Aquis today. The company says that it ‘raised £2.5m @ 1p in an oversubscribed fundraise giving a market cap of approximately £4.155 million on admission.’
FINANCE & MARKETS:
• Political decision-making may be impacted as government mired in sleaze, cronyism and corruption allegations. Cummings’ blog post, calls for Michael Gove to address the Commons etc.
• UK government borrowing hit £303bn in the financial year to end-March.
• Markit reports Composite flash PMI for the UK up to 60.0. Services was 60.1. Markit says ‘forward bookings for hotels, restaurants and other consumer services in response to the roadmap for lifting pandemic restrictions helped to boost new business volumes across the service economy in April.’ It says ‘companies are reporting a surge in demand for both goods and services as the economy opens up from lockdowns and the encouraging vaccine roll-out adds to a brighter outlook.’
• Inflation perhaps on the horizon. Markit says ‘prices charged for goods by manufacturers are meanwhile rising at a rate not seen for a decade, linked to higher global prices for many inputs and near-record supply shortages. These prices will inevitably feed through to higher inflation as we head into the summer, though there’s much uncertainty as to how long the inflationary impact will last.’
• Bank of England deputy governor Ben Broadbent has said that the UK could be on course for a ‘very rapid’ recovery. The Telegraph looks at data from restaurants, Barclays and footfall trackers and says there could be a ‘roaring’ recovery.
• Sterling mixed at $1.3901 and €1.148. Oil down at $65.70. UK 10yr gilt yield unchanged at 0.74%. Word markets broadly better on Friday. London set to open down around 5pts.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-pages of the Saturday papers were dominated by the eruption of an astonishing row between the embattled PM and his former adviser Dominic Cummings: the main headline in the FT was “Cummings lashes out at Johnson” and the Guardian went with “Cummings hits back with astonishing attack on PM”, whilst the Daily Mail went further with “Dom’s all out war with PM”, the Times said “Cummings declares war on “unethical, foolish” PM” and the Telegraph also flagged that “Cummings declares war on PM”.
• Saturday’s Press and News (2): In terms of Retail and other stories, the strong ONS Retail Sales figures for March got plenty of uncritical coverage, albeit wrapped up in general articles about rising Economic confidence. There was also plenty in the papers about the news that the High Court had quashed the criminal conviction of 39 sub-postmasters, wrongly accused of theft because of the Post Office’s faulty IT system, Horizon, and the Business Editorial in the Times noted that the disgraced CEO of the Post Office between 2012 and 2019, Paula Vennells, is still a non-exec Director of Morrisons and Dunelm. The Times also had a profile interview with the former HBOS and Alliance Boots boss Andy Hornby, who is now the CEO of the struggling Restaurant Group, in which he praised the advice of “two outstanding chairmen” (Rob Templeman and Debbie Hewitt) and said that he admired the
• Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were all about the continuing row between the embattled PM and his former adviser Dominic Cummings: the Observer ran with “Johnson faces MP’s fury over Downing Street sleaze claims”, the Sunday Times flagged that “Cummings to blame PM for Covid death toll”, the Sunday Telegraph said that “No 10 fears Cummings bombshell dossier” and the Mail on Sunday went with “No 10 rages at “nasty, sexist” Cummings”…
• Sunday’s Press and News (2): In terms of Retail stories, there was nothing very meaty, although the Mail on Sunday flagged that the high-profile boss of the Online fashion retailer Missguided, Nitin Passi, is looking to sell a stake of up to £100m in the business. The Mail on Sunday also highlighted that the leading hedge fund Marshall Wace is shorting Tesco and noted the share sale by Joules’ founder Tom Joule last week. The Sunday Times picked up The Grocer story that the ex-Sainsbury boss Justin King has invested in a convenience store tech platform called Snappy Shopper and it also flagged that landlords are preparing a legal challenge to the Clarks CVA, whilst its main Business story was that “Britain toasts reopening” (trading has been brisk since the re-opening of non-essential shops, pubs with outside areas etc).
• Sunday’s Press and News (3): In terms of all the Economics comment columns in the Sunday papers, we would, as usual, highlight the column by the Sunday Times Economics correspondent David Smith (“The Covid debt isn’t going away. We have to live with it”), in which he highlighted that, in dealing with the explosion in public debt caused by the pandemic, “maintaining the confidence of the markets will be crucial”. And we would also give the usual shout-out to the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“Net-zero pledges are all very well, but who pays the trillion-dollar bill?”), in which he noted that “most political leaders now see action on climate change as in their own self-interest”.
Today’s News: The Sky News story last night that the disgraced former CEO of the Post Office, Paula Vennells, would be stepping down as a non-exec Director of Morrisons and Dunelm has been promptly confirmed by both companies this morning. And Superdry has announced that the former CEO of the Helly Hansen brand, Peter Sjölander has been appointed as non-exec Chairman, replacing the hard-working Peter Williams. Julian Dunkerton, the founder and CEO of Superdry, says in the statement that “Peter Sjölander has a tremendous track record of driving value creation and is a true digitally-focused brand leader”. But the biggest news out today is that the European discount chain Pepco (which owns Poundland) is floating on the Warsaw stockmarket rather than in London.
This Week’s News: A busy week kicks off tomorrow morning with the latest monthly Kantar grocery sales figures, closely followed by the Travis Perkins/Wickes AGM/EGM. Wednesday then brings the first dealings in the demerged Wickes, along with the Sainsbury finals, the Dixons Carphone pre-close update, the French Connection finals, the Pendragon AGM and the Apple Q2 results (in the US). On Thursday we then get the Howden Q1, the WH Smith interims, the Inchcape Q1 and the Amazon Q1 results (in the US).