Langton Capital – 2021-04-27 – PREMIUM – Whitbread FY numbers, Jet2, current trading, new openings etc.:
Whitbread FY numbers, Jet2, current trading, new openings etc.:
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A DAY IN THE LIFE:
There’s nothing like a good essay crisis to get the blood pumping.
Of course, bungee jumping and parachuting might achieve the same result but at considerably greater risk to life and limb. Nonetheless, we’re rather rushed today because of the coincidence of:
a) our March quarter VAT calcs being due,
b) the FCA demanding that we lodge our Dec 2020 financial accounts in the next few hours and,
c) the fact that, unprompted and despite knowing for months that these events would coincide this week, we decided only to address them on Monday morning.
That’s planning for you. On to the news:
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WHITBREAD – FULL YEAR NUMBERS:
Whitbread has reported FT numbers to end February 2021 and our comments thereon are set out below.
• Whitbread reports that revenues in the period fell by 71.5% to £589m. The group reports an adjusted loss before tax of £635m (2020: profit £358m) and says that its reported statutory loss is £1,007m.
• The loss per share on an adjusted basis is 288p (2020: profit per share 166p) and there is, perhaps unsurprisingly, no dividend. WTB says that net debt, after its rights issue, is £47m compared with £323m a year ago. For detail, see premium email.
• WTB says that its ‘performance reflected the significant COVID-19 restrictions that were in place for the majority of the year in both the UK and Germany’
• It says ‘in the UK, we have significantly outperformed the midscale and economy hotel market since reopening in August, with customer scores also remaining very strong throughout this period, despite the significant disruption.’
• The group adds ‘in Germany, the market and our hotels operated at low levels of occupancy due to the pandemic. Despite this, we were able to materially accelerate the growth of our hotel network during the year.’
• The group says it reacted swiftly to Covid, cutting capex, reducing costs and staff numbers and suspending the dividend
Re Current trading:
• WTB says ‘in the UK, currently over 92% of our hotels are open, and we are ready to welcome leisure guests back to our hotels from 17 May.’
• It says ‘strong demand is expected for ‘staycations’ in UK tourist destinations throughout the summer, with business and event-led leisure demand starting to gradually recover thereafter.’
• The group says ‘currently 18 of our 30 operational hotels are open in Germany, with six of the temporarily closed hotels being refurbished and rebranded to Premier Inn. Despite the very recent tightening of Government restrictions, our significantly enlarged estate puts us in a strong position to win market share when demand returns.’
• Whitbread says ‘in Germany, the market and our hotels operated at low levels of occupancy due to the pandemic. Despite this, we were able to materially accelerate the growth of our hotel network during the year.’
• It adds that it has ‘a total open and committed pipeline now standing at 72 hotels, providing a very strong platform from which to increase our brand presence.’
Balance sheets, cashflow & debt:
• Whitbread announced a 1 for 2 rights issue to raise £1.009bn gross in May. The Rights price was 1500p and the Theoretical Ex-Rights Price at the time was £22.69, considerable below today’s share price
• The company said at the time that ‘the purpose of the Rights Issue is to ensure that Whitbread emerges from the COVID-19 pandemic in the strongest possible position to take advantage of its long-term structural growth opportunities and win market share in both the United Kingdom and Germany.’
• The company adds that ‘the successful completion of a £1bn Rights Issue in June 2020, strengthened the balance sheet and enhanced our financial flexibility.’ It says the ‘£550m Green Bonds issued in February 2021 provided further financial flexibility.’
• Whitbread says it is ‘expecting to invest over £350m of capital in this financial year.’ It adds that it will advertise whilst maintaining ‘continued disciplined investment in room refurbishments.’ It sees the ‘opening [of 2,000 to 3,000] of our pipeline rooms in the UK and c.2,000 rooms in Germany.’
• The pipeline will be expanded further in Germany. Some £100m of cost savings across the company are targeted
• CEO Alison Brittain says ‘the last financial year was one of the most challenging in our 279 year history.’ She adds ‘our business model enabled us to respond rapidly to the changing restrictions and to quickly adapt our operations as required.’
• Ms Brittain adds ‘our ability to navigate through this period, with the advantages of our unique operating model, the strength of the Premier Inn brand, and our market-leading direct distribution model, has enabled us to continue to deliver strong market share gains in the UK.’
• She says ‘our exposure to the faster recovering budget sector, our resilient customer mix, and the enhanced structural opportunities that the COVID crisis has created, positions us well to continue this outperformance.’
• Re the immediate future, she says ‘we expect a significant bounce in leisure demand in our tourist locations during the summer, followed by a gradual recovery in business and event-driven leisure demand.’
• Re Germany, the CEO says ‘we remain confident of the opportunity to replicate our model in the UK and have materially grown our estate from six hotels at the start of the year to 30 operational hotels currently, and a total open and committed pipeline of 72 hotels, representing a nation-wide footprint with a presence in most major towns and cities.’
• The balance sheet has flexibility and the company concludes ‘we are well-placed to enhance our market leadership position even further in the UK, and accelerate our growth in Germany, capitalising on the enhanced structural growth opportunities that will exist and driving long-term value for all our stakeholders.’
• Specific numbers are relatively meaningless at the moment, which is just as well as those numbers that there are, are large and red. This is a big loss but the balance sheet restructure puts the company in a relatively good position
• The staycation market will, as the company says, be big this year. The group is still under-represented in London, which is perhaps no bad thing at present.
• As mentioned earlier, the Rights Issue should, perhaps be seen as 1) precautionary and 2) potentially predatory. There will be opportunities to make acquisitions in the coming months and years. The expansion in Germany is testament to this.
• WTB has pulled all the levers available to it to preserve cash and wishes to put itself in a better position than its competitors.
• Over the longer term, the group has proved itself an effective builder of estates of largely-freehold based leisure assets
• WTB will be better positioned than a number of its competitors with a largely freehold estate and its Rights Issue cash having driven debt down to currently negligible levels.
PUBS & RESTAURANTS:
Current trading since reopening:
• Apologies to operators in Wales & Scotland (where outside trade has only been allowed from yesterday) but herewith some comments on trading in England over the last two weeks. The Coffer CGA Business Tracker shows like-for-like sales down less than a quarter on April 2019 despite trading restrictions. Trade has been helped by good weather and a pent up desire to spend. CGA says that two in five managed sites are now open for outside service.
• Langton comment: CGA says ‘managed pub and restaurant groups have made a robust start to post-lockdown trading in England. LfL sales in the week to 18 April ‘were down a modest 24% on the equivalent period two years ago—despite being limited to outside trading, and facing a strong comparative week in April 2019 that included Easter.’
• This is good stuff and is supportive of anecdotal evidence fed back from the trade. CGA says ‘pubs performed better than restaurants across the first week back, as consumers celebrated the return of hospitality in beer gardens and other outdoor spaces. Like-for-like sales in managed drink-led pubs were down by 11% year-on-year, and by 22% in pub restaurants. The group-run restaurant segment recorded a 34% drop, and like-for-like sales were weakest of all in bars, at 37% down.’ These numbers will be impacted by the latter’s lack of outside space.
• The Tracker reports that 39% ‘of groups’ venues were open for on-site dining and drinking last week, though some other venues were operating for takeaways and deliveries. Trading capacity was higher in the drink-led pubs (44%) and restaurants (43%) segments, and lower among pub restaurants (27%) and bars (25%).’ This is in line with existing feedback. However, it is still worth stating that, if only 39% of venues were open, then a sizable majority remain closed. The Tracker takes this on board when it says ‘with the majority of sites still closed, total sales last week were 57% down on the equivalent week in April 2019.’
• CGA says ‘while sales are well down on what we would expect in a normal April, managed groups are returning well after months of closure.’ It adds ‘pubs benefited from the widespread sunshine and the eagerness of consumers to drink out again after so long at home.’ Wet sales outperformed food. The Tracker cautions that the majority of units remain closed and says ‘some consumers remain cautious about going out. Total sales will be far off pre-pandemic levels for some time to come, and businesses will need support from local and central government as they embark on the long road to recovery.’
• The MA says that pub operators are describing to it just how keen customers are to come out for a drink in the sun. It says, however, that ‘licensees also raised areas of concern with trading restrictions including customer resistance to using the NHS app for contact tracing and hostility from local authorities in regards to outside structures.’ The MA says that, of those who responded to its poll request, some 70% of operators had invested in outdoor space. We would suggest that there will be a very direct link between the effort put into attracting customers and the amount of money going through the till.
• Big Hospitality says ‘hospitality businesses across England have reported a mixed bag of trading in the first few weeks of the lifting of lockdown for outside trading, according to the latest Lumina Intelligence Hospitality Leaders Poll.’ It says 43% of operators have been ‘busy or very busy since rules were eased.’
• PM Boris Johnson is understood to have shelved plans for Covid passports in pubs. A ‘senior Downing Street source’ has said that no formal decisions have been made yet, but confirmed the focus is on large events and major venues. Responding to the news, SIBA CEO James Calder says ‘with cases now as low as they were last Summer and the extraordinary progress of the vacation programme it is sensible and welcome that the Prime Minister is moving away from the idea of Covid Passports for hospitality.’ He says ‘we know that pubs and taprooms are safe based on all the evidence collected over the last 12 months.’
• SIBA adds ‘Covid passports would have been another unjustifiable level of red tape and incursion into the freedom of individuals. But whilst this is good news as pubs in Scotland and Wales open today, the industry is still running at a third of its usual capacity and small breweries, who mainly supply pubs but were left out of hospitality support, are still under immense pressure. Pubs and breweries will not be profitable for many weeks and months to come until all restrictions are peeled off.’
• There are a large number of elephants in the room but accrued rental liabilities is definitely one of the biggest. MCA Insight has reported that there are calls to implement the same rent relief scheme as has been adopted in Australia. The scheme in Australia has pushed through rent reductions and forced landlords, in some cases, to waive some rents and allow deferred payment terms for the balance.
Scotland & Wales:
• Pubs and restaurants were allowed to reopen for outside service yesterday. The SBPA says ‘the industry is asking for the extension of opening hours back to normal licensing times, which at the moment is not scheduled to be reintroduced until Level Zero. The SBPA says that the current arrangement means that many pubs won’t be viable given the restricted trading hours – risking business failures just as the recovery period should be starting.’ The SBPA nonetheless says ‘it’s fantastic to see Scotland’s pubs and bars reopening again today. Teams coming back and reconnecting with customers and communities is an important first step, and everyone is excited to get going again.’ It says, however, that ‘the maintenance of the curfew severely limits profitable hours and for many of Scotland licensed premises, it could be the difference between survival and bankruptcy. Removing the curfew
• Supply is not much use without demand and so it is a relief that, re the latter, the signs look good. We touched on the Deloitte Consumer Tracker a little yesterday but here’s more detail. Deloitte says ‘consumer confidence about their household levels of disposable income jumped by a significant 17 percentage points year on year to -10% the highest level recorded for that measure. Similarly, confidence about levels of debt rose by eight percentage points compared to the same period a year ago, and at 1.5% is at its highest since the Tracker began in 2011.’
• Deloitte says ‘combined with near record levels of savings, these results suggest that if consumers continue to be confident about their income, they could spend that extra cash and become the driving force for growth as the economy reopens. Indeed, the easing of restrictions and the continued roll out of the vaccine programme is expected to unleash pent-up demand for non-food categories, leisure and travel services.’ There are inequalities, says Deloitte, with 31% of consumers saying their savings had increased and a similar 29% saying they had fallen.
• Interestingly, ‘confidence about job security rose by six percentage points to -9% compared to Q4 2020 and sentiment around job opportunities and career progression gained seven percentage points to minus 12% over the same period. Encouragingly, recruiters have been reporting the strongest rebound in permanent hiring for six years in March. Job security is often instrumental in adding the desire to spend to the ability to spend. Turning to business, Deloitte says ‘CFOs also expect a strong recovery in the second half of this year following the planned reopening of the economy. A majority, just under 60%, report that demand for their businesses’ products and services has already returned to pre-pandemic levels or will do so by the end of this year. Of course, whether a strong recovery materialises is heavily predicated on the continued suppression of the virus.’
• Langton Capital – This is good stuff and long may it last. We would make two points, one positive (for some) and the other cautionary. On the plus side, supply will be reduced meaning that increased demand could deliver a double whammy on the upside to successful operators. On a slightly less positive note, we would point out that, with most indicators flashing green, there are building risks on the downside. Variants, backsliding on hospital admissions etc could have the potential to shock negatively and the economy, buoyed on a sea of debt, is somewhat fragile.
Company & other news:
• Deliveroo shares down 5p to 228p yesterday. The top of the indicated range at IPO was 460p, a little more than twice today’s share price.
• Everards of Leicestershire has updated saying that ‘71% of our pubs started trading again, week commencing 12 April with the remainder opening from 17 May.’ It says its tenants have ‘received rent cancellations, advice and services from the business. In the 12 months to March 2021, 73% of the pub estate rent roll has been cancelled.’ MD Stephen Gould says ‘the last 12 months have been intensely challenging for the hospitality industry’ but he adds ‘we are as well placed as we can be as we emerge from the lockdown. However, it is imperative that the Government Roadmap is delivered so that by 21 June all of our pubs can operate without Covid related restrictions. That will be the first step to recovery. Working with the Government, I think there is a long overdue opportunity to deliver lower taxation for beer duty, property rates and VAT for pubs. Such reform will directly invest into
• Pret a Manger is reported to have secured a capital injection of £185m from its shareholders. In a report delivered to Companies’ House, the co says ‘the impact of coronavirus on the global retail and hospitality industry at the date of this report has been severe. Social distancing will continue to change consumer habits for some time, and may permanently affect where, when and how customers choose to enjoy Pret’s food and drink. Management’s priorities remain as the safety of Pret’s team members and customers, and protecting the business. It is still too early to know the full impact on the business due to the ongoing uncertainty.’
• Langton comment: Yes, to the comment on uncertainty, indeed that is the case. Pret will be particularly impacted by any decisions by workers and employers on their stance on Working from Home in the future. Nestle has sold more coffee than usual during the pandemic and Pret has sold decidedly less. A return to previous trading patterns is very unlikely in the short or even medium term.
• Meal kit company Gousto says it will take on 1,000 more staff after seeing sales grow during the pandemic.
• A group of landlords are challenging the restructuring of Clarks.
• Tim Horton has announced it is to open in the North East, in Washington
JET 2 TRADING UPDATE:
• Jet2 has updated on trading saying that ‘as a result of the Covid-19 pandemic, the Board expects to report a Group loss before foreign exchange revaluation and taxation from continuing operations for the financial year ended 31 March 2021 of between £375m – £385m. It says ‘during FY21, Jet2 plc took swift and decisive action to raise close to £1.0bn in liquidity from a diversified range of funding sources, to mitigate the impacts of the Covid-19 pandemic.
• For comment see premium email. The company adds that it reduced cash burn and it says it says the ‘continuing successful rollout of vaccines in the UK and the increasing momentum in Europe are both encouraging.’ It welcomes the news that international travel should reopen from mid-May. However, it says ‘we were disappointed at the lack of clarity contained in the Task Force’s report, in particular the as yet to be populated ‘traffic light’ framework for destinations, and full details and cost of the associated testing regime.’
• The future, therefore, remains uncertain. The company says ‘the impact and duration of the proposed Covid-19 travel restrictions for Summer 21 remain difficult to determine and due to this continued uncertainty, in fairness to all our stakeholders and especially our Customers, we took the difficult decision to extend the suspension of our flights and holidays from 17 May up to and including 23 June, by which time we are expecting more clarity.’
• It says ‘unsurprisingly given the short-term uncertainty, customers are booking significantly closer to departure for Summer 21. However, we continue to be encouraged by the volume of customer bookings for both Winter 21/22 and for Summer 22, for which package holiday bookings are displaying a materially higher mix of the total. Based on this limited visibility, we are confident that once normality returns, our Customers will be determined to enjoy the wonderful experience of a well-deserved Jet2 holiday and that Jet2.com and Jet2holidays will continue to have a thriving future, taking millions of UK holidaymakers annually, to the Mediterranean, the Canary Islands and to European Leisure Cities.’
HOTELS & LEISURE TRAVEL:
• Hostelworld updated on trading at its AGM yesterday, saying that ‘booking volumes were weak throughout Q1 2021 with continued lockdowns and travel restrictions impacting demand. Domestic booking volumes are recovering, particularly in North and Central American markets.’ The company said its ‘liquidity position is strong with €38.3m of cash at bank as at 31 March 2021, including the new term loan facility signed in February 2021. The Group’s monthly operating cash outflow of
€1.6 million is in line with expectations.’ Hostelworld says ‘we continue to expect the pace of recovery to be driven by changes in travel guidance in individual markets, which we hope to see accelerate as vaccination programmes are rolled out across our key geographies. In light of the continued market uncertainties, the Group’s full year guidance for FY21 remains suspended.’
• Leger Shearings Group says that domestic bookings are booming. It says ‘UK sales are akin to a January peak.’ It says ‘we envisage this will build when UK travel is confirmed on May 10 for tours departing from May 17’ but adds ‘bookings for European tours are slower than we would like albeit we’re well sold due to re-bookings. Bookings for Europe are primarily for September and beyond, and most for 2022, so having Shearings really helps – 90% of Shearings’ bookings are for this year.’
• Destination Analyst in the US reports that ‘American travel is indeed definitively on the rise. Now 71.6% say they will take a vacation or getaway between Memorial Day and Labor Day, up nearly 10 percentage points from last month and up nearly 36 percentage points from 2020.’
• The EU and US are reported to be working to mutually recognise vaccine passports
• Thomas Cook has indicated that summer bookings are slipping into the autumn
• Book sales are reported to have risen 7% last year during lockdown
FINANCE & MARKETS:
• Sterling mixed at $1.389 and €1.1503. Oil higher at $66.23. UK 10yr gilt yield up 2bps at 0.76%. World markets mixed with London set to open up around a point
RETAIL WITH NICK BUBB:
• Today’s News: Today is busy for other sectors, with results from HSBC, BP and Whitbread, inter alia, but the cupboard is bare in retailing and although this morning brings the Travis Perkins AGM and EGM to approve the long-awaited demerger of its DIY chain, Wickes, there will be no further trading update (after the Q1 update on April 15th) and Travis Perkins has already set out the corporate timetable for the various share splits etc (see below).
• Wickes Watch: This morning will see the Travis Perkins EGM approve the long-awaited demerger of its DIY chain, Wickes, and first dealings start tomorrow. The demerger is being arranged through a simple 1-1 share split and, as far as we can gather, Wickes is thought to be worth about a quarter of Travis Perkins’ current market cap of £4bn, ie about £1bn or just under 400p a share. Travis Perkins has re-rated usefully upwards in recent months, in recognition of the value to be created on a “sum of the parts” basis by the demerger, so a lot of good news is in the price, but we suspect that both the Wickes and Travis Perkins “rump” share prices have further upside potential, given the headwinds from the growth in the home improvement market. In case you’re wondering, Wickes used to be publicly quoted (with the ticker “WKS”), but it was bought by its ill-fated rival Focus Do-it-All in 2000
• This Week’s News: The latest monthly Kantar grocery market share figures come out at 8am this morning. Tomorrow 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, a year-end update from the recently floated In the Style and the Amazon Q1 results (in the US).