Langton Capital – 2021-05-05 – PREMIUM – Death of cash, trading, shape of recovery, Campari, foreign holidays etc.:
Death of cash, trading, shape of recovery, Campari, foreign holidays etc.:
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A DAY IN THE LIFE:
Observing our dog lolling around the house, I have to conclude that he has a genetic fondness for being trodden on.
That and for having hot beverages showered on him from above because I’ve lost count of the times that I’ve stepped on his ears or on other sensitive parts of his anatomy and the similarly countless occasions on which I’ve slopped hot tea or coffee on him as I’ve failed to notice a humungous dog beneath my feet and have shed whatever dangerous, hot, heavy, sharp – but sometimes tasty – material I was holding.
And he seems to recognise this is an accident.
Somewhat remarkable coming from an animal whose nose means he’s aware of everything within twenty feet of him at all times even when asleep. Maybe he just thinks we’re pitifully slow-witted. But he’s OK with the situation so I can only assume that there’s some evolutionary advantage derived as a result. On to the news:
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A COMMENT ON THE REDUCED USE OF CASH:
Covid has been a catalyst for, and an accelerator of, change:
• Books will be written about what a catalyst for change Covid is / was. The death of the High Street (hopefully overdone), more flexible working hours / days, the shakeout of excess capacity in hospitality etc are pretty likely to feature – but so too could the death of cash.
The demise of cash:
• Don’t invest too much time in mining an answer but here’s a question for you: What was the smallest amount on your credit card in April 2021 compared with the same month two years ago? For Langton, it was 40p and £2.40 – no prizes for guessing which year was which.
What, if anything, does this mean?
• Panhandlers might feel the pinch, parking money isn’t in the cup-holder anymore and there’s no cash to put in those mean-minded supermarket’s trolleys when you need it.
• Though it’s worth remembering that whenever a ‘death’ is announced ahead of the actual event itself, there is always the possibility that it will be wrong, the demise of cash does look to be nailed on as it’s very likely that consumers are now using cards for purchases of a much smaller value than they had previously considered reasonable. Tube and bus fares, parking fees, even access to public lavatories and the like.
Does less cash induce more dishonesty?
• Dan Ariely, in The Honest Truth About Dishonesty, holds that, as you move from cash through tokens towards goods (and time), instances of ‘dishonesty’ tend to increase.
• We’ve put the inverted commas there because, as you move from the tenner on your colleague’s desk (a big no-no re pocketing it when it comes to 99% plus of the population) towards the odd pencil from the stationery cupboard, definitions of ‘dishonesty’ tend to become more fluid.
• Vending machines ‘owe you money’, the stationery cupboard ‘is a public resource’ and, a little more worrisome, a can of drink in the office fridge isn’t theft in the same way that the tenner referred to above is.
• And our political leaders might take £15k holidays in Mustique but they wouldn’t take £15k cash. We hope. They might try to take £58k in wallpaper and soft furnishings but they wouldn’t take it in an envelope etc etc.
• But is the difference between money in a till and the use of plastic in the hospitality industry too minor a change as to encourage any discernible movement in behaviour in the direction of dishonesty?
• Probably. Maybe. We certainly hope so but, as with many of these changes, the full impact has yet to be seen.
• The full review of Mr Ariely’s book, which we ran in the Premium Email back in September 2019, is at the foot of this email.
PUBS & RESTAURANTS:
Post reopening trading:
• The latter part of the Bank Holiday weekend was impacted by bad weather. Not including the Monday, six degrees during the afternoon and driving rain in York, S4Labour comments on sales last week, saying they ‘were down 1.2% on the previous week. However, the decline was driven from weak performance in London, where week on week sales slipped 9.1%. Sites outside the capital grow sales by nearly 1% on the previous week.’ Given the poor weather, this is perhaps better than might have been feared. S4Labour reports ‘the number of sites that were open also declined last week. For the first two weeks since the rules were relaxed to allow outside trading, circa 55% of sites were open, however, that figure slipped to 48% last week.’
• Langton comment: The above numbers cover only units that are open – and that number has fallen week over week. Nonetheless, given the way that the weather worsened – and also the fact that the novelty factor must have diminished – the numbers are relatively good. True, it was pay week and we were running up to a Bank Holiday, but down only 1.2% on the prior week gives some grounds for hope. S4L says ‘63% of sites traded at greater or equal to their sales level, compared to the same week in 2019, with two thirds of sites trading at 80% or above 2019 levels.’ It adds ‘we would anticipate some dampening on trading in London as people leave the city over a Bank Holiday weekend, but the severity of sales decline indicates just how vulnerable the industry is to adverse weather at the moment.’ We would take some issue with using the word ‘severity’ in the same breath as 1.2%.
• To get an idea of the scale, S4L previously commented on the prior week, the one that we are now down 1.2% on, saying it was down 10.5% on 2019. We don’t have 2019 numbers for the week just ended but it sounds as though sales could have been within 10% to 15% of those levels. Caution, any single week, particularly where Bank Holidays are concerned, will be very weather sensitive.
• A more important takeaway, possibly, is the suggesting that 7% of the industry shut their doors last week despite having been open the week before. S4l says ‘we have always known that re-opening with reduced capacity would make trade unfeasible for many. We are starting to see that, for those with limited space, re-closing is the only option for now.’ This is an interesting decision. In some cases, it may have been a financial no-brainer but, in others, it would have to be weighed against the benefits of road-testing staff and systems, re-awakening supply chains and the like that would be the case if units were open.
Shape of the recovery:
• As foodservice analyst Peter Backman says, there have for some time been many questions about the shape of any future recovery in the foodservice sector. Various letters have been suggested, V, U, W etc. Backman suggests a K shape – where the outlook for winners and losers is radically different. Working with economists at the IGD, Backman suggests there will be winners and losers. He says ‘winners will be those able to play their part in deploying the £100 billion that has accrued in combined UK consumer savings.’ Losers may fall by the wayside.
• Backman points out that hospitality players will not just be battling each other. He says ‘retail will do its hardest to retain the nearly £13 billion it gained form foodservice in 2020. It will do this in a variety of ways, but all will end up putting price pressure on the foodservice sector. He says that, with this in mind, trying to compete on delivery may not be the best choice. He says ‘in choosing to grow via delivery, foodservice operators have chosen to fight battle without the tool that gives them their competitive edge: hospitality. This, I fear is a mistake that will pile on additional pressure for the recovery of foodservice.’
• Langton comment: Retail will indeed fight hard to retain some of the sales that it has gained. But there are some positive indicators. Hospitality, as Backman points out, can offer hospitality and that, after months of confinement, is no small thing. Delivery may not be the perfect battleground. A further positive point, for the winners at least, is that supply will be reduced and demand, via staycations, could be buoyant. The winners, perhaps, might concentrate more on exceeding hospitality expectations in order to retain business once the first blush or reopening has faded.
• On a similar theme, Pragma Consulting reports ‘over the next six months, Britons are forecast to spend over £23bn on leisure activities and holidays in the UK. This will provide a much-needed uplift and rejuvenation to the economy, and planned events such as the Euros and music festivals will have a positive impact on other parts of the economy, including retail.’ This is true, but it depends very much on how the upcoming overseas holiday versus staycation tussle pans out.
• Langton comment: We have suggested for a while that having traffic lights is one thing but that having all of the lights at green is quite another. It is also very unlikely. The mood music suggests that some senior politicians are rowing back from earlier upbeat forecasts and words of caution are entering into even boosterish ministers’ vocabularies.
• Whilst this may leave politicians with some explaining to do and some disgruntled would-be holidaymakers to assuage, this is helpful for the domestic hospitality industry. Pragma’s numbers will depend very much on how this progresses. We would suggest that the Matt Lucas sketch (go to work, don’t go to work. But go to work…) could be about to play out in the overseas holiday market. From the would-be travellers’ point of view, being given only a small number of destinations, Gibraltar, Malta etc., from which to choose and then being told that rules could change with only a few days’ notice, isn’t likely to drive rapid (and perhaps reckless) bookings.
• Pragma touches on the ‘new normal’ saying it isn’t clear what it will be. It says ‘though the willingness to get out and about and socialise is broadly accepted, the ability to regularly do so is less-clear cut.’ We believe that money and confidence could be limiting factors though, in the short term, demand is likely to be strong.
• Staff shortages in the US. Similar stories are being heard worldwide, it would appear. Restaurant Dive in the US reports that ‘as vaccination rates climb and dining room capacity expands, people are returning to restaurants in droves, excited to dine out and meet with friends. But this sudden ramp up in business after several months of slumping sales is creating a staffing challenge for operators.’ It quotes operators as saying that ‘the federal government’s extra unemployment benefits and stimulus payments are largely what’s keeping employees from returning, while others say staff have just found jobs in other, more stable industries. Some employees are still concerned about their safety, as well, and are hesitant to return to restaurants.’
• In our view, finding out if this and potentially other problems exist was & is one of the main, non-financial benefits of reopening outside only. If units can break even, it may be sensible to do so in order to identify possible bottlenecks that may arise when indoor dining is allowed the week after next. See also comments on French hotel industry in Holiday section below.
Company & other news:
• Campari has reported strong Q1 numers saying that sales rose 17.9% organic growth to €397.9 million. The number is up 12.1% on the same quarter in 2019. CEO Bob Kunze-Concewitz says this is a ‘very solid and satisfactory start to the year’. Home consumption has been strong but the company points out that Q1 is a low-sales quarter and, this year, it was ‘amplified by an easy comparison base as well as an early Easter effect.’ The company says ‘looking at the remainder of the year, in addition to a marginally worsening exchange rates outlook. volatility and uncertainty remain due to the ongoing restrictions and the timing of the vaccine roll out in the European Union, affecting the on-premise channel as well as Global Travel Retail.’
• Morning Consult in the US says that 60% of consumers are telling it that they are comfortable dining out. Restaurant Dive says the percentage of consumers who said they would feel safe dining out never exceeded 42% in all of 2020, but that number has been rising steadily in 2021. The journal adds ‘seventy-three percent of consumers think they’ll feel comfortable dining out within the next six months.’
• Britvic yesterday announced the acquisition of Plenish, ‘the plant-based milks, cold-pressed juices and shots company, and one of the most exciting brands in its category in Great Britain.’ Britvic says Plenish joins its portfolio of market-leading brands and strengthens the Group’s offering in the fast-growing plant-based segment. CEO Simon Litherland says ‘Plenish has built a hugely impressive brand offering a fantastic range of products that cater to the growing demand for healthy and nutritious juices and plant-based milks. At Britvic, we have a long history of building successful brands and we see tremendous potential in Plenish that we look forward to realising in the years ahead.’
• The FT reports that Australian wine company Accolade is planning to float on either the Australian Stock Exchange or the Hong Kong stock exchange.
HOTELS & LEISURE TRAVEL:
Leaks & comment ahead of official statement on leisure travel:
• The Press seems to believe that ‘fewer than 10 countries’ could be green when further details about the UK’s traffic light system are revealed later this week. The countries could include Malta and Gibraltar which, though wonderful destinations, are limited in capacity term. The Guardian quotes a ‘source’ as saying ‘it will be a cautious approach, but then things could start to change quickly.’ Portugal believes it will be on the green list.
• The travel industry has pushed back against the suggestion from a group of cross-party MPs that, even when consumers are allowed to take foreign holidays, they might be well advised not to do so. Thomas Cook says ‘holidays will be back on this summer’ per the Guardian.
• Langton comment: See above for our views on staycations. Paul Charles of Travel consultancy PC Agency told The Guardian ‘I think the committee [of cross party MPs] is out of touch and their findings are damaging.’ For a short comment, this is interesting as it carries within it a lot of nuances. The travel industry would like something not to be true, so it isn’t. The desire is father to the thought. Confirmation bias has edged in. Overoptimism and overconfidence are both present. Committees that agree with this person are, presumably, sensible and balanced whilst those that are not are ‘out of touch’.
• And the fact that something is ‘damaging’ for an industry’s P&L doesn’t mean that it is wrong. The Guardian says ‘ongoing uncertainty has already led package holiday travel companies to cancel trips in May and June.’ This will be the case for hesitant would-be holidaymakers as well. Dither and delay may come from on high. Chair of Sunvil, Noel Josephides, told the paper he hopes to operate from the summer. “If we can get July, August and September, the company will survive the winter.”
• Travel Weekly reports that the ‘NHS app appears unlikely to be ready for use as a vaccine passport in time for when overseas travel resumes.’ The BBC quotes a spokesman as saying ‘there are other routes to achieving the same end-goal. We are working on the app at the moment, at pace, to have it ready, and we will be able to confirm ahead of (then) what approaches we will be using.’ A statement on which countries are what colour is expected later this week.
Company news & hotels:
• Carnival Cruises has announce that its Australian business has extended its ‘temporary pause in operations’ to 17 September, 2021. It says ‘the extended pause is being applied as the cruise industry continues to work with relevant government authorities to establish a pathway for the restart of cruising in Australia.’ P&O Cruises Australia President Sture Myrmell said ‘we are supporting our industry association as it works with governments and public health authorities to develop a framework for the successful resumption of cruising.’
• Ride-hailing company Lyft yesterday reported Q1 numbers saying that revenues rose bot $609m with a loss per share of 35c against the loss of 53c expected by analysts. The group’s shares rose by 7% in after hours’ trading. Lyft says ‘we continue to believe there is still significant pent-up demand for mobility that will take time to play out.’
• London based escorted tours operator Go Tours is reported to have secured a £4.25m refinancing package from SME funding specialist ThinCats.
• Travelodge has announced that it will open 17 new hotels across the UK in 2021.
• The New York Times reports that ‘as hoteliers in France are preparing to reopen their doors as the national lockdown lifts this month, many are finding that long-furloughed employees have moved on, leading to a rush to fill open positions.’ This will be an issue across other hotel markets and across hospitality in general.
• STR reports that total revenue for U.S. hotels reached 50% of the comparable 2019 level in March. A milestone of sorts.
• Playtech has announced that it has ‘signed a new, expanded long-term strategic software and services agreement with Holland Casino. This agreement is a significant strategic step for Playtech and builds on its track record of developing newly regulated online markets.’ Holland Casino is the stated-owned, land-based casino operator in the Netherlands with 14 casinos across the country. Playtech CEO Mor Weizer says ‘we are delighted to announce this strategic cooperation with Holland Casino. The brand strength and local presence of Holland Casino combined with Playtech’s 20 years of technology leadership in the industry will see us drive the online growth of the market in Holland.’
• Odeon has joined Cineworld in saying it will reopen the majority of its screens on 17 May.
• Fortnite’s owner Epic Games has announced the acquisition of the artist portfolio community Art Station.
FINANCE & MARKETS:
• Markit yesterday reported that the UK’s manufacturing PMI had risen to 60.9, the highest level since 1994. Markit says ‘further loosening of COVID-19 restrictions at home and abroad led to another marked growth spurt at UK factories.’ It says ‘export growth remains relatively subdued, however, as small manufacturers struggle to export.’ Markit separately reported a Eurozone manufacturing PMI of 62.9 for April, the strongest output growth in the history of the survey.
• The Bank of England reported yesterday the biggest net increase in mortgage lending on record in March driven by extension of the stamp duty rax relief.
• Sterling stronger at $1.3909 and €1.1569. Oil higher at $69.36. UK 10yr gilt yield down 4bps at 0.80%. World markets broadly lower yesterday but London set to open up by around 46pts.
BOOK REVIEW: THE HONEST TRUTH ABOUT DISHONESTY – DAN ARIELY:
Virtually everyone is capable of being dishonest. But what determines the level of dishonesty that we find acceptable? 30 Aug 2019:
• Dan Ariely is an Israeli-American professor of psychology. He has written a number of books on human behaviour and can be seen lecturing online on YouTube, Ted Talks etc. Here we look at his 2012 book on dishonesty.
What drives cheating?
• Cheats may not tell you why they did what they did. Observing them is a better way to get a grip on their thinking (or lack of it).
• Ariely says the idea of rational crime is that we weigh the benefits, the chance of getting caught and the punishment.
• The only problem is that this clearly isn’t true. There would be much more crime if this were the case. There would be no trust.
• The key, Ariely says, is that people want to have a positive view of themselves. Everyone likes to think that they are ‘more honest than average’.
Where are the ‘red lines’?
• Everyone will fudge. Most will fib. Some will lie. Others will steal.
• People stop largely because (fear of getting caught to one side) they don’t want to feel bad about themselves.
• Cheating goes up if there is no chance of being caught. But not by as much as you would expect. Taxi drivers do not tend to rip off blind people (any more than they do the general population)
• As always, where the lines are drawn is a grey area. People might take their colleague’s Coke from a communal fridge but they wouldn’t take their co-workers’ cash.
• They may take printer paper from their employer but similarly, not cash.
• They will lie more about ‘tokens’ than they will about cash. Cashless society may lead to more cheating. This may spill over to derivatives in the financial markets (rather than cash shares).
• Professionals fudge billable hours. It is a couple of steps removed from cash.
• Locks on doors keep honest people honest. Or poorly motivated dishonest people. If somebody wants to break in, then they will.
• The effects of ‘moral’ or criminal reminders are not long term. E.g. if people sign an honesty clause before they fill in a form (e.g. an insurance claim), they tend to be more honest. Ariely measures this at around 15%.
Incentives can create biasses.
• Charlie Munger says that, no matter how important you think incentives are, they are more important than that.
• Ariely quotes dentists who buy expensive machinery and then create unnecessary treatments in order to pay for it. To a hammer, everything is a nail.
Tiredness & stress:
• Not surprisingly, these can lead to more cheating. We may soften it by saying (to ourselves) that we were just cutting corners.
• Diets fail when people are tired (or stressed). They ‘thoughtlessly’ buy a massive cake and leave it in the fridge. Then they ‘accidentally’ eat it. All of it.
• People get ‘depleted’. Add in a temptation and people cheat. Best to face tough tasks early in the day.
• Fashion (including uniforms) are ‘self-signalling’. They are a disguise. Ditto make-up. People behave differently when they are behind a screen. Put a white coat on somebody and they may ‘fall into character’. Ditto fake glasses. Even sunglasses.
• Failing in one area can open the floodgates. People may go on cheating sprees. They have something to blame it on.
• Mr Ariely does go on a bit so we might finish this off on Monday.
BOOK REVIEW: PART II:
• Israeli-American professor of psychology Dan Ariely suggests that everyone has the capacity to cheat.
• They will do so, not to the point that they think the financial penalties outweigh the potential benefits, but to the point that they begin to feel badly about themselves.
• Some people wouldn’t drop litter (for the above reason) whilst others are perfectly comfortable living out their lives as liars, cheats and thieves.
• Mr Ariely says we lie to ourselves as much as we do to other people. People will look ahead to the answers in tests & crosswords and tell themselves ‘I knew it all along’.
• People are influenced by the lies, that they know are lies, that they have told about themselves. This extends to fake war records & false diplomas on their walls as well as uniforms, heavy makeup and disguises.
• Incongruously, lying to oneself can spur one on to greater achievements. Being lied to about pain re operations in hospital can be a positive thing.
• People will bargain with themselves and change the question until they get the answer they want. Best of three? Best of five etc.
• One may ask advice from several people until one get the ‘correct’ advice.
Physical and other issues:
• ‘Liars’ have 14% less grey matter and 22% to 26% more white matter. The latter may be where excuses are fabricated.
• Liars are creative and can persuade themselves as to their actions. Intelligence is not correlated with cheating.
• We will cheat when annoyed. We see it as some sort of divine retribution. We may be more dishonest when we travel. New countries, experiences etc.
• There are more dishonest people in creative jobs. They see themselves as morally flexible. Accountants were the most honest group tested (or perhaps the least ‘creative’).
• Cheating is infectious. Word will spread that a vending machine is spewing out free bars of chocolate. People tend to take no more than three bars. That’s ‘fair’. It makes up for the times when machines have swallowed your cash.
• MP’s expense cheating spread via infection. It was socially acceptable, at least within the bubble that it took place.
• Cheating is socially corrosive. It is virus-like. It is better for society in this case that celebrities (and MPs) should be held to a higher standard.
• Loyalty can be punished. Dentists recommend more treatments to patients they have known longest.
Some counter-intuitive observations:
• Some things influence us less than might be thought – for example, the amount that could be gained by cheating, consideration of the risk of getting caught etc.
• Other factors influence us more – collaboration, distance from money, moral reminders etc.
• Society has a small number of big cheats and a big number of small cheats.
• There were few differences across countries.
• Pledge and reminders will reduce cheating. New Year’s Resolutions & visits to confession allow a ‘resetting to zero’.
• People rarely run away in restaurants without paying but they will download music. It’s about lack of direct contact.
• The odd lie can provide ‘social cushioning’ but public dishonesty will destroy trust.
• Some very interesting observations. The measure of ‘acceptability’ is set internally & then influenced by peers etc.
RETAIL WITH NICK BUBB:
Today’s News: The Boohoo finals today (for y/e Feb) are slightly ahead of expectations, with adjusted EBITDA coming in at just under £174m, up 37%, on the back of 41% revenue growth, but after the recent flurry of M&A activity the main interest is in the outlook statement. And management seem happy enough at this stage, noting an encouraging start to trading in the new year for both the core businesses and the acquired businesses. Despite the tough comps, Boohoo is going for 25% revenue growth this year, of which 5 points is expected to come from the acquired businesses (of Debenhams.com and the Burton, Wallis and Dorothy Perkins brands) and the EBITDA margin is expected to be only slightly diluted to 9.5%-10%, by acquisition investment costs. The shares were off yesterday, along with other Online stocks, but hopefully today’s news will get it going again, depending on what comes out
This Week’s News: Tomorrow brings the much-awaited Next Q1 update, the Trainline finals, the Superdry pre-close, the Howden AGM and the Zalando Q1 results (in Germany), together with the latest MPC meeting news and the Local Elections.