Langton Capital – 2021-05-07 – PREMIUM – R rate, draft beer, football, service sector, insolvencies & other:
R rate, draft beer, football, service sector, insolvencies & other:
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A DAY IN THE LIFE:
When I was a young broker, I overheard some older colleagues consoling themselves that weight gain was inevitable and that, no matter how hard you try, you put on about a stone a decade.
Replete with the arrogance of youth, I dismissed that as nonsense but, as the years progressed – and although Covid temporarily knocked me back about a stone – I have come to realise that it’s pretty much true.
Hence, I realised that I would have to start cutting things out. Either that or let my trousers out and the first to go were beetroot, gruel & prunes. That was quite easy. Dog biscuits I gave up without effort and sprouts, turnip and kale were next on the list.
And then it got trickier. Chocolate, sweets, peanuts & crisps met with some resistance and food in all its other genres I’m finding hard to forego and, when it gets to beer, I’ll have to draw a line.
Anyway, what would you give up? Sprouts, pickled herring, cabbage? On to the news:
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PUBS & RESTAURANTS:
• The NIESR has estimated the R rate in England as between 0.85 and 1.00 in the period to 4 May. It says the numbers in Northern Ireland, Wales and Scotland are in ranges between 0.8 and 1.05. It says ‘hospital admissions and deaths due to Covid-19 continue their steady decline hinting at the success of the vaccination programme whilst social mobility restrictions have been gradually eased.’
• Langton comment: The R rate is perilously close to one but, as more vulnerable sections of society have had at least one and often two jabs to date, those that are falling ill are less likely to end up in hospital. This means that the pressure on the NHS continues to drop and indoor reopening on 17 May looks nailed on, unless there is a real problem with imported variants in the next few days. Full reopening on 12 June looks more likely than not, again in the absence of unwanted imports.
• Draft ale. Cask Marque has reported that cask ale has been the ‘most-missed’ drink across UK pubgoers during and coming out of lockdown. The drink is not easily replicated at home. Cask Marque says that 23% of respondents to a survey it has undertaken say that cask ale was the beverage they were most looking forward to when pubs re-opened. Cask Marque’s Paul Nunny says ‘there’s evidence to show that some outlets rowed back on their cask offering last summer, thinking that playing it safe with a small set of permanent brands was the best way to go. In fact, the exact opposite is true and pubs and bars need to present their guests with a good balance of household name favourites and a rotation of varied and interesting offerings from smaller or local breweries.’
• Langton comment: There has long been little if anything to differentiate a bottle of Becks in the pub versus one at home. True, in the pub, someone else pops the cap off but the product itself is identical in quality if not in price. The same is not true of cask ale. The drop in ordering last summer may be partly to do with ‘safe-brands’ but it could also reflect shorter shelf lives and longer lead times involved with cask. Ultimately, however, the consumer will demand what he or she wants and cask seems to be amongst the most favoured products.
• On a more general note, there may be a move towards reduced menus, both food and drink, going on. This menu engineering doesn’t involve price directly but it can force trading up and it reduces complication for the operator. Reduced choice is the end result but, if it makes the difference between survival and failure, operators may be cutting back on the scale of their offers.
• CGA has reported that COVID-19 restrictions cut contract catering sales by nearly half in the first quarter of 2021. The new Contract Caterer Tracker service from CGA says that ‘total sales were down by 45% on the first three months of 2020. The drop in sales is in line with a sharp fall in the number of people using contract–catered venues in businesses, leisure, education and other sectors in 2021.’ The figure is in line with guidance given by Compass and others. CGA says ‘the number of units open for service in the first quarter of 2021 was down by 18% on 2020.’
• Most of the pain was felt in the private sector with public sectors such as education hit but quicker to bounce back. CGA says ‘these figures reveal the full impact of COVID-19 restrictions on the UK’s contract catering sector.’ It says ‘the widespread shift to working from home, the short-notice closure of many education and leisure sites and the wholesale cancellation of events have all been devastating for caterers in early 2021.’ It says ‘while we can expect to see a gradual reopening of society as the year goes on, it is going to be a long road to recovery for contract caterers.’ The sector will be impacted by any move to increased home-working. CGA also says that ‘Brexit-related challenges on food supply and prices [are] still in evidence.’
Company & other news:
• Football. With an all-English Champion’s League final in the offing, KAM Media and MatchPint turn their attention to the international game. They have teamed up to suggest that ‘6.9 million UK adults intend to watch the postponed UEFA European Football Championships in a pub or bar.’ Some ‘56% of UK adults intend to watch at least one of the Euros matches on TV, with 13% of UK adults intending to watch at least one match in a pub or bar.’ KAM says ‘we’ve been getting accustomed to spending our ‘entertainment’ time at home over the last 12 months. However, one of the things that people have found most difficult to replicate is the atmosphere for a ‘night out’. It’s this unique combination of environment and ambiance that makes the pub so special. When you throw live sport into this mix, and ‘big occasion’ live sport for that matter, you really hit the sweet spot.’
• Food waste. Caffe Nero and Too Good to Go report they have combined to save 50,000 meals from going to waste. The partnership means that Too Good To Go app users can prevent unsold food from going to waste across the Caffè Nero UK estate. Gerry Ford comments ‘we produce very little food waste per store each day, and finding a suitable home for what we do produce can be a challenge. Partnering with Too Good To Go was a solution which allows us to further minimise our waste and also benefit customers.’
• Allergens. Fourth has produced a report into allergens following ‘a significant rise in the prevalence of food allergies over recent years, with peanut allergy recorded as having affected 0.4% of the population in 1997, more than tripling to affecting 1.4% of the population in 2008, a figure that continues to grow.’ Fourth says ‘as we cautiously look ahead to a restriction-free world, the importance of tackling the allergens challenge enters the fray once more, with the upcoming Natasha’s Law legislation reinforcing the immediacy and importance of the issue.’
• Service sector in general. Markit has updated on the Services PMI for the UK in April saying that ‘the performance of the UK service sector strengthened again during April, driven by sharp increases in business and consumer spending.’ It says ‘confidence in the sustainability of the recovery was also reflected in greater staff hiring, with employment growth accelerating to its fastest since October 2015.’ The number for the month was 61.0 in April, up from 56.3 in March and the highest since October 2013.’
• Langton comment: The final reading was also above the earlier ‘flash’ number. Markit says ‘April data illustrates that a surge of pent up demand has started to flow through the UK economy following the loosening of pandemic restrictions, which lifted private sector growth to its highest since October 2013. The roadmap for reopening leisure, hospitality and other customer-facing activities resulted in a sharp increase in forward bookings and new project starts across the service sector.’
• Interestingly, Markit also points to inflation, saying ‘inflationary pressures remained a concern for service providers in April, with higher staff costs, transport bills and raw material prices all adding to business expenses.’ Inflation hasn’t been much of a problem for a couple of decades or more now. Dusting off the history books, it is bad for those with no pricing power and potentially good news for pricing bullies. This can lead to a lot of complaints, pressure to set up governmental committees to prevent price gouging and the like. It is, overall, a pain in the rear for almost everyone and a potential financially fatal problem for some.
• Insolvencies & failures: Cork Gullly is relatively upbeat. It believes there could be spikes in failure rates but no longer term impacts. It says that ‘the number of business failures is set to return to near pre-pandemic levels during 2022 as the postponed insolvencies unwind over the next 12 months with no excess failures predicted as a result of the pandemic. There will however be two peaks in numbers of insolvencies in July and October 2021, caused by the end of the temporary support measures, as businesses have to resume debt repayments. Some businesses which have been just about hanging on financially are likely to fail as soon as the support measures are removed.’
• Langton comment: Cork Gully points out there were 1,042 registered company insolvencies in March this year, down 22% on the same month last year. This is good news as far as it goes but government support is set to scale down. Cork Gully says ‘one difficulty businesses will face as the economy reopens and the government withdraws support and temporary protection from liquidation, is which of their creditors to pay first.’ Creditors will be jostling for position and those that can cause the most problems, e.g. by changing the locks on your building, may get their money first. Cork Gully says ‘creditors will believe that if they are paid immediately, they might be paid in full but if they wait until other creditors are paid, there may not be much left. However, if all creditors act in this fashion businesses might be unable to keep up with all the repayments forcing them into
• Coffee shop operator Notes: Music & Coffee Ltd has produced micro accounts (with no P&L) for the year to 30 June 2020. The period, which covers the beginning of the Covid pandemic, shows that retained losses increased during the year by £450k to £3.1m. Shareholders’ funds are now (or at least were at the end of June, last) a negative £616k.
• Papa John’s is reported set to open nine further restaurants under franchise in the north west of England via franchisees Richard McElroy and Chris Makin.
• Dine Brands in the US, which owns Applebee’s and IHOP, has said that takeout and delivery are here to stay at full-service restaurants. It says ‘Americans, now that they are increasingly vaccinated, with capacity restrictions being lifted across the country, with good weather, with a strong economy, people are returning to restaurants.’
• Next, which often knows what it is talking about, has suggested that the post-lockdown sales surge would be “short-lived”.
• US burger company Shake Shack has announced first quarter numbers saying that total revenue increased 8.5%, to $155.3 million. It says that Same-Shack Sales were up by 5.7%. CEO Randy Garutti says ‘spring has ushered in a great energy around the country and in our hometown of New York City. With COVID cases stabilizing and more regions steadily loosening restrictions, we are optimistic that improving trends can continue for our industry.’ He says ‘in the first quarter and so far through fiscal April, the positive momentum of our financial recovery continued.’ Momentum improved during the quarter. The company says ‘we exited the first quarter 2021 with fiscal March average weekly sales of $68,000, and moving into the second quarter 2021, fiscal April improved slightly to $69,000.’
• Shake Shack says ‘during the first quarter, we opened 10 domestic Company-operated Shacks and have opened another 5 so far in the second quarter, with one to three more through the end of the quarter – for a total of 16-18 openings by the mid-year point.’ It says ‘although our rate of recovery and development plans continue to be impacted by the ongoing uncertainty due to COVID, we are targeting to open between 35 and 40 new Company-operated Shacks this year in both urban and suburban markets. We continue to guide to an accelerated development plan in fiscal 2022 of 45 to 50 Shacks.’
• Papa John’s International has also reported Q1 numbers saying these are its seventh straight quarter of growth. The co reports a 26% increase in North American same-store sales, driven by menu innovation and returning customers. The company says ‘Papa John’s Q1 same-store sales in North America and across our international footprint significantly outpaced our larger pizza industry peers.’ It adds ‘over the last 18 months, our strategy, which is focused on innovating up against all of our business platforms, including our culinary offerings, our consumer-facing and back-of-house technologies, our customer experience and our delivery capabilities has been a significant contributor to our sustainable long-term comp sales and margin growth.’
HOTELS & LEISURE TRAVEL:
• Intercontinental Hotels Group has reported Q1 numbers saying that it has seen an ‘improvement in demand within the first quarter, led by the Americas and Greater China.’ It says that ‘group RevPAR [was] down 50.6% vs 2019 (down 33.7% vs 2020)’ although the company says that it is outperforming its competitors in its key markets. Occupancy was down 23pps with rate around 80% of 2019 levels. It says that occupancy was improving during the quarter and averaged 40%. The group opened 7,300 rooms during the period and removed 9,500 rooms.
• IHG CEO Keith Barr reports ‘trading continued to improve during the first quarter of 2021, with IHG maintaining its outperformance of the industry in key markets and seeing strong performance in openings and signings as we expand our brands around the world. There was a notable pick-up in demand in March, particularly in the US and China, which continued into April. While the risk of volatility remains for the balance of the year, there is clear evidence from forward bookings data of further improvement as we look to the months ahead.’ The company says ‘as the rollout of vaccines becomes more established, travel restrictions lift, and economic activity rebuilds, traveller demand will continue to grow and generate further momentum in an industry recovery over the course of the year. Coupled with our resilience as a business and the important work we’re doing to support our owners,
• Booking.com has told the BBC that holiday prices are set to rise this year due to pent-up demand and fewer aeroplanes in service. It says “prices are already going up”.
• TripAdvisor in the US has reported a Q1 loss of $0.39 per share versus consensus estimates of a loss of $0.31. The co says ‘the clouds have started to part’ in terms of visibility and demand. Revenue was $123 million in the first quarter, down 56% year-over-year and at about 33% of 2019’s comparable period. The company says ‘our Q1 results reflect ongoing unevenness in leisure travel’s recovery path. … Sequential monthly progress was U.S-driven, as vaccinations led consumers back to planning leisure travel. Europe lagged due to lockdowns, but demand picked up in April, and we are optimistic for broadened, international recovery as vaccination rates improve.’
• Desire to travel. We’ll find out about the legal ability to travel when the government gives us more detail on its traffic lights but, for the moment, it looks as though the desire to travel is there. The European Travel Commission says that 56% of Europeans are willing to travel by the end of August. It cautions, however, ‘while vaccination programmes provide a boost, the outlook remains mixed, with the latest forecasts estimating that international arrivals to Europe will remain 46% below 2019 levels in 2021, with a full recovery not expected until 2024.’
• TUI is to offer £20 Covid tests to green destinations reports the TTG.
• STR reports that ‘U.S. hotel occupancy remained relatively flat compared with the previous week’ in the week to 1 May. It says occupancy was 57.1% and ADR was $108.80 to give REVPAR of $62.13. STR says ‘while the overall weekly data was stagnant, weekend occupancy rose modestly and came in above 70% for the fourth straight week.’
• US brand owner Hilton has reported Q1 numbers saying that REVPAR globally in the quarter was down 38.4% on 2020. In the US, it was down 37% against last year and down 50% against 2019. Europe RevPAR fell 76% year over year and 82% versus 2019. In China RevPAR increased 64% year over year. The company says ‘with the slope of recovery we’re on, I’d probably be on the earlier end of that since we have a little more visibility.’ Hilton adds ‘while recovery varies by region and country, we can see the light at the end of the tunnel in the U.S. … and as a result, we’re seeing a significant lift in forward bookings and occupancy, which is now around 60%, as well as lengthening booking windows.’
• Norwegian Cruise Line Holdings has reported a Q1 loss of $1.2bn. It says, however, that said future bookings are “strong”. The company says ‘as a result of the Covid-19 pandemic, while the company cannot estimate the impact on its business, financial condition or near- or longer-term financial or operational results with certainty, it will report a net loss for the second quarter ending June 30, 2021 and expects to report a net loss until the company is able to resume regular voyages.’
• IATA has said that global air traffic in March was down 67.2% on the same month in 2019. It had been down by 74.9% in February.
FINANCE & MARKETS:
• The Bank of England has kept interest rates and its QE policy on hold. It has reported that the UK economy should grow at its fastest rate in more than 70 years in 2021 as Covid-19 restrictions are lifted. Growth of 7.25% is expected.
• The Bank says Covid has hit spending, incomes and jobs in the UK. It is maintaining its 2% target rate for inflation.
• See UK Services PMI comment under Pubs & Restaurants above. The Eurozone April composite PMI was 53.8, slightly ahead of the flash figure and the strongest rate of expansion since July 20.
• Sterling mixed at $1.3907 and €1.1526. Oil price lower at $68.52. UK 10yr gilt yield down 3bps at 0.79%. World markets better yesterday and London set to open up around 37pts.
RETAIL WITH NICK BUBB:
Today’s News: Apart from the news that the pace of the Frasers Group share buyback programme has stepped up (c96,000 shares were bought on Wednesday at c535p and c97,000 shares yesterday at c542p), there is no other news out today, after the bumper bundle yesterday…
Yesterday’s News: To catch up with what we missed yesterday morning, due to our infuriating IT problems…Howden held their AGM yesterday morning, which passed uneventfully and there was no further trading update (after last week’s news). It was noteworthy, however, that Joules announced a new borrowing facility linked to its ESG performance (!). As we noted, the update from the recently floated Virgin Wines flagged that the strong H1 trading momentum had continued in H2 and that sales for y/e June would be better than expected at £73m plus, such that “the Board remains confident that the underlying growth drivers, which the DTC wine sector is experiencing, alongside the accelerated shift in consumer behaviour towards Online retailing, will continue”. The Superdry pre-close flagged that UK store trading since the end of lockdown has been “encouraging”, with the initial run rate ahead of
BDO High Street Sales Tracker: Given the impact of the first lockdown on “non-essential” stores and Food shopping a year ago, Retail Sales figures are hard to measure at present, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains paints another very strong picture for w/e May 2nd, given the very soft comps. The BDO index is, however, just an unweighted average of the percentage changes in the sales of their reporting retailers and so it shouldn’t be taken too literally. BDO Fashion LFL sales were up c72% (with Store Fashion sales up 595%), but Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were, laughably, said to be up by no less than c463% (up c8,771% in Store sales and up c14% in Online sales)…
Next Week’s News: Next week kicks off on Monday with the Dignity Q1 update. Tuesday then brings the BRC-KPMG Retail Sales for April, the Morrisons Q1 update, the Angling Direct finals and the Capco AGM. The Just Eat AGM is then on Wednesday, with the Burberry finals and the Ocado AGM following on Thursday. The Greggs AGM is on Friday.