Langton Capital – 2021-05-12 – PREMIUM – Marston’s, DGE, Compass, Stock Spirits, TUI, Carnival & other:
Marston’s, DGE, Compass, Stock Spirits, TUI, Carnival & other:
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A DAY IN THE LIFE:
Langton got its sit on mower back yesterday.
It’s been gone a month but it’s back, long of a botched up weld that took maybe twenty minutes to ‘throw on’, in the parlance of the engineering types that I’ve been badgering to fix it for the last four weeks.
A permanent repair is promised when either a) Brexit is reversed and the part arrives from Germany, b) the aforementioned steering rod is smuggled into the country in a barrel of brandy, c) various politicians live up to their promises, get it all ‘sorted’ and show us the sunlit uplands or d) I shortcut all of the above and buy a new mower.
My betting is on d) though that will only be a fix until its first part need replacing but the focus for the moment is on short term issues like should I chance a grass-cut when the weather looks, to put it mildly, threatening?
This imponderable meant a bit of sitting around and drinking tea before the matter was decided by the hour of ‘thunder-hail’ that drove me indoors, drenched the garden, put a few more dents in the 13yr old Skoda’s bodywork and cracked a couple of panes of glass in the greenhouse roof.
Hence, spare a thought for those brave souls drinking and dining outdoors because, if they weren’t wearing crash helmets in York around 4pm yesterday afternoon, they’ll have more of a headache this morning than even a goodly measure of the local beers would normally have delivered. On to the news:
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PUBS & RESTAURANTS:
Trade welcomes further moves towards normalisation:
• News that pubs & restaurants are to be allowed to serve customers inside from next Monday has been warmly welcomed by operators and trade bodies – as well as by customers forced, to date, to sit outside in what can only be termed variable weather. The BII says ‘for many BII members this will begin the long road to recovery as they start rebuilding their businesses.’ CEO Steven Alton says ‘whilst we welcome this next stage for many of our members, we fully recognise that the remaining restrictions that limit capacity in venues, will severely impact on profitable trading.’ He adds ‘our members’ pubs will not start their recovery until all restrictions are removed, no later than 21st June 2021. It is critical that Government confirms this at the earliest opportunity, to allow our members time to plan for a full reopening, financially and operationally.’
• The SBPA has welcomed moves towards normal trading north of the border. CEO Emma McClarkin says ‘this is an expected but very much welcomed announced from the First Minister. Since a partial reopening on 26 April, Scotland’s pubs and bars which could utilise outdoor spaces have given it a real go, but ultimately the weather and the restriction to alcohol service indoors has made trading viably a real difficulty.’ Ms McClarkin says ‘a full start to the recovery is still someway off for our sector though, with the ongoing curfew having a devastating impact on many premises. The First Minister must look at removing the curfew as soon as possible, and at the very least, in time for the country moving to Level 1 in early June. With no further economic support and trading extremely difficult, we run the risk of businesses failing just before the recovery begins.’
• Marston’s CEO. Andrew Andrea, currently CFO at Marston’s, has been appointed to the position of CEO. This follows on the earlier announcement that Ralph Findlay had decided to step down from the role of Chief Executive Officer at the end of the current financial year ending 2nd October 2021. Mr Andrea will take over the role from the 3rd. Marston’s says ‘Ralph will remain in the role until that time in order to ensure an appropriate handover.’ The company says ‘Andrew joined Marston’s in 2002. During this time, he has demonstrated that he has exceptional leadership qualities, as well as an excellent understanding of the Group’s operations.’ It adds that ‘a new Chief Financial Officer will be appointed in due course and a further update provided as appropriate.’ Chairman William Rucker comments ‘Andrew was the strongest contender from a selection of extremely high calibre candidates
• CVAs. In what a case that may set a precedent for others to follow, the High Court has upheld the CVA proposed by New Look against the wishes of some of its creditors. Landlords had argued that a proposed move of many sites to turnover rent “fundamentally rewrites” leasing agreements. The High Court took a different view and the shift of power from landlords to tenants looks set to continue.
• The Pub is The Hub has released new research highlighting the social value publicans and pubs create by providing local services. The Social Value of Pubs and Publicans providing Services in their Communities says that ‘pubs and publicans ensured that essential services remained accessible to local residents at the heart of their communities during the Covid-19 lockdowns and they will be crucial in helping communities rebuild as the pub sector reopens.’
• Calorie labelling. The government will not proceed with its proposal to oblige pubs to put calorie warnings on the drinks they sell to customers. This will come as something of a relief to the industry.
• Compass Group has reported H1 numbers saying that revenues fell by 30.4% to £8.6bn with operating profit down by 64.5% at £290m and earnings per share down 73.3% at 9.6p, The company says it is seeing some margin recovery and is ‘looking ahead with confidence.’ Business retention was 95.6%. The group continues to ‘anticipate gradual improvement in revenue in Q3.’ CEO Dominic Blakemore says ‘during the first half of this financial year, by controlling the controllable, we delivered continued margin progression, strong cashflow and excellent client retention. This was despite further lockdowns and limited volume recovery.’
• The CEO continues ‘with the gathering pace of vaccination rollouts across our major markets, we are working closely with our clients to prepare to reopen their sites safely, although the picture across the world remains mixed. Whilst we expect any revenue recovery to be gradual, we remain confident in our ability to return to a Group underlying margin above 7% before we return to pre COVID volumes.’ The CEO concludes ‘we are now a stronger, more agile business with new client propositions, improved digital capability and a more flexible cost structure’ and says ‘we remain excited about the significant structural growth opportunities globally, the potential for further revenue and profit growth and shareholder returns over time.’
• Diageo has updated on trading and has said that it will recommence its return of capital programme. The company says ‘it expects organic operating profit growth to be at least 14% in fiscal 21, slightly ahead of organic net sales growth. In the context of this strong performance. It adds it ‘is recommencing its return of capital programme of up to £4.5 billion to shareholders announced on 25 July 2019. Due to the impact of Covid-19, the original completion date for the ROC programme has been extended by two years to 30 June 2024.’
• Re trading, Diageo says ‘following a strong performance in the first half of fiscal 21, with a return to organic net sales growth, our business has continued to deliver a good recovery across all regions. In North America, our largest market, our performance has remained particularly strong, reflecting resilient consumer demand, the breadth of our portfolio and the effectiveness of our marketing and innovation.’ It says ‘in Europe, we are benefitting from strong execution in the off-trade channel and the partial re-opening of the on-trade channel in certain markets. In Africa, Asia Pacific and Latin America and the Caribbean, we are seeing a continued recovery in most markets, despite the ongoing impact from Covid-19. Travel retail remains severely impacted.’
• DGE CEO Ivan Menezes says ‘I am very pleased with how our business is recovering in fiscal 21, our strong competitive performance across key markets and our robust cash generation. Our disciplined approach to capital allocation is unchanged. Our priority remains to invest in the business to deliver sustainable and efficient organic growth and to pursue acquisitions that further strengthen our exposure to attractive categories.’
• Stock Spirits has reported H1 numbers saying that it is seeing ‘continued resilience in a challenging trading environment.’ It says revenue was down by only 3.3% at €183.4m with PBT of €28.1m, up 91.6%. The company says it saw ‘year-on-year growth in market shares in the off-trade in our core markets of Poland and the Czech Republic.’ CEO Mirek Stachowicz says ‘this has been another resilient financial and operational performance against a hugely challenging backdrop.’ He adds ‘we are broadly on track with our plans for the year, notwithstanding the continuing disruption from the pandemic and the impact from the Polish small format tax. Whilst there remains some uncertainty in the short-term outlook, we remain confident in the future prospects for Stock Spirits, as illustrated both by the investments that we are making in our brands and infrastructure, and by the continuation of our
• Coca Cola HBC has reported Q1 numbers saying it has made a good start to the year in a challenging environment. It says that constant currency growth was 2.7% (or 6.1% LfL). CEO Zoran Bogdanovic says ‘we have had a good start to the year despite the continued impact of the pandemic, with revenue growth led by Sparkling, Energy and strong execution in the at-home channel. Our operational agility, flexible route to market and strong customer relationships mean that we are well placed to capitalise on the reopening of the out-of-home channel. In the meantime, our diverse and balanced geographic footprint has allowed us to benefit from accelerating revenue in the Emerging market segment, while lockdowns continue to impact most European markets.’
• MeatLiquor is to take on the Dartmouth Arms in Forest Hill
• Nightcap has announced that it has conditionally raised a total of £10 million (before expenses) by way of a placing at 23p. The company reports ‘the Placing follows Nightcap’s announcement on 4 May 2021 regarding the acquisition of the Adventure Bar Group.
• Pret a Manger is to open in four Tesco supermarkets on a trial basis. The first site will be in Kensington next month. The chain also plans to roll out more stores at Moto service stations. CEO Pano Christou comments ‘last year, we set ourselves the challenge of bringing Pret to more people. Since then, we’ve launched and grown our Pret-at-Home range, bringing the joy of Pret to people’s homes across the country. Now we’re taking this further and bringing the experience of Pret to select Tesco stores, making it even easier for customers to enjoy our freshly made food and organic coffee as part of their regular Tesco shop.’ He adds ‘as the UK emerges from lockdown, this partnership with Tesco is one way in which we’re transforming our business model to adjust to a new way of living and working.’
• Langton comment: Tesco is giving up a bit of shelf space, presumably to see whether there is a market above the current top of its range. Unless we are reading the situation incorrectly, Pret sandwiches will retail at or near the prices they command in the operator’s high street outlets. As such, they run the risk of looking pretty pricey sitting next to Tesco’s own label products. We’re not brand management experts but we can see some issues arising here. Yes, the Kensington Tesco might be more of an active market for such products than a 24hr unit in a northern city – but we’re not sure how much rollout potential there is.
• Chipotle Mexican Grill has said that it plans to hire 20,000 more employees in the US. It will pay $15 per hour by the end of June.
• Langton comment. This is the US but, alongside comments from operators such as Taco Bell and McDonald’s re hiring plans, it raises a couple of points. First, staff may have disappeared whilst on furlough and we’re not sure how many of the 20k jobs are new positions and how many are filling existing gaps. Second, the $15 per hour probably isn’t being paid due to a surfeit of charitable feeling but rather because there are inflationary pressures at work. See our earlier comments re cost and price rises – and also Finance & Markets below.
• Restaurant Dive mentions coincidentally that Subway in the US is looking for 40,000 staff. We think there must be a lot of double counting (filling roles vacated by someone else) or a seasonal element to this. Restaurant Dive quotes Subway as saying the hiring spree is “boosted by strong sales, continued restaurant growth and excitement about what’s to come,” but we can’t help thinking much of it happens every ear. Although the headline definitely colours how the story is interpreted, in the body of its story, Restaurant Dive does say ‘chain’s summer hiring target of 40,000 is 10,000 less than last summer’s push.’ Despite this wrinkle, there are signs of the labour market tightening in the US and we think the same could be true on this side of the Atlantic.
• The new normal is almost upon us. A report produced by KAM Media and Zonal examines the customer decision process ‘from deciding whether to go out and researching a venue, through to ordering, paying, reviewing and choosing whether to return.’ Customers ‘now search digitally when deciding which venue to visit, with most people doing a ‘general internet search’ (38%) followed by the Google’s ‘Near Me’ search tool (25%) and then using hospitality review websites/apps e.g. TripAdvisor (22%.) The report suggests this represents a huge opportunity for operators to either influence potential customers or risk losing them during the critical ‘research’ stage.’
• Langton comment: The operational skills necessary to brew beer may be changed little by Covid but some other aspects of the hospitality could change more fundamentally. KAM and Zonal say ‘social media obviously plays a considerable role here too, but not surprisingly with huge generational swings. Gen Z and Millennials, in particular, are heavily reliant on Instagram, Facebook and TikTok for ideas and inspiration on which venues to visit.’ The research ‘also highlights the growing need for a seamless reservation process’ finding that one in three would-be customers said ‘difficulty making a reservation was one of the key reasons they might decide to stay at home.’
• Zonal says ‘having accepted the need for technology over the past 12 months, consumers now have a greater understanding of how it improves their experience and helps remove some of their typical frustrations when eating and drinking out.’ KAM also points out that digital menus are deemed necessary by some customers and it concludes that digital ordering could help to build loyalty across customers with children who ‘were more likely to want the option of ordering digitally [as it] offers them a quick, hassle free option.’
• Where the Pancakes Are is to open a second site, in Fitzrovia, in June.
• Further to our comments that some sub-sectors are really in the mire when it comes to cash burn, we note that BA parent IAG raised a further €825m via a convertible bond yesterday. The company says its burn rate is an incredible £178m per week.
• On a day when the market fell by 2.4%, Leisure & Hospitality shares slid by, on average, a little more. Major movers included Carnival, JD Wetherspoon – down 3% to 4%. Cineworld, Compass, DP Eurasia, Flutter, Fuller’s, Jet2, SSP & Whitbread – all down 4% to 5%. M&B was down by 6.4% with Deliveroo and On the Beach managing small gains. Revolution Bars, which updated on trading yesterday, was an outlier in that its shares rose by 14%.
HOTELS & LEISURE TRAVEL:
A cautious welcome to reopening:
• TTG reports that ‘consumer confidence [re holidays] has spiked after the government last week revealed its first quarantine-free “green list” of potential summer holiday destinations.’ TTG reports that four of the listed countries ‘are viable summer holiday destinations – Portugal, Israel, Iceland and Gibraltar.’ This is a bit of a stretch when capacity is considered. Portugal is the short term winner. Jet2.com and Jet2holidays said yesterday that there had been a significant increase in consumer confidence following the announcement. Jet2’s CEO Steve Heapy says ‘the UK government has shown a clear ambition to reopen travel, and the publication of the green list has had a very positive impact on customer confidence. We already know that customers are desperate to get away on their holidays, and we certainly saw that over the weekend with a huge rush in bookings to Faro and Madeira for
• Little ‘green’ on the horizon. The Telegraph reports that it believes only a ‘small number’ of Caribbean destinations will move onto the green list when it is reviewed in just under three weeks. So, not Spain, Greece or France, then? Some ‘near misses’ from this time, including Malta, could be added. Volume destinations could, therefore, be six weeks or more away. Spain’s tourism minister, Reyes Maroto, however, has suggested that new EU rules could allow borders to reopen to the UK from as early as May 20. This would at least open one side of the two that would be necessary for UK holidaymakers to make the journey. Ms Maroto says ‘we know what we have to do to enable British travellers to return to Spain. To continue to lower the accumulated incidence rate of Covid-19 and continue with our vaccination roll-out.’
Other travel news:
• TUI has reported H1 numbers saying that group revenue of €716m was down 89% on last year ‘as a result of extended travel restrictions imposed across our key European markets for the majority of the first half.’ The company has reorganised some of its debt and raised equity. The co says its ‘net financial position improved to €6,813m versus our net debt position of €7,177 as at 31 December 2020 (Q1).’
• Carnival Cruise Line has reported that it is working ‘toward plans for a possible July restart in the U.S. on select ships.’
• Inbound visitors. The US State Department has lowered the alert level for its citizens traveling to the UK (and Israel) to Level Three for the UK and Two for Israel.
• Scotland’s first minister Nicola Sturgeon has confirmed Scotland will implement a traffic light system in line with that in England. The Scottish government says ‘the green list will initially be the same as that in place for England, but will be subject to review based on Scotland’s specific needs.’
• Heathrow has said that the government’s green list is “overly cautious.” Yesterday, the airport group reported a 92.1 per cent fall in passenger numbers in the month of April compared with the same month a year ago. Comps will soon get easier but the road to full recovery remains a long one. Heathrow CEO John Holland-Kaye says ‘the government’s green list is very welcome, but they need to expand it massively in the next few weeks to include other low risk markets such as the United States, and remove the need for fully vaccinated passengers to take two expensive PCR tests.’
• STR has upgraded its latest U.S. hotel forecast but says that ‘full recovery of demand remains on the same timeline for 2023, while close-to-complete recovery of revenue per available room (RevPAR) is still projected for 2024.’ It says that, despite the successful rollout of vaccines in the US, ‘transient business, group and international travel face continued headwinds, and a full recovery will take several years.’
• Long stay hotel chain Extended Stay America has released first quarter earnings saying that LfL systemwide revenue per available room in the first quarter declined 1.7% year over year to $43.56. Average daily rate fell 5.7% to $58.07 and occupancy increased 4.3% to 75%. The company announced in March that Blackstone and Starwood Capital would acquire the Extended Stay America brand and management operations and its paired-share real estate investment Trust ESH Hospitality for approximately $6 billion.
FINANCE & MARKETS:
• The NIESR reports that the hit to the economy due to the Covid-19 pandemic and Brexit will total over £700bn, or around £10,000 for every adult and child in the country. Most of this is in the form of growth foregone. The NIESR says GDP will still be almost 4 per cent lower in 2025 than it would have been without the pandemic. This is equivalent to £1,350 per person a year.
• Stock markets globally had a torrid time of it yesterday with the reason put down to worries about the re-emergence of inflation. We (and many other commentators) have been flagging rising costs, rising prices, rising debt levels and rising interest rates for some time. Markets have been sanguine right up to the point where they suddenly weren’t. They may be sanguine again tomorrow because, at the end of the day, markets are like that.
• Sterling firmer at $1.4121 and €1.1643. Oil up at $68.68. UK 10yr gilt yield up 5bps at 0.84%. World markets lower yesterday and London set to open down around 10pts.
RETAIL WITH NICK BUBB:
• Today’s News: There’s not much Retailing news today, but Vertu Motors (the fifth biggest Motor dealer in the UK and the owner of the Bristol Street Motors and Macklin Motors chains, inter alia) has flagged that “leadership in Online retailing” contributed to above expectations results for y/e Feb and a strong start to FY22 in March and April. In terms of share buying, Boohoo announced after hours yesterday that its Employee Benefit Trust had shown further support, by hoovering up another c3m shares, at c320p, whilst the Frasers Group share buyback continued yesterday (with c105,000 shares acquitted at c570p).
• This Week’s News: This afternoon brings the Just Eat AGM in Amsterdam, with the Burberry finals and the Ocado AGM (in Hatfield) following tomorrow. The Greggs AGM is on Friday (in Newcastle).