Langton Capital – 2021-05-20 – PREMIUM – YNGA, more on MARS & MAB, delivery, hols (confusion & double booking) etc.:
YNGA, more on MARS & MAB, delivery, hols (confusion & double booking) etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I think that over-confidence and exceptionalism are two sides of the same coin.
I mean few countries will start wars they don’t think they’re going to win and yet they can’t all be right and it brings to mind the concept that, when ten squaddies are told to charge a machine gun and expect 90% casualties, they all think ‘sucks for the other nine.’
And so it’s only natural that I should think both a) that a bad workman should never blame his tools and b) that my failure to learn French, German, Spanish, coding and shorthand during lockdown are due to the fact that I’ve got all the wrong books.
Or, in some cases, have got no books at all because here overconfidence kicks in as, deep down, I believe I can learn Spanish by osmosis and Italian by eating the odd pizza.
Still, if I try the above for long enough, I might be proved right.
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YOUNG & CO – FULL YEAR NUMBERS:
• Although rendered relatively meaningless by the pandemic, Young & Co reports revenue for the 52wks to 29 March down from £311.6m to £90.6m. The company says the operating loss was £34m (2020: profit £46.5m) with a loss before tax of £45.2m versus a profit for the year to March 2020 of £29.1m. The loss per share is 66.6p on an adjusted basis, compared to EPS of 60.2p last year. There is no dividend.
• YNGA reports ‘the results for the year and the actions taken to maintain the group’s historically strong financial position reflect the significant impact of covid-19 restrictions that were in place for the majority of the year and the closure of our pubs and hotels for almost nine months’
• The group says it has taken action ‘to preserve the group’s historically strong financial position and retain flexibility.’
• It has ‘secured additional financing of £88.4 million gross proceeds through an equity issue and £20.0 million through a new bank facility.’
• It has agreed new tests on its debt (liquidity rather than covenants) and debt at the year end (ex-IFRS16) was £170.1 million with ‘headroom of £114.9 million on our committed debt facilities’
• Given its year end, YNGA is able to say ‘the timing of our financial year means that we absorbed most of the impact from covid-19 in one year.’
Covid & current trading:
• YNGA says ‘in light of this year’s disruption to our business amongst other things, the board concluded that it was not appropriate to recommend payment of a final dividend.’ This is not a shock.
• The company says it ‘is very mindful of the importance of dividends to Young’s shareholders and intends to resume dividend payments as soon as is appropriate, although no decision has been made when that will be.’
• Current trading: YBGA says ‘outdoor trading in the 144 pubs that we were able to open on 12 April has been encouraging, achieving 85% of normal trade over a 5-week period and we are pleased to have opened all our remaining pubs this week.’
• CEO Patrick Dardis says ‘we were able to navigate our way through the pandemic, despite the last financial year being one of the most challenging in our 189-year history.’ He adds ‘the absolute professionalism of our pub managers and their teams has enhanced our reputation as a highly responsible pub operator and underlined the exceptional quality of the Young’s business.’
• Mr Dardis says ‘despite the many lockdowns and disruption to our business, the financing decisions taken during the summer allowed us to continue to make significant investments in our pubs, with some truly transformational projects. We expect to see excellent growth from that investment this year and beyond.’
• He adds ‘we are confident with the steps we have taken to ensure Young’s continues to be in a position of strength and there is potential for a strong recovery this summer. April has started better than planned, with future bookings also looking strong. With this in mind, the board expects the business to get back to pre-covid-19 levels of trade and margins by the end of June, assuming the roadmap, and in particular the 21 June ‘freedom day’, is not compromised.’
• The pandemic will leave scars. On debt, the number of shares in issue and on other features of the business as Young’s has also said that it has appointed Savills to consider the sale of its tenanted operations.
• Current trading (the outside only period) looks very good – but this will be impacted by the number of units reopened as, if only the best are trading, the LfL numbers will look better than they would otherwise. YNGA reopened 144 units, a goodly number.
• The company says ‘there are many reasons to harbour optimism for the year ahead.’ It says ‘people have missed these major life events in which the pub plays a significant role, and we have missed hosting them.’
• YNGA has a splendid estate and, were it to sell its tenanted units, this would a) not be a complete surprise and b) would leave it with a very tidy, southern-based, largely freehold estate.
• Forecasts are not meaningful at this stage. There could be some pause for breath as YNGA’s shares have almost doubled from their November lows of around 800p.
MARSTON’S – H1 NUMBERS – WEBINAR:
Following the release of its H1 numbers yesterday, Marston’s hosted a webinar for analysts our comments thereon are set out below:
• See earlier Flash Note. These are not very meaningful.
Underlying, current & future trading:
• MARS has taken the time provided by the three lockdowns to invest in its people, its sites and its products (via its Proud to be proud of’ programme)
• The company has ‘a high degree of confidence’ when trading re-commences fully on 21 June
• Since reopening outside, sales are running at 77% of ‘normal’ (for open pubs only) – down 11% on drink and down 41% on food, the company reached break even in April – and it was only open for 3 of 4 weeks
• The ‘pattern of trade’? Gardens were important. It was cold, so evening trade dropped off quickly. This impacted food more. There was some trading up in drink. Small plates outperformed ‘main meals’.
• The company wants social distancing removed on 21 June along with permission to order from and drink at the bar. Confirmation will depend upon variants etc.
• The group believes ‘pent-up demand’ is a real factor. Pubs are a valuable part of our social structure
• Themes. There is little discounting going on, delivery will stick (a little) and ‘premiumisation’ may be back.
• Supply will be reduced – particularly in casual dining.
• MARS has worked collaboratively with its banks, bondholders and tenants. This matters. Tenants have been supported and suppliers (including capital suppliers) remain ‘on-side’.
• Inflation – cost and price. The group ‘took some price’ on drinks after the first lockdown. On food, the group ‘took a little’ but the co does not want to ‘gouge’. There are few promotions, which benefits margins. MARS expects some trading up from customers
o Margin trajectory? Some change if units move to franchised. Otherwise, margins could be similar to those in the past
• Structurally, the group will move more units to franchised. This will extend to more food-led units.
• Staffing issues & wage inflation. Group is ‘mainly suburban’ & this reduces wage pressure / staff turnover.
Cash flow, debt and capex:
• Marston’s positive cash flow, largely due to the creation of the brewing JV, leaves the company targeting debt below £1bn by 2025 ‘at the latest’. This is a year later due to longer pandemic closures & the desire to retain some flexibility for refurbs and accretive capex
• MARS says that capex will remain ‘modest’ but adds that it is looking for more deals along the lines of the SA Brain transaction. The co says it will not asset grab. Maybe not in the next 6mths – but consolidation will continue over the medium term
• The CMBC synergy target of £24m should be exceeded, the group has not needed to raise further equity, there are no imminent debt repayments due and the company remains well-financed.
• Marston’s is confident re current and future trading. The group opened a larger proportion of its estate in early April than did some of its competitors. This has provided data and usable information, benefitted cash flow and increased confidence both in demand and the ability to supply.
• Debt targets have been pushed out a year. We would not be surprised to see accretive capex or capital-light acquisitions along the lines of the SA Brain deal.
• Forecasting is not yet possible but MARS is confident that it can trade profitably in the current environment (with more to come post 21 June). Looking longer term, as we have maintained pandemics are (hopefully) rare, hostelries have been popular for centuries, Marston’s debt is reduced, and it has a well-financed, largely-freehold estate.
MITCHELLS & BUTLERS – H1 NUMBERS – CONFERENCE CALL:
Mitchells & Butlers hosted a conference call on its H1 numbers for analysts yesterday and our comments are set out below:
The period in review:
• Tiers and the loss of Christmas trading had a major impact on trade. The group has raised equity and is now trading again. It hopes / believes that some or all restrictions will be removed on 21 June.
• CEO Phil Urban suggests that hospitality was unfairly singled out for closure and for stricter regulations than non-essential retail.
• M&B reopened gradually. It had 270 units open on 12 April and 730 by 17 May. The supply chain struggled and there were some shortages. Current poor weather has reduced demand (and supply problems).
Current trading, outlook & Langton comment – lots of questions on inflation, costs, pricing strategy etc – see premium email:
• Supply will be reduced. Hybrid working could persist. M&B is present both in city centres and in suburbs. Order at table and raised delivery sales could persist.
• Indoor capacity will be restricted.
• Staffing could be an issue due to Brexit and furlough. M&B expects higher staff turnover this year than would be expected normally. The company has its own Chef Academy
o Labour. No major problem at the moment (as capacity is reduced). As trade builds, the whole industry may be looking to recruit. This may put upward pressure on wage costs.
• Why are c100 pubs still shut? Around 40 are in Germany. Others may be lacking a tenant or be reliant on office workers returning to their offices. Some closed pubs may not be able to cope with social distancing. They are good sites & are not for sale.
• Co won’t be drawn on current trading. The time period is too short. M&B may have a better picture mid-June and, even more so, after 21 June and into July.
• Delivery? This has been boosted. M&B is with Deliveroo, Just Eat and Uber Eats. Around 400 units are involved – and this will rise. Annualised £20m and growing.
• Outside opening? When open outside only, LfL sales were down 37% and total sales were down 80%.
Inflation, cost & price:
• Labour. See above.
• Pricing strategy re VAT increases back to normal levels? Trade should rebuild ahead of VAT rates rising. Impact on pricing? The co does not want to be aggressive on price – but it will ‘take a read’ after a few weeks’ trading. Any response could be brand by brand.
• Margins? No reason why they will not return to prior levels. Will then need savings to hold it in percentage terms.
• Average spend per head? This has risen. No numbers given & it may abate. Order at table may drive spend per head up a little.
Debt, cash flow & capex:
• M&B has c£1.4bn of debt. This represents c3.4x pre-Covid EBITDA. The group aims to move to a 6-7yr cycle of capes. A ‘good number’ of projects will commence in H2 (say 20) with a full programme next financial year.
• Cash burn exceeds the EBITDA loss as the former includes pension payments etc.
• Pension deficit reduction plan? Co has had two holidays, nine months in total. This year will be a full, £51m, contribution. The deficit should be gone by FY23. Don’t want to commit at this stage as to how the ‘spare’ £51m will be spent thereafter.
• Working capital outflow should reverse as trade picks up (and creditors are paid in arrears)
• Incremental acquisitions? Yes, possibly, but the main aim is to de-gear. They would look at packages of freehold assets. Co remains opportunistic.
Other comment & Outlook:
• Mitchells & Butlers’ CEO Phil Urban says it has been a frustrating year, but the group is ‘confident of strong finish to the financial year when restrictions are lifted.’ He says ‘as before the pandemic, we plan to continue to de-gear and once again create long term sustained shareholder value.’
• He says ‘we should enter FY22 on the up’. The next financial year should benefit from the strong summer – on the back of staycations, the Euros and the lifting of restrictions.
• M&B is well-positioned to succeed relative to many of its peers. The issue, as has been the case for some time, is whether smaller shareholders will participate fully in any further upside.
• There can be no meaningful guidance as to future trading at this time. Nonetheless, the group has strong asset-backing and, though it has been impacted by Covid-19 along with the rest of the industry, it is better-positioned than many to recover.
PUBS & RESTAURANTS:
• The Morning Advertiser has quoted research from Altus Group as saying that ‘some 384 pubs – on average six per week – have ‘vanished’ during the Covid-19 pandemic so far, having either been demolished or converted for different use.’ Altus says ‘pubs have endured a torrid time during the pandemic but have proved remarkably resilient aided by Government interventions such as furlough, grants, rates relief and liquidity in the form of cheap loans helping to keep the ‘pilot light on’ for their reopening.’ Regionally, more pubs were lost in the south east than any other part of the country, with 62 venues demolished or converted for alternative use. This could have been influenced by the relatively high value of property for alternative use.
• Lumina Intelligence has reported that delivery and click and collect made up 44% of all ‘out of home occasions’ in first quarter of 2021, up from 42% in the fourth quarter of 2020. The food in question may have been eaten in-home after purchase. Lumina says that QSR (quick service restaurants) grew share to 58.4% of this market in Q1 2021, while the restaurant channel saw an 8% increase from 10.6% to 18.8%. Coffee and sandwich shops fell from 29.3% in Q4 2020 to 14.7% in Q1 2021, presumably because fewer people were in the office, where they may previously have clicked and collected their lunch.
• Langton comment: Lumina says ‘with out of home opportunities curtailed by restrictions throughout Q1 2021, it is unsurprising that delivery and click and collect continue to dominate and average spend remains subdued.’ It says ‘with restrictions beginning to ease towards the end of Q1, we see some green shoots appearing.’ It will be interesting to see just what sticks and what does not.
Company & other news:
• Young’s says it has appointed Savills to consider the sale of its tenanted estate. Says ‘there can be no certainty, however, that any sale will proceed’ and it will ‘make further announcements as appropriate.’ Sky reports that ‘discussions had already got underway with prospective bidders.’ It says the Ram Pub Company accounts for just 5% of total revenue but is very high margin. It says that former Greene King boss Rooney Anand is reported to have no interest in either the Ram Pub Company or Hawthorn Leisure.
• Fever-Tree has updated on trading ahead of its AGM saying that ‘our Off-Trade performance has remained strong in the first four months of the year. While we would expect some of this demand to switch to the On-Trade as restrictions ease further, it is clear that at-home consumption of long mixed drinks is becoming increasingly established, supported by both the retailers and spirit companies.’ Re the outlook, the company says ‘we remain committed to investing in the future opportunity for the brand across all our regions, enabled by the Group’s strong balance sheet and conviction in our ability to deliver long-term sustainable growth.’ It is impacted by restrictions and cost increases but says ‘despite these sustained impacts, we have delivered a strong sales performance and are trading in line with the Board’s expectations for the full year to 31 December 2021, assuming levels of
• Flight Club is to open a site in Las Vegas.
• NRN in the US reports that ‘the restaurant industry [in the US] achieved stronger two-year sales for the second consecutive month in April. Same-store sales growth was 6.8% on a two-year basis in April, an improvement of 4.6 percentage points from the 2.3% two-year growth reported for March. This is optimistic news for the industry as April became the best month for restaurants based on sales growth in over three years.’ It goes on to say that the labour shortage is becoming ever more acute.
• DoorDash is reportedly set to expand in Germany.
• Langton comment: What’s the outlook for delivery competition in the UK? US journal Restaurant Dive says a German move ‘would mark the foodservice delivery company’s European debut.’ The Quebec News Tribune says that ‘DoorDash has 21 job posting listed in Berlin, with roles ranging from management to recruitment and logistics.’
• Referring to a Bloomberg article, Restaurant Dive says ‘the United Kingdom is also on DoorDash’s radar for expansion, and it could enter either Germany or the U.K. through an acquisition or launch in these markets alone.’ Any intensification of the competitive position in the UK would impact existing players. These, Deliveroo, Uber Eats Just Eat, are already set to face a resurgent restaurant industry that a) has alternatives to delivery and b) has an incentive to tempt people into their units where they can upsell and add products, chiefly drinks.
• Dive points out that DoorDash is a major player. It says DoorDash ‘commands 56% of the delivery space as of April.’ It says Europe is already competitive with ‘Grubhub parent Just Eat Takeaway and Deliveroo battling for market share.’ DoorDash says ‘today we’re operating in over 4,000 cities across the U.S., Canada and Australia, and we’re always thinking about ways to enhance and scale our platform to serve more communities. We continually assess expansion opportunities as we aim to further build our international presence.’
• Delivery apps. US site Business Apps reports that European food delivery app revenues have risen from $6.6 billion in 2015 to $18.9 billion in 2020. It expects the European market to grow to $29.1 billion by 2025. The number of users has risen from 65 million food delivery users in Europe in 2015, to 150 million in 2020.
• Pernod Ricard has said that a small harvest means that it may be unable to meet global demand for Marlborough Sauvignon Blanc (out of New Zealand).
• Shipping and other costs are hitting southern hemisphere drink margins. Growers and producers will doubtless try to put prices up.
• Google has announced it is partnering with Shopify.
HOTELS & LEISURE TRAVEL:
Customer booking two or more holidays:
• The BBC and a number of trade journals comment on the phenomenon that is seeing consumers booking multiple holidays in the knowledge that operators will be obliged to give them their money back on the one (two or more) that they ultimately cancel. The BBC quotes a family that has booked holidays in both Fuerteventura and Norfolk, knowing that it can’t go on both. Villa Plus was yesterday in the news for declining to give holidaymakers back their money on amber destinations. Travel Weekly picks up on the same story.
• Langton comment: Confusion and game playing. Taking the latter first, operators do not operate in a vacuum (and nor does the government). In this case, holidaymakers are making moves to protect their own positions and they appear to be using government actions (re amber lists but also re the diktat that operators must or should give frustrated holidaymakers their money back). And, as regards confusion, it’s easy to have some sympathy with would-be holidaymakers as it isn’t clear, apparently even to the people who set the rules, just what the rules are.
• The TTG reports that the CMA will use ‘all of its powers’ to oblige operators to provide refunds for cancelled holidays in a “timely fashion”. The CMA says that slow repayments had “really undermined trust in the sector”. It says ‘it’s imperative to provide refunds in a timely manner and it’s not acceptable for consumers to wait many months for a refund. We are willing to use all of our powers to make sure firms comply with the law.’ The issue here will be between cancellations mandated by the law and decisions made by holidaymakers themselves. Villa Plus has said it will not refund holidays to amber destinations made by holidaymakers who now think that they should not go.
Confusion & delays:
• ABTA and BALPA, the pilots’ union, have suggested that the traffic light system is confusing and that would-be travellers aren’t sure of when, where and whether they should travel. ABTA says the Foreign Office remains the ultimate reference point. It says it ‘doesn’t make sense for the government to tell people they shouldn’t travel to amber destinations when the government itself has put a plan in place that allows them to do this in a risk managed way, with mitigations such as testing and quarantine.’ ABTA adds ‘the recent comments and mixed messages from ministers undermine the government’s own system for international travel and further erode consumer confidence.’
• Governmental comments have been somewhat mixed. Lord Bethell told the House of Lords travel was “dangerous.” Matt Hancock has said don’t travel to amber countries for holidays but other sources have taken a more liberal view.
• The Guardian reports a Border Force source as saying that it was preparing for 4hr delays this summer. More mixing probably happens in queues and arrival halls than in many other situations. The Border Force worker, speaking anonymously, said ‘normally a Brit arriving at passport control would clear immigration in 30 seconds’ but ‘the current requirements to manually check Covid-19 testing paperwork and quarantine requirements mean that each person is taking 15 minutes to process.’ The source added ‘flights are currently running at around 15% of normal capacity. If they return to anywhere near their normal level, and the processes remain as they are, it’s going to be a very frustrating summer of long, four- to six-hour waits.’
Other travel news:
• Travel Trade Gazette updates on stories that even vaccinated Britons holidaying in the EU could have to quarantine. Draft documents seen by The Guardian suggest EU countries can consider whether the government of a non-EU country is allowing its citizens entry without the need to quarantine or take PCR Covid tests.
• The government is to shake-up the UK’s railways. It will create a new state-owned body, Great British Railways (GBR), which will set timetables and prices, sell tickets in England and manage rail infrastructure.
• Savills reports that a potential wall of capital is targeting the European hotel market. it says ‘the emphasis on prime assets is evidenced across key Q1 2021 deals.’
• STR reports that the U.S. hotel industry recorded its highest monthly performance levels since the beginning of the pandemic in April. Occupancy was 57.5% with rate at US$110.34. STR says ‘the country’s performance levels remained well below the pre-pandemic comparable of April 2019: occupancy (-15.2%), ADR (-16.0%) and RevPAR (-28.8%).’
• Moody’s reports that AT&T Inc’s decision to spin off its WarnerMedia business is potentially credit positive.
• Games Workshop Group has updated saying that it ‘has today declared a dividend of 50 pence per share, in line with the Company’s policy of distributing truly surplus cash. This will mean that total dividends declared in the 2020/21 financial year will be 235 pence per share (2019/20: 145 pence per share).’ The group says for the year to 30 May 2021, ‘we estimate the Group’s sales to be not less than £350 million (2019/20: £270 million) and the Group’s profit before tax to be not less than £150 million (2019/20: £89 million). This includes royalties receivable from licensing which are estimated to be approximately £15 million (2019/20: £17 million).’
FINANCE & MARKETS:
• Inflation in the UK rose to 1.5% in April from 0.7% in March reports the ONS. PwC says that, as consumers ‘unleash some of their savings’, inflation may persist.
• Factory gate inflation rose by 3.9% in the year to April. Governor of the Bank of England Andrew Bailey said that there was no strong evidence that higher prices paid by manufacturers were feeding through to consumer prices.
• The NIESR says that ‘underlying inflation increased to a six-month high in April.’ It says ‘while annual headline inflation rose to 1.5 per cent in April, more than doubling the 0.7 per cent recorded in March, our measure of underlying inflation, which excludes extreme price movements, increased to a six-month high of 0.9 per cent in April from 0.6 per cent in March.’ It says the ‘consumption-driven recovery in conjunction with the gradual easing of the lockdown will lead to higher consumer price inflation in the coming months.’ It concludes ‘we expect that annual headline inflation will end the year close to the Bank of England’s target of 2 per cent with upside risks due to the possibility of a stronger than expected recovery in consumption.’
• Average house prices rose 10.2% in the year to March reports the ONS. This is the highest rate of growth in 14yrs.
• Sterling weaker at $1.4114 and €1.1585. Oil lower at $66.88. UK 10yr gilt yield down 3bps at 0.84%. World markets down yesterday but Far East heading better in Thursday trade & London set to open up around 60pts.
• MARS H1: Outside sales only running at 77% of ‘normal’. Says ‘pent-up demand’ is real. Little discounting (and VAT lower) should help margin. Supply will be reduced, esp. casual dining.
• MARS has worked collaboratively with its banks, bondholders & tenants. Little ‘butting heads’. This is an issue elsewhere.
• M&B agrees, supply will be reduced. Hybrid working could persist, ditto order at table & raised delivery sales.
• M&B grilled on prices & costs. Inflation a focus of analyst attention. Labour ‘OK with low capacity’. If industry picks up, will be an issue. Perhaps also some other costs. Prices? Won’t be drawn.
• M&B on VAT rises (1 Oct and 1 Apr 22). Says higher vols could compensate. Reluctant to speculate on whether prices will rise. If less supply and strong demand, what do you think?
RETAIL WITH NICK BUBB:
Today’s News: The Kingfisher Q1 update (for the 13 weeks to 30 April) is incredibly detailed, with monthly sales splits etc and even includes figures for the first two weeks of May/Q3 (which show decent progress, with 2 year LFL growth of 25%, notwithstanding the strong comps). The 2 year LFL sales growth in Q1 was 23% (up 64% on last year), with notably strong growth in France, despite the Covid restrictions. As a result, Kingfisher is raising its H1 21/22 LFL sales outlook to ‘mid-to-high teens’ (from ‘low double-digit’) and it now expects H1 adjusted pre-tax profit to be ahead of its previous expectations, in the range of c.£580 to 600m. The business claims to be growing sales ahead of the market in the UK and France and the CEO Thierry Garnier says “Whilst the second half of the financial year remains naturally uncertain, we continue to see supportive long-term trends for our