Langton Capital – 2021-05-21 – PREMIUM – Young’s, trading, confidence, R-rate, Comptoir, traffic lights, CCL etc.:
Young’s, trading, confidence, R-rate, Comptoir, traffic lights, CCL etc.:
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A DAY IN THE LIFE:
Langton was ‘in trade’ yesterday afternoon and evening.
That is to say, we went down the pub and very nice it was too – particularly as, given that the storm clouds were as fast-moving yesterday as they’ve been all week, being indoors was a legal option.
Still, paying £6.50 a pint, table service mandated, in order to conduct research is somewhat costly and can it have other effects such as sleeping through your alarm.
Or, more accurately, not sleeping through it but promising yourself another five minutes that turns, somehow, into thirty.
Anyway, no real harm done. It’s Friday, after all and the intro’s a bit shorter than usual but here’s something for you from Gustave le Bon, writing about populist leaders as long ago as 1895.
Such leaders, he says, ‘are especially recruited from the ranks of those morbidly nervous, excitable, half-deranged persons who are bordering on madness.’
Certain swivel-eyed loons familiar to our TV screens come to mind but look on the bright side, what could possibly go wrong? On to the news and have a good weekend.
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YOUNG & CO – FULL YEAR WEBINAR:
Following the release of its FY numbers yesterday morning, Young & Co hosted a webinar for analysts and our comments thereon are set out below.
• The historic numbers are not very meaningful. See earlier email. The impact of Covid has been varied. Central London and City sites saw revenue down by around 60%, other units were much less impacted.
Company & Langton comments:
• Most of the impact of Covid has been in FY21 (we all hope). This leads Young & Co CEO Patrick Dardis to say he looks forward to FY22 ‘with unbelievable optimism.’
• He believes the company will do ‘exceptionally well’ between now and 21 June (when all restrictions will either be dropped or not).
• Co says ‘if 21 June happens’ the group will be back to normal trading by calendar A3.
Cash flow, debt & capital spending:
• The company has maintained its assets. Some units (three) have moved from Ram (tenanted) to managed.
• Free cash flow was an outflow of £44.6m vs positive £32.1m last year. Of this, c£19m was a working capital move, which will reverse as pubs reopen
• Re debt, YNGA says it has started to pay back some of its short term Covid borrowing. It raised c£88m from shareholders ‘with one eye on the future’.
• The group exited a number of ‘unfavourable leases’.
The tenanted estate:
• YNGA is considering a disposal. It is 5% of revenue but a larger proportion of profits with a different risk profile.
• Body language suggests, depending on price, the group has made its mind up. Tenanted ‘is a distraction’. The co wants to be focused and managed. Tenanted is ‘small and declining [and] will not be added to’. Co suggests it might sell ‘some but not all’ of the Ram sites.
• The co would use proceeds to buy freehold, managed assets. It declined to give a valuation.
Outlook and Q&A:
• The group knows there is pent up demand. Margins should move back to ‘normal’ during FY22. Current trading is ‘significantly ahead of expectations’.
• You seem extremely optimistic? Co says this is ‘evidence-based’ on a) current trading, b) forward bookings, c) the Euros (football) and d) recent acquisitions.
• VAT cut? This has not been passed on. The group has ‘factored in’ the impact of VAT and business rates rising.
• Cost cutting? The co ‘went through every line’. The group has rooted out complacency.
• Staff and costs? The co has ‘incredible staff retention’. There is some inflation ‘but it’s not material’.
• What return on capital do you expect on acquired freeholds going forward? Historically, on new sites, 11.2% or 11.3%. There is a range. When undertaking ‘transformational capex’, the return is over 15%.
• Will you put prices up? It ‘depends what the pub is offering’. This may be a ‘yes’. The group is seeing some trading up and tips have ‘virtually doubled’.
• Specific numbers are relatively meaningless at the moment but current trading has clearly been good and the group is very optimistic re the future.
• YNGA says this is evidence-based. Suburban revenues should and almost certainly will rebound quickly but city centre sites will surely be slower to recover.
• Reading the body language, the decision appears to have been made to exit tenanted. This may be progressing (although the group would not comment). The proceeds will be fed back into managed units.
• Costs are rising but the co says this is immaterial. Staff retention is good but, with the city centres yet to trade anywhere near capacity, this may be tested in due course.
• YNGA shares have doubled from their lows. The group earned 38p in the year pre-Covid (impacted towards the end) and there are now more shares in issue. Forecasts are ‘under review’ (to say the least). On an earnings basis, the shares may be fully-priced.
• The lack of a peer group (most competitors are national or leasehold or have a large tenanted estate or all of the above) makes comparisons challenging.
PUBS & RESTAURANTS:
Current trading and 21 June:
• Commenting admittedly on only one days’ trading, CGA reports that ‘sales at Britain’s restaurants, pubs and bars were up by a quarter on pre-COVID levels as consumers returned with enthusiasm for the first day of inside service on Monday (17 May).’ It says ‘reopened managed venues’ average sales were 24.9% higher than on the equivalent Monday in May 2019. Food sales jumped 29.6% as consumers took advantage of the opportunity to eat inside again for the first time this year in England and Wales, while drinks sales were up by 21.2%.’ CGA had already commented on outdoor trading, saying that the first two weeks were good but, as the weather worsened, the last three weeks of outside trading were ‘more difficult’.
• CGA makes the good point that, with only around a third of units open for outside trading, for the majority of hospitality sites (if not operators), this has been the first near-normal week of trading this year. CGA says ‘consumers have been waiting a very long time to get back inside restaurants, pubs and bars, and Monday’s trading was a sign of how much Britain’s hospitality industry has been missed. Venues still face some tough restrictions, and in the case of late night bars, nightclubs and venues with limited space, remain closed completely. But after a very difficult start to 2021, Monday was a very welcome step on the roadmap to recovery, however, there is still a long way to go and continued support for the sector will be necessary.’
• The report includes a comment from UKH, which adds ‘these numbers are a welcome reminder that the sector is much-loved by its customers and Monday was the first time many venues had opened since December – five long, hard months with no revenue. As we’ve seen previously, we often see a reopening bounce in sales, followed by a dip, so we hope these positive figures continue in the coming weeks. It is critical that Government restores consumer confidence in hospitality and restores our ability to trade profitably by removing all restrictions on June 21st as planned – let’s not forget that all of these businesses which are open are still making a loss until they do.’ The BBPA adds ‘this is an encouraging first day back for trade inside our pubs, but there is long way to go yet, and the coming months are critical. Continued support from pub goers by visiting their local, as well as
• Langton comment: We don’t believe you can draw much of a conclusion from one day’s trading other than, as we have previously commented, did the tills work and did the beer and food and staff turn up on time. Indeed, removing this ‘ring rust’ was, we have said for some time, one of the main reasons that it would have made sense to reopen even marginal units when trading was allowed outside only.
• One day will be impacted on the upside by the novelty factor and pent-up demand but could be impacted negatively by the weather, the fact that it’s not pay-week, there is no Bank Holiday etc. There are grounds for optimism, however. And we should have a much clearer picture in a couple of weeks when customers will have been paid, we will have had a Bank Holiday, the weather may be less wet and we have the Euros to look forward to.
• 21 June. A consistent request from trade operators and trade bodies has been for clarity on the 21 June removal of social distancing, the ban on drinking at the bar etc. Here, one must have some sympathy for the authorities as it isn’t possible to provide clarity as, as Professor Van Tam has pointed out, we are in a race between the variants and the vaccine rollout, and it is not clear just how that will play out. The government will only provide clarity on 21 June on the Monday before, 14 June. That is a short lead-time (as more staff and product will have to be sourced) but is maybe the best that can be hoped for.
• GfK has updated on consumer confidence in the UK saying it has now regained all of the ground lost to the pandemic. It says it ‘long-running Consumer Confidence Index increased six points to minus 9 in May. Three measures were up in comparison to the April 23rd announcement, one measure was down and one was flat.’ GfK goes on to say ‘the financial mood of the nation has bounced back to its pre-lockdown figure of minus 9 this month, meaning confidence has made up all the ground lost to COVID-19. UK consumer confidence is being driven by continued optimism for our future personal finances and for the wider UK economy in the next 12 months.’
• Langton comment: GfK says ‘that ‘economy next year’ measure has recorded a 15-point jump this month and since January has leapt from -44 to + 4. These findings reflect April’s ‘feelgood’ re-opening of outdoor pubs, shops, gyms and hairdressers combined with continuing vaccination success, all this before the possibility of green-list vacation opportunities in May.’
• The successful rollout of Covid vaccines has jolted consumers’ mindsets in a positive direction. This is buoying sales and activity levels and, hopefully, will persist. The ONS and other bodies suggest that a lot of money has been saved by consumers and they may well be keen to spend. GfK says ‘in addition, we’re seeing a healthy five-point uptick in the major purchase index, with more consumers seizing the opportunity to splash the ‘accidental savings’ that some have collected. Now really is a good time to buy. Growing confidence is fuelling the economy and only a reversal to lockdown can dampen this solid momentum.’
• The NIESR has updated on the R-rate in the UK saying they believe it is between 0.90 and 1.05 in England (as at 14 May). Northern Ireland is a shade below England. Wales is a shade higher and Scotland is more notably higher at between 1.15 and 1.30. The NIESR says that, on its numbers, deaths should be below 25 per day by the time all restrictions are lifted (if the date remains fixed) on 21 June. The NIESR cautions ‘localised outbreaks have the potential to seed a new wave. The extent to which these flare ups are contained will be key in the weeks ahead.’
Company and other news:
• Black Box in the US says that ‘looking ahead, we see optimism for faster sales recovery positive sales growth versus 2019.’ It says that the US restaurant industry recorded stronger sales in April for the second consecutive month versus the same period of 2019. Black Box reports LfL sales growth was 6.8% on a two-year basis in April up from +2.3% two-year growth reported for March. The rise is due to higher spend per head. Black Box says ‘traffic has not recovered.’
• Comptoir Group has updated on trading to say that ‘on Monday 17th May, all 21 company owned and 3 franchise managed sites have now reopened to trade.’ It adds ‘all appropriate measures are in place to ensure government guidelines concerning social distancing and customer safety are fully adhered to’ but does not give any numbers.
• Hard Rock Cafe is to open a franchised site in Newcastle today.
• Pret is to open outlets in petrol stations via a new partnership with Motor Fuel Company, which has around 900 sites.
• The price of carrier bags in English shops rises to 10p today.
• Chancellor Rishi Sunak has said that the government will not resurrect Eat Out to Help Out per the Daily Mail. He says he is still proud of the scheme (but not enough to bring it back and despite some claims that it helped spread Covid-19).
• UKH Scotland has commented that it looks forward to working with Kate Forbes MSP, Cabinet Secretary for Finance and the Economy and Ivan McKee MSP, Minister for Business, Trade, Tourism and Enterprise ‘to ensure ongoing support to bring hospitality businesses through the pandemic, and to create a policy and regulatory landscape that enables businesses to thrive once more.’ UKH Scotland adds that, pre-pandemic, hospitality was Scotland’s third largest employer and says ‘the key priority for hospitality businesses right now is that the country be able to move down through the levels in the strategic framework as planned, avoiding late notice of setbacks and changes and where changes are necessary, adequate financial support is provided to all hospitality businesses that are impacted.’
• More office-based working? Rightmove has said that demand for accommodation in city centre apartments is rising and it puts this down to a return to work by office workers. Rightmove says interest in city centre housing has risen by 35 per cent, compared with a 32 per cent increase in demand for housing in villages.
• PE houses Granite Creek Capital and Clover Capital have invested in Big Easy Blends, which retails single-serve pouched beverages, both alcoholic and non-alcoholic.
HOTELS & LEISURE TRAVEL:
• Amber list slightly clearer than mud. Matt Hancock has said that at least he is clear that people should not travel to amber list countries other than for emergency reasons. They should not go on holiday. Hancock said ‘you should not go to an amber or red list country on holiday.’ Earlier, George Eustice seemed to suggest that you could validly travel just to see friends.
• There will be an initial review of the green list on 7 June. Comments suggest few nations, if any, will be added. There will be a wider review on 28 June.
• Test provider Halo has launched saliva-based tests costing £89. The company says ‘with our new Day 2 and 8 test service, we will provide British travellers with a painless, safe, reliable and cost-effective way to approach travel.’
• Carnival has announced that its brands are ‘expected to return to service in the United States starting in July with Alaska sailings departing directly from Seattle.’ Princess Cruises will resume operations in Alaska starting July 25 through September 26. Holland America Line will resume its cruise operations to Alaska with seven-day itineraries aboard Nieuw Amsterdam and Carnival Cruise Line ‘has already opened Alaska sailings departing from Seattle beginning July 27, with weekly departures through September 14 aboard Carnival Miracle.’
• Reuters reports a survey undertaken by the Edelman Trust Barometer that shows that 65% of respondents are ‘still in a pandemic mindset’.
• Park Holidays is to buy nine sites from rival Bridge Leisure.
• Morning Consult (in the US) has undertaken a survey and concluded that urban hotels ‘could take years’ to recover from the Covid-19 pandemic. The report says ‘the economic devastation facing urban markets, which rely heavily on business from events and group meetings, underscoring the need for targeted relief from Congress.’
• STR reports that US weekly hotel occupancy reached its second-highest level since the start of the pandemic in the week to 15 May. Occupancy was 59.1% (down 16.4% on 2019) with rates some 15.4% lower than two years ago and REVPAR some 29% lower.
• Topdeck Travel has said that Gen Z consumers are keen to travel. As, indeed, are most other demographics. Topdeck says ‘it has been a disheartening year for young people, but our findings show they are resilient and are ready to bounce back with new travel experiences.’
• Butlins sites along with hotels in general across the UK are once again open for business.
• Shares in Trainline have fallen sharply on news that the government is to set up Great British Railways. GBR will sell tickets direct to the public.
FINANCE & MARKETS:
• Sterling stronger at $1.4186 and €1.1591. Oil lower at $65.22 and UK 10yr gilt yield unchanged at 0.84%. Markets broadly better yesterday with London set to open just a couple of points higher.
RETAIL WITH NICK BUBB:
Planet ONS Watch: We noted yesterday that, in the real world, as per the BRC-KPMG figures for April (the 4 weeks to May 1st), underlying Retail Sales were very strong last month, given the weak comps from the first “lockdown” of “non-essential” Non-Food shops on March 23rd last year and “seasonally adjusted” life was also very strong on that strange parallel world, the Planet ONS (aka the Office of National Statistics in Newport), via their official Retail Sales figures released at 7am…City economists (who still treat the ONS figures as the gospel truth, alas) will be very pleased by the 9.2% jump in month-on-month seasonally adjusted sales volume (inc fuel), up 42.4% year-on-year, as that was even better than expected, helped by a further recovery in fuel sales. The ONS non-seasonally adjusted value sales (ex-fuel) were as much as 35.7% up in April year-on-year, for what it’s worth,
Next Week’s News: The annual Sunday Times “Rich List” is out this weekend, if you’re interested in knowing how far Philip Green’s fortune has fallen…The latest monthly Kantar grocery sales figures are out on Tuesday morning, shortly after the Mothercare pre-close update and the interims from the West End landlord Shaftesbury. Wednesday brings the much-awaited M&S finals and the British Land finals, whilst we get the Pets at Home finals on Thursday.
BDO High Street Sales Tracker: Given the impact of the first lockdown on “non-essential” stores and Food shopping a year ago, it is still hard to make sense of year-on-year Retail Sales figures at present (as the ONS found in assembling its April figures), but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains paints another very strong picture for w/e May 16th, given the very soft comps. We would, however, as usual, point out that the BDO index is just an unweighted average of the percentage changes in the sales of their reporting retailers…so it shouldn’t be taken too literally. BDO Fashion LFL sales were up c99% (with Online Fashion sales again up by 24%), whilst Total BDO LFL sales (skewed by including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were said to be up by c102% (up c15,721% in Store sales and up a mere c10% in