Langton Capital – 2021-06-18 – PREMIUM – More on WTB, Brighton Pier, DPP, R rate, growth, inflation etc.:
More on WTB, Brighton Pier, DPP, R rate, growth, inflation etc.:
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A DAY IN THE LIFE:
I would like to propose that the word ‘awesome’, be banned.
Particularly when spoken at volume in a public place because, unless you’re talking about an asteroid colliding with the moon or have just witnessed a miracle being performed, it seems inappropriate.
Because arranging a lunch meeting or agreeing that you’ll pay back that tenner you borrowed isn’t remotely awesome. It’s more huh. And when ‘awesome’ is accompanied by the words ‘dude’ or ‘yah’ then it’s particularly irritating.
How about two hours without your mobile as a punishment? Sounds about fair and, having sorted that out, let’s move on to the news:
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WHITBREAD Q1 UPDATE – CONFERENCE CALL:
Following the release of its Q1 trading update yesterday morning, Whitbread hosted a conference call for analysts and our comments thereon are set out below.
• Whitbread stresses that it has outperformed the market but, as always, this is a relative rather than an absolute statement. Trading remains down on 2019 but the group is seeing ‘very strong’ forward bookings (in certain hotels) from leisure customers.
• The company is ‘really encouraged’ by trading post 17 May. Group is seeing ‘very positive trends’. The group would see its out-performance to flatten a little going forward.
Further comment on trading:
• Prices. The group has been ‘pricing for occupancy’. Rates are lower and the bound is occupancy-driven.
• VAT? The group is quoting net revenue on food, so the gross amount of cash going through the till is more materially down.
• The consumer. ‘Late booking’ is rather a feature.
• Leisure bounce is ‘broader & stronger than we thought’. London and airports excepted. Demand is not event driven. Some better demand in big cities (ex-London). ‘Staycation’ units are c14% of the estate.
• Why London not bounce in leisure? It’s a largely business market. This is not expected to come back ‘until the Autumn’.
• Business? Blue collar has remained throughout. Some evidence of non-tradesperson pickup.
• The independents? Still hard to tell who is temporarily and who is permanently closed.
• Labour availability & cost? They had a flexible furlough & have kept staff engaged. Units have been at least partially open throughout. WTB ‘is not immune’ and ‘there are some hotspots’. Demand for staff could feed through to costs.
• Sourcing sales. The group will work with TMCs (travel management companies) more in future – but the time is not right to expect results just yet.
Balance sheet & capital issues:
• The group ‘scrubbed’ its planned opening pipeline during lockdown. It is now ‘solid’.
• WTB says it will grow both organically and by acquisition (when available). The rights issue, we suggested, was both for necessary and opportunistic purposes.
• There are no surprises here. Demand is building but below 2019. Leisure looks quite good but London and airports are hurting. The pipeline has been scrubbed and the balance sheet is better than most competitors.
• The group did not commit to any particular pricing policy on food when VAT rises (on 1 Oct and then again on 1 April) and gross restaurant sales are worse than the net figure.
• As mentioned earlier, WTB has pulled all available levers and it looks better-positioned than most. Earnings forecasts are still relatively meaningless but there is no substantive reason to conclude that the group’s assets will not be able to earn what they did in 2019.
• There are more shares in issue, of course. But expansion opportunities are more readily available and, with the recent rights issue being both restorative and potentially aggressive, we would expect to see selective purchases in due course.
PUBS & RESTAURANTS:
• The NIESR has updated on its estimate for the R rate in the UK saying that, where restrictions had been stepped up in areas of concern, such as Bolton, Bedford and Blackburn to around or just above 1.0. The NIESR says ‘the R numbers were much higher in areas that entered the watch list more recently: in range of 1.60 – 2.30 for Liverpool and 1.10 – 1.35 for Manchester.’ Further comment. It says ‘the advancing pattern is consistent with a race between, on the one hand, local surges that spill over geographically due to higher transmissibility of the now dominant Delta variant, and on the other, the vaccination programme that reduces the susceptible pool.’
Restraints on trade:
• An open letter from more than 45 hospitality, tourism, weddings and events companies to Boris Johnson is threatening legal action should the July reopening date face further delay. The letter states ‘The restrictions with which these businesses have had to comply have often been entirely illogical and arbitrary in nature, and demonstrate a complete lack of understanding of how their various sectors function’.
Labour availability & other issues:
• The Telegraph says that global interest in jobs in Britain has ‘soared after Brexit’. It says that interest in coming to the UK is particularly high in Commonwealth countries and Hong Kong. Jobs website Indeed reports that the number of EU citizens searching for work in the UK, meanwhile, has dropped by more than a third since Brexit. The Guardian reports ‘Tim Martin, the Brexit-supporting boss of JD Wetherspoon, has called on the government to launch a visa scheme for EU workers to help pubs and restaurants recruit more staff.’
• The BBC has established that employers can claim from the furlough scheme for staff who are self-isolating. Politico quoted an email from a civil servant as saying ‘Furlough can be used to cover self-isolation, but HMT [the Treasury] are reluctant to say this explicitly in guidance because it could lead to employees being furloughed who do not need to be’.
Company news (Brighton Pier, DP Poland):
• The Brighton Pier Group reported yesterday that it has ‘acquired the entire share capital of Lightwater Valley Attractions Limited for a consideration of up to £5 million payable in cash.’ It says ‘the transaction is expected to be immediately earnings accretive post completion.’ Lightwater Valley owns and operates the Lightwater Valley Theme Park, ‘a leading North Yorkshire attraction, which is focused on family days out and is set in 175 acres of landscaped parkland.’ CEO Anne Ackord says ‘this acquisition continues the Company’s development as a consolidator within the leisure industry, and we are excited to explore further growth opportunities as they arise.’ She adds ‘I believe our businesses are ideally suited to take advantage of the pent- up demand as the UK unlocks its restrictions. The booming ‘staycation’ market is going to significantly grow UK tourism over the coming
• DP Poland has reported full year numbers to 31 Dec and updated on trading saying that, for the full year, revenue rose by 7% to £15.0m and that system sales were up by 5% at £17.4m. The group says that LfL growth was also 5% compared with 2019. It says that it had experienced minus 2% in the first half and plus 11% in H2 ‘as a result of the pandemic circumstances and the improved food delivery dynamics in Poland.’ DPP says that, at the year end, it had £1.3m cash at bank. Group EBITDA losses for the year ‘increased by 96% to £0.8m (2019: £0.4m).’ The company says that the ‘group loss for the period increased by 66% (£5.8m) in 2020 (2019: £3.5m) primarily as a result of a significant increase in non-cash and non-recurring items, which totalled approximately £2.3m (2019: £0.2m), incurred during the year.’
• Further comment: DPP reports that ‘85% of delivery sales were ordered online (2019: 85%)’ and updates that it ‘had 69 stores at the end of 2020’. This satisfies the Domino’s Pizza Master Franchise Agreement requirement. Some 7 sub-franchised stores were acquired as corporate stores. DPP says ‘Covid-19 did not impact Group’s operations in significant way, as food delivery was not restricted in Poland and the delivery channel experienced significant growth.’
• Post year end, the group merged with Dominium SA, which has both a sit-down and a delivery business. The enlarged, pro-forma numbers are also given to illustrate the position should the groups have been merged for the whole of 2020. Revenue (due to restricted sit-down sales) would have slipped by 6.7% to “9.0m with EBITDA down by 83.5% to £0.5m and an adjusted loss for the period of £6.4m.
• For the five months to May 2021, delivery sales rose 14% year on year and by 28% compared with FY19. The dine-in business was still ‘significantly impacted’ by Covid but takeaway sales were up 6% year on year. System sales were down 1% on 2020 and flat on a LfL basis.
• Outlook. The company says ‘the Directors have observed positive momentum and increased average order values in stores which have been converted to the Domino’s brand driven by improved cross-selling, new menu items and optimised promotions.
Covid & other news:
• The CBI has upgraded its growth forecast for this year to 8.2%. It forecasts that the UK economy will be back to pre-COVID levels by the end of this year. It says that ‘despite the delay on the lifting of all lockdown restrictions for another month, the UK economy is still set for a breakthrough year.’ There should be “considerable economic growth over the summer” but that “this won’t be felt as strongly by those sectors still working under restrictions”. The implication is that hospitality, amongst other sectors, may not share in all the growth.
• The BBPA predicts that England and Scotland fans will buy 3.4 million pints on Friday 18th June when the two nations meet in the Euros. Emma McClarkin, CEO of the BBPA, said ‘No standing and limits on group sizes, as well as social distancing, are going to severely reduce the number of people who can enjoy the game in the pub. Because of this, we expect pubs in England and Scotland to sell 850,000 pints less than they would have done without restrictions.
• The Welsh Beer & Pub Association (WBPA) estimates that Welsh fans bought 250,000 pints during Euros match against Turkey. Emma McClarkin said ‘we expect Welsh pubs sold 60,000 fewer pints during the game than they would have done without restrictions. That cost Welsh pubs almost £235,000 during the game alone.’
• The UK has asked the EU to suspend an imminent ban on the sale of British sausages in Northern Ireland as the grace period on an EU prohibition on the sale of chilled meats from Great Britain in Northern Ireland shops is due to expire.
• Leading voices from the hospitality industry, Kate Nicholls (CEO of UK Hospitality), Emma McClarkin (CEO of British Beer & Pub Association) and Steve Alton, (CEO of British Institute of Innkeeping) shared their insights and secrets to remaining resilient with the host of Inside the Mind of Champions and High-Performance Coach, Jeremy Snape who facilitates their discussion as they embark on their bumpy road to recovery.
• Commenting on the US restaurant market, HotStats says ‘supplies and labour costs are rising in the restaurant segment; it’s a similar story for hotels.’ It says that inflation in May (in the US) is likely to hit a 30yr high.
HOTELS & LEISURE TRAVEL:
• Whitbread suffered something of a shareholder revolt yesterday over executive pay. The company suffered a £1bn loss for the year to end-Feb and it tapped its shareholders for more cash via a rights issue. Investors voted 35.8 per cent against the pay report. The dividend paid to shareholders was zero and the company received around £250m from the taxpayer in support. Whitbread said that it has ‘noted’ the vote and it will have ‘constructive discussions’ with shareholders.
• ABTA reports that around 200,000 travel jobs have been lost or are “at risk” because of the Covid pandemic.
• STR reports that US hotel occupancy reached its highest weekly level since early November 2019 in the week to 12 June (at 66%). Versus 2019, occupancy was down 10.3%, room rate was down 7.0% and REVPAR was down by 16.6%. STR says ‘while weekday occupancy was still down double digits from the corresponding days in 2019, weekend occupancy was 0.2% (Friday) and 3.2% (Saturday) higher than the 2019 comparables’.
• Carnival-owned Princess Cruises intends to return to sailing from US ports this autumn for the first time in 18 months. The group aims to return to service from Los Angeles, San Francisco and Fort Lauderdale between September 25 and November 28.
• HotStats comments on the US hotel industry, saying that that ‘the fear is that a jump in prices will raise costs further for hotels, which is doubly significant since hotels—especially city-centre properties highly dependent on group and corporate business—are still not close to being back to pre-pandemic business.’ HotStats points out that hotels are able to change the price that they charge customers almost daily (other than contracted business). But it poses the question ‘are prospective customers willing to pay higher rates just because the supply chain is more expensive?’ It concludes that this is ‘unlikely.’
• Disneyland Paris has launched its new Cars ROAD TRIP attraction and revamped its park ahead of guests coming back on Thursday 17th June.
• Based on current trading conditions and government support, the majority of SME travel agents say they do not have the cash to survive more than three months. The research by ABTA also shows that an estimated 195,000 people working in the UK travel industry have either lost their jobs or are at risk of doing so due to the Covid-19 crisis.
• Dutch holiday parks group Roompot is set to acquire Landal GreenParks from Awaze for an undisclosed sum. The sale will include a portfolio of about 100 holiday parks in Belgium, Denmark, Germany, the UK, Hungary, the Netherlands, Austria, the Czech Republic and Switzerland.
• The PPHE Hotel Group announces that it is in advanced discussions with Clal Insurance Company for Clal to acquire a 49% stake in art’otel london hoxton project and Park Plaza London Riverbank.
• Room zzz Aparthotels, a Yorkshire hotel brand, is set to open a new Edinburgh venue next summer. The brand currently has 10 properties across the UK, in Yorkshire, London, Manchester, Newcastle and Nottingham.
• Trainline reports a yoy increase of group net ticket sales of 324% in Q1 FY2022, with CEO Jody Ford saying ‘By the end of May we were selling more tickets than we were in the same period two years ago. Group net ticket sales in May reached their highest level since the pandemic began, including UK Consumer at 70% and International at 73% of FY2020 levels.’
• The BBC comments on refunds (or the lack of them) when it says ‘UK music fans are sitting on hundreds of thousands of tickets for postponed concerts rather than returning them.’ It says that the recently-announced delay on the relaxation of restrictions ‘has pushed an additional 5,000 gigs into doubt.’ Ticketmaster says ‘fans are entitled to a refund for any cancelled event and for any rescheduled show if they cannot make the new date. But it is great to see an incredibly high amount of fans holding onto their tickets. It just goes to show the unwavering demand from fans to get back to live.’
• Alphabet-owned self-driving business Waymo says it has raised $2.5bn in its second outside funding round.
FINANCE & MARKETS:
• The NIESR comments on the recently-announce CPI numbers saying that ‘the current high levels of monthly inflation are unlikely to be sustained and are due to recovery of some prices in the first lockdown and short-run adjustment and supply-chain issues.’
• Sterling mixed at $1.3909 and €1.1674. Oil lower at $72.51. UK 10yr gilt yield up 4bps at 0.79%. World markets mixed to down yesterday with London set to open down around 6pts.
RETAIL WITH NICK BUBB:
Today’s News: With weak Food sales being blamed for the disappointing ONS Retail Sales for May (see below), the Q1 results from Tesco are timely and although the company talk of a continued strong sales performance, LFL sales in the UK were only 0.5% up (up 9.3% up), despite a strong recovery in Clothing and Non-Food sales. Full year guidance is unchanged, The Boohoo AGM is being held at 2pm this afternoon.
Planet ONS Watch: We flagged yesterday that in “the real world”, as per the BRC-KPMG figures for May (the 4 weeks to May 29th), underlying Retail Sales were very strong last month, despite somewhat tougher comps from a year ago, but “seasonally adjusted” life was a bit more subdued on that strange parallel world, the Planet ONS (aka the Office of National Statistics in Newport), via their official Retail Sales figures…City economists (who still, unaccountably, treat the dubious-looking ONS figures as the gospel truth) will be disappointed by the worse than expected 1.4% dip in month-on-month seasonally adjusted sales volumes (including petrol), although year-on-year the increase is 24.6%. The year-on-year, non-seasonally adjusted sales value growth of 22.3% (versus 35.8% in April) looks a bit low to us, notwithstanding strong Non-Food sales recovery and oddly strong growth for Small
Next Week’s News: Monday is Amazon “Prime Day”, for what it’s worth…Tuesday brings the IPO debut of the Online bathroom retailer Victorian Plumbing, as well as the latest Kantar grocery market share figures. On Wednesday we get the Dignity AGM and Strategy update and the Joules pre-close update. The THG AGM is on Thursday and the Tesco AGM is on Friday, whilst first thing on Friday we get the monthly GFK Consumer Confidence index.