Langton Capital – 2021-06-22 – Recovery, debts, inflation, landlords, WFH, Gear 4 Music etc.:
Recovery, debts, inflation, landlords, WFH, Gear 4 Music etc.:
A DAY IN THE LIFE:
I thought I could hear a remarkably tuneless bird hammering out some sort of ditty in the garden at six-o’clock this morning.
But it turned out to be my nose that was whistling. These things happen from time to time and, if you’re short of someone to talk to, it could keep you company through the day.
Anyway, I should have realised that the dawn chorus at this time of year is at some truly crazy hour and that it was over well before I rolled out of bed. On to the news:
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PUBS & RESTAURANTS:
• The Lloyds Bank UK Recovery Tracker shows that the UK’s economic recovery accelerated in May as tourism and recreation firms reopened, but the delay in ending Covid-19 restrictions is putting hospitality firms at risk.
• The Tracker reported eleven out of 14 UK sectors reported faster growth in output month on month in May, up from nine in April, with tourism and recreation recording the sharpest rise in output growth. The survey also showed that companies across the economy raised their prices in May.
• Jeavon Lolay, the head of economics and market insight for commercial banking at Lloyds Bank, said ‘While UK inflation jumped higher than expected in May and stronger demand saw more businesses pass on rising costs to their customers, it’s arguably still too soon to worry about inflation spiralling out of control’.
• The Guardian quotes Graeme Smith, MD of AlixPartners as saying ‘Many operators will have reopened in anticipation of restrictions falling away on 21 June, and likely forecast and accepted suppressed trade for the period up to that point…A further delay of four weeks is a devastating blow, creating significant uncertainty and further financial strain.’
• The Prime Minister is being threatened with legal action by a coalition of more than 45 hospitality and events directors if 19 July’s reopening is pushed back. Sacha Lord described the gradual reduction in support despite continued restrictions as ‘a clear and inevitable crisis about to take place.’
• Scottish first minister Nicola Sturgeon is due to make an announcement to the Scottish Parliament in Holyrood today at which it is expected she will confirm a delay to the easing of Covid-19 restrictions in Scotland. A move to level zero is likely to be pushed back by three weeks to around mid-July to allow the vaccination of more people. The BBC points out ‘while large parts of Scotland moved into level one earlier this month, and some islands went down to level zero, many parts of the central belt remain in level two, where there are stricter limits on the size of groups that can meet.’
Debt when you have to:
• The ICAEW says that business confidence remains robust but it adds that companies relying on an ‘economic surge’ to allow them to pay down their debts are taking something of a risk.
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• Some suggestions that this could go to 4% later this year. This sounds high but it’s already 5% in the US. The Resolution Foundation says ‘with the US experiencing the fastest rise in inflation in nearly half a century, and the UK also experiencing sharp increases, many people are getting increasingly worried about a possible price spiral.’ It adds that, ‘while UK inflationary pressures are nothing like as stark as the US, we could still see inflation breaching 4% this summer – a figure well in excess of the OBR and Bank’s expectations.’
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All in this together?
• The May Market Recovery Monitor from CGA and AlixPartners found that 25,000 licensed premises were still closed at the end of May but also interesting was the news that these (hopefully still temporary) closures were not evenly spread across the industry. The Monitor says that ‘about two thirds (66.9%) of independent venues in the on-trade have now reopened compared to 93.1% of managed sites.’ Larger operators, therefore, have been markedly quicker in finding their feet.
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Leases & property occupancy costs.
• Landlords have their own financial liabilities to service. The Times reports comments that property companies are haemorrhaging cash and do not get the support that some high street retailers and hospitality operators have received. This may be a) true but b) unlikely to stir up much sympathy across any constituency of hard-pressed tenants.
Working from home & staffing issues:
• Hamptons estate agency reports that house prices are rising by 14.2% a year in countryside locations on average compared with less than 7% in urban areas. A contributing factor to this disparity could be the search for a nicer space as more people work from home.
• Hiring bottlenecks. Indeed Flex has reported that hiring bottlenecks in the UK’s hospitality sector are leading pubs and restaurants to turn to temporary staff to meet demand. Indeed Flex also says that average hourly pay for a weekend shift has risen by nine per cent compared to this time in 2019 and that weekday pay rates have risen by an average of five per cent across the UK. Indeed Flex says ‘we’ve seen an influx of people opting for temporary work as a post-lockdown lifestyle choice – as it gives them a variety and a work-life balance that a permanent job cannot.’ It adds ‘temporary workers offer hospitality businesses vital flexibility in the current uncertain trading environment in which customer demand is strong, but margins are squeezed.’
• Maven Leisure has raised £4.3m through Growthdeck to fund the opening of seven new premium London bars. The money will be used to take advantage of favourable conditions for acquiring prime landmark London sites.
• Riley Sports Bars reports growth of 9% compared to 2019 across its estate for the three weeks since reopening on Monday 17 May. Rileys CEO Craig Mayes said ‘We have made significant change to our operating model, which in turn is generating strong sales levels.’
• Pied à Terre has had to pause lunch service due to staffing issues, joining other high profile London restaurants such as Le Gavroche in doing so.
• The Inn Collection Group has announced its purchase of the Ripon Spa Hotel in North Yorkshire. The 40-bedroom site is set in six acres of gardens, with public rooms including a ballroom, terrace bar and self-contained Turf Tavern Bar Bistro.
• UKHospitality urges the govt to delay its plans for mandatory calorie labelling on menus in the out of home sector, stating that the additional cost will hamper the sector’s ability to recover from the pandemic. CEO Kate Nicholls said ‘with the burdensome requirements of allergen labelling for pre-packed food also coming into effect in October this year, this new legislation adds further costs at the worst possible time.’
HOTELS & LEISURE TRAVEL:
• The WTTC says that the UK stands to lose £639 million each day during July if international travel remains effectively suspended. It says this would add up to a £19.8 billion loss if international travel is delayed until August.
• Boris Johnson told Sky News that ministers are looking at plans to end the 10 day self-isolation requirement for people who have had two Covid-19 jabs. The move could also mean that people returning from amber list countries with both doses don’t have to quarantine.
• British Airways has reportedly revived plans to abandon Gatwick, according to the Telegraph. BA has launched a review into concentrating the national flag carrier’s operations at Heathrow.
• Destination Analyst in the US says that ‘the majority of American travellers [are] now feeling that the U.S. is more than halfway back to normal for leisure activities.’ It says three quarters of consumers are ‘planning to take at least one vacation or getaway over the next 3 months. Beach destinations in particular look poised for another year of stellar tourism performance. Americans are also asking for more inspiration when it comes to travel, with 73.1% highly excited for travel content.’
• STR comments on the London hotel industry saying that its ‘short-term rental industry recorded its highest monthly occupancy and revenue per available room (RevPAR) since February 2020, according to May 2021 data.’ It says May occupancy for the sector was 64.1%, which represented a 12.5% increase from April (57.0%) and the highest level in the market since February 2020 (65.1%). Short-term rental occupancy was significantly higher than the 31.0% recorded by hotels in London. Room rate was up 16.5% in the month and REVPAR was up 30.9% in May versus April.
• Ebay has sold its South Korean subsidiary to a local consortium of businesses for $3.1bn. Ebay Korea has around 13% market share of the South Korean ecommerce market.
• Gear4music (Holdings) plc has reported full year numbers to 31 March 2021 and says its ‘transformational performance has established a broader platform for further growth’. It says that revenues rose by 31% to £157.5m with EBITDA up by 154% to £12.6m. Net profit has almost quintupled to £12.6m.
FINANCE & MARKETS:
• The Telegraph suggests that ‘the Treasury is looking at pensions taxation as one way to pay for the cost of the pandemic.’ It adds ‘there are no plans to make changes to the triple lock.’ The amount that individuals can save in a lifetime tax free may be lowered.
• Sterling weaker at $1.3907 and €1.1682. Oil up at $75.04. UK 10yr gilt yield up 1bp at 0.77%. World markets broadly better yesterday & London set to open around 32 points higher.
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