Langton Capital – 2021-06-29 – PREMIUM – Pte companies, Tasty, TUI, 19 July, staff, inflation, Leon, holidays etc.:
Pte companies, Tasty, TUI, 19 July, staff, inflation, Leon, holidays etc.:
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A DAY IN THE LIFE:
I’ve thought for ages that clearing out our various cupboards, sheds and the garage fell into the category of ‘big jobs, best ignored.’
A bit like sorting education, healthcare or social care is to the politicians (versus the attraction of glib, columnist soundbites) but, at the weekend, we made a start. The dry weather helped and, before long, the drive was full of junk that was making its way, erratically and with no obvious purpose, from the rooms in which we live, to the shed, to the garage and, ultimately, the intention being that they go to live in at the tip or the charity shop.
And there’s a certain amount of satisfaction to be had in doing the above but, as always, you tend to run out of time and, whilst the above is the theory, in practise, all too often, you simply take things from where they have been festering for ages and then put them back again.
Anyway, we’re a little pressed for time today due to the France / Switzerland match going to penalties. On to the news:
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PRIVATE COMPANY ACCOUNTS – McMULLEN & SONS LTD:
McMullen & Sons has reported full year numbers to 30 September 2020 to Companies House. The numbers cover at least six months of Covid-impacted trading and, as the accounts were signed on 22 Jan this year, the comments should reflect ongoing trading up to and through Christmas last year.
• McMullen reports revenues down from £93.1m to £64.5m. Underlying profit before tax is down by 48% to £7.8m. The group reported profits on the sale of assets (not reflected in the above figures) in both years.
• The company, which was incorporated in 1897, increased retained earnings by around £5m to £168.6m. Total equity is £177.4m (2019: £172.4m).
• McMullen has increased cash at bank to £20.4m from £8.0m in 2019 and it has no debt.
• The numbers look very reassuring but, as McMullen says ‘the state of the Company’s accounts does not fully reflect the torrid year that has been suffered by our industry but the results are a credit to the efforts of all our current stakeholders and to our culture of prudent and traditional business practices embedded over generations.’
• The company is in an enviable position.
• McMullen says ‘we own our freehold properties, have no debt and have a sensible dividend policy, all of which helps to ensure that the Company is financially strong and able to weather challenges, even ones as severe as Covid-19.’
• It says, not surprisingly, that ‘the year was broadly divided into two halves; for the first five months we were able to trade normally and by the end of February, we were showing profit growth of 24.6%. Then the Covid-19 pandemic hit the whole country hard.’
• H2 was, of course, a different story. McMullen says ‘companies like ours will be needed to rebuild a shattered economy, reasonably contribute to pay down unsustainable national debt, find resource to fund the public sector and still look after all the stakeholders that rely on the Company.’
• It adds, however, that ‘the new financial year, however, will be even more challenging than the year just finished.’
• Chairman Charles Brims says ‘2021 will be tougher than 2020 from a business performance perspective.’ He says ‘there is then a backlog of development projects, many with material revenue spends, that will further depress profits. However, we will be building for the future in furtherance of our purpose.’
• Alluding to the potential to make acquisitions, McMullen says ‘we are also well placed to seize opportunities that may arise in the short-term.’
• McMullen ‘is recommending a reduction in the total dividend for the year of 7.3%’. This is a position many other companies would envy.
PUBS & RESTAURANTS:
• Boris Johnson has indicated there will be no early release from restrictions in England, saying it is ‘sensible to stick’ to 19 July plan. New health secretary, Sajid Javid, had earlier said that he would like to see a removal of restrictions as soon as possible. On reflection, that isn’t really adding much.
• The British Beer & Pub Association has responded to the above news saying ‘the continuation of restrictions will cost pubs a further £200 million. That is £100 million for each week of ongoing restrictions.’ To be fair, 5 July was always an aspiration rather than a promise. The BBPA ‘says there can be no further delays to the full reopening of pubs and that it is crucial all restrictions are lifted on July 19th’ and CEO Emma McClarkin adds ‘although continuation of the restrictions until July 19th is not a surprise, it is still a tough decision for our sector to swallow.’ She says ‘each week the restrictions stay in place, the likelihood of pubs being lost forever increases. It is crucial that all restrictions are now lifted on July 19th. Any further delay beyond July 19th would be catastrophic for our sector.’
• Further comment: 19 July is being taken as read. And, given the political capital that has been expended on the date, it is very likely that restrictions will be removed despite the fact that the statistics are likely to look worse than they did on the first Freedom Day and, indeed, today.
• Nobody wants to be a killjoy but, a month ago, there were 25 infections in York, a city of 200-odd thousand people. On 24 June, the latest date for which information is available, there were 507. That’s a 20-fold increase in just over four weeks. The rollout of the vaccine to younger people should slow the rate of growth but, by 19 July, the numbers will be higher and still rising.
• Infections are predominantly across the young, of course, and, whilst the link between infections and hospitalisations has not been broken, it has been stretched. And that is great news. It will almost certainly be used to justify the 19 July happening as planned but, when it comes to variations, it is the absolute number of infections that counts rather than the age of those infected.
• The president of the CBI has said that industries including haulage and hospitality are facing a “perfect storm” of issues leading to staff shortages as the economy reopens.’ Lord Bilimoria maintains that the departure of overseas workers during the pandemic, who have not since returned, is among a number of factors causing these problems. Bilimoria says ‘as lockdown restrictions lift, we’re also seeing a surge in the demand for labour – and we know many businesses are already struggling to recruit’ and adds ‘we’ve got a perfect storm of factors coalescing. During the pandemic, many workers from overseas left the UK to return home – hitting the UK’s hospitality, logistics, and food processing industries particularly hard. Meanwhile COVID has added major uncertainty and the furlough scheme ─ a lifeline, for millions of employers and employees alike, is becoming a strange paradox for
• Commenting on price and cost increases and asking whether we are in danger of re-running the 1970s, foodservice analyst Peter Backman concludes that inflation is ‘a nuisance rather than an existential problem.’ This assumes that cost increases can be passed on via higher prices. This is not always the case and, even if it is, it can create a cycle in which inflation becomes accepted and semi-permanent. This will cause unwanted friction and put downward pressure on Sterling and upward pressure on interest rates.
Other Covid news:
• ClearSight reports that 48% of UK adults have the view that ‘things are going to stay the same’, with 64% of Brits backing the delay to lifting the ongoing restrictions.
• The Morning Advertiser reports that 10 Covid cases have been linked to clubbing pilots. Social distancing or face coverings were not required at the event, alcohol and food was sold indoors and participants were tested with lateral flow tests before entering.
• The Resolution Foundation warns the government not to scale back UK furlough too soon, as people are still working fewer hours than they were before the pandemic and headline pay growth is overstated.
Company & other news:
• Tasty has updated on trading saying that it reopened most of its estate in May ‘and now 49 of the Company’s 54 sites are fully open for trade.’ The company says ‘takeaway and delivery sales performed well during the most recent lockdown and throughout H1’ and says that ‘since the relaxation of indoor dining restrictions, the six-week period to 27 June 2021 as a comparison to 2019 has shown strong like-for-like growth.’ Tasty says ‘trading has benefitted from significant pent-up demand, and we are encouraged by the initial strength of our overall trading performance despite the restaurants having restricted capacity due to social distancing.’ It says it ‘believes that, as a result of international travel restrictions, increased disposable income and a general strong desire to go out, trade will remain robust throughout the summer months.’
• Tasty goes on to say that it is ‘taking measures to combat the challenges ahead posed by supply chain disruption, recruitment issues, wage inflation, the reintroduction of business rates, and the reduction in furlough and VAT support.’ It has ‘agreed consensual lease concessions and rent reductions on more than 80% of the estate and is continuing to negotiate with the remaining landlords and other creditors to settle any outstanding debts’ and concludes ‘we would like to take this opportunity to thank everyone who has supported us to get through these difficult times, especially our hardworking staff, landlords and creditors.’
• Leon is set to open its first drive-through restaurant after being bought by petrol station giant EG Group. The drive-through will be located in West Yorkshire, with space for 50 eat-in diners.
• Client service partner at WMT Chartered Accountants, Peter Davies, warns of ‘unintended consequences’ following news that a bill is being brought forward to enshrine in law that all tips must go to staff.
• Fat Brands in the US is to acquire Global Franchise Group, owner of quick service brands Round Table Pizza, Great American Cookies, Hot Dog on a Stick, Marble Slab Creamery and Pretzelmaker, for $442.5 million from its private equity owners.
• Further comment: Putting to one side the fact that this is the US and the possibility that we haven’t heard of any of these brands, it’s interesting to ask whether this (consolidation corporate activity) could be indicative of more to come.
• Because, some would say, we’ve seen rescue fund raises, we’re currently seeing plenty of IPOs and the next move could be to consolidate the market. Things rarely move according to plan but the above is a somewhat sensible progression. The market first needed to determine who was going to survive and then transactions began.
• In the case of IPOs, the transaction was (or is) from their existing owners to new shareholders (at least in part) and, with consolidation, it is usually the sale of an entire business. This could work for all concerned. Yes, it’s a buyers’ market but, if operators have shown that they can survive the pandemic, they may be able to negotiate a better price than would have been the case a year ago.
HOTELS & LEISURE TRAVEL:
The wealth effect:
• Travel Weekly reports 32% of UK adults feel better off than before the pandemic, whereas 33% feel worse off and 35% feel neither better nor worse off. The proportion with more to spend was heavily skewed towards younger adults and parents with children at home and was weakest among those in middle age.
Other travel news:
• UK holidaymakers to Spain will require a negative PCR test or proof of full vaccination, with the conditions set to come into effect in 72 hours time. The conditions will particularly affect travellers to the Balearic islands, which are going on the UK’s green ‘watchlist’ list on June 30.
• Portugal and Malta have introduced similar rules. The rules require people over the age of 12 to also have negative Covid tests. This is possible for children, who are not currently eligible to have received either a first or second dose of the vaccine(s). Passengers will not be allowed to travel without proof of injections and/or negative tests.
• The likelihood of a US-UK travel corridor in time for the peak summer period appears to be fading as the delta variant of Covid-19 continues to spread in the UK. An unnamed UK official is quoted by Travel Weekly as saying ‘this is not going to happen soon. We thought July was the earliest we might be able to get something in place but now it’s looking more like September.’
• Meanwhile, Hong Kong is banning all flights from the UK to prevent the spread of the Delta variant. Hong Kong classifies the UK as a country of “extremely high-risk,” the highest rating Hong Kong has. The ban comes in from 1 July.
• TUI announced yesterday that it is ‘to launch a tap offering of senior unsecured [convertible] bonds…in an aggregate principal amount up to € 190 million’. The company says it ‘intends to use the proceeds from the Offering for refinancing in particular to further reduce drawings under the KfW facilities and towards a subsequent repayment of such facilities.’
• The Scottish Passenger Agents’ Association reports that the overall loss of all holiday flights to Spain from Scotland could be more than £460 million.
• The Wall St Journal cautions that, in the US, the sharp rise in leisure demand is bumping into labour shortages and rising supply costs.
• STR has reported on an interview with Whitbread hotels MD Mark Anderson in which the company says it can ‘”grow our network to around 110,000 rooms, based on demand today without substantial growth in demand in the U.K. hotel market, so that gives us headroom of about 30,000 rooms we can still add.” Anderson says ‘we have traded very well in the last four weeks’. He adds ‘we’ve seen some good demand come into the network over the last few weeks, so that’s giving us real encouraging signs.’
• Events still troubled, holidays should be doing better. Company Rescue reports that ‘Kelham Hall, a popular wedding venue near Newark, has called in administrators.’ It quotes the company as saying ‘please be advised that Kelham Hall Limited ceased trading on Wednesday 23rd June as a result of the continuing effects of the Covid-19 pandemic. The mortgagee has now taken possession of the property and the campsite and fishing pegs are closed.’
• Per HotStats, on June 25, 2021, 2.1 million people passed through U.S. airports, according to the TSA, a number that was 78% of the total on June 25, 2019, and 237% more than on June 25, 2020. In the U.S, RevPAR in May was up 539% over the same time a year ago, but still 51% lower than May 2019.
FINANCE & MARKETS:
• Sterling weaker at $1.3864 and €1.164. Oil price lower at $74.41. UK 10yr gilt yield down 4bps at 0.74%. World markets lower yesterday but London set to open up around 8pts.
RETAIL WITH NICK BUBB:
• Today’s News: There is no company news out today, but the City is still reeling at the news that the Burberry CEO Marco Gobbetti is to leave, as the shares slumped by nearly 9% after it emerged that he is not only returning to Italy, but that he is joining Burberry’s smaller rival Salvatore Ferragamo and might take Burberry’s designer Riccardo Tisci with him…
• This Week’s News: The latest monthly Nielsen grocery market share figures come out at c8am and there is a Victorian Plumbing analysts teach-in at 2pm. Tomorrow brings the Dixons Carphone (aka Currys) finals, the Topps Tiles Q3, the Studio Retail finals, the Lookers finals, the Kingfisher AGM…and the Lookers AGM. Then July/H2 kicks off on Thursday with the AO.com finals, the ABF (Primark) trading update, the JD Sports AGM and the Walgreen Boots Q3 (in the US).