Langton Capital – 2021-07-14 – DPEU, DP Poland, SSP, PepsiCo, 19 July, pub revenues & other:
DPEU, DP Poland, PepsiCo, SSP, 19 July, pub revenues & other:
A DAY IN THE LIFE:
Judging by the time it takes my Freeview and Amazon Prime boxes to spark up and kick themselves into gear, I can only think that the speed of light has slowed down.
Because, though data’s meant to move along yon wires pretty smartish, nobody stopped to tell my various machines which seem to hark back to the age of steam and move at an appropriate speed.
Anyway, apropos nothing in particular other than the asymmetric nature of knowledge and the attitude of misplaced certainty that we see around us from time to time, who said:
‘No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion.’
Clue, it wasn’t who I thought. Answer above the pubs section below. Commenting on the fragility of freedom, the author also said ‘liberty of any kind is never lost all at once…’
On to the news:
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DP POLAND – FULL YEAR NUMBERS & TRADING UPDATE:
DP Poland yesterday hosted a webcast for analysts in order to discuss its now historic 2020 numbers, its merger with Dominium and, of more interest, its current trading and the outlook for the enlarged company.
• The businesses are ‘similar’ and the merger has been relatively straight-forward. Dominium had a much larger dine-in business than Dominos. The merger broadly doubled the size of the company.
• Customer confusion has been removed. The company is the largest player in Warsaw, itself the largest market in Poland. Distance to customer has been reduced and costs cut. Regarding the consolidated numbers, EBITDA is more meaningful as the loss for the period reflects costs of historic dominium debt and a number of other non-cash items.
• The 2020 accounts (which are DPP alone, ex-Dominium) are less meaningful in that they are historic and do not address the future. Restaurants were shut by government decree twice in 2020 – but delivery thrived. DPP’s sales improved sequentially in each quarter of the year (pre-merger).
Merger benefits & strategy:
• There are achievable economies of scale in purchasing and in head office & other costs. Shortening the physical distance to customers reduces delivery costs and improves product quality.
• The company can adopt best practise across the 2 businesses. E.g. Domino’s took more over the Internet (and Dominium can move in this direction).
• The company has bought in another 10 franchisees, to make 17 in total. Over time, units will be returned to franchise. The store network has been upgraded and stores were bought in to enable this. The stores will be sold to franchisees thereafter. The group aims to own 20-25% of stores over time.
Current trading & Q&A:
• Delivery sales have been strong for the first 5mths of 2021, during which time, sit-down restaurants were closed. Indoor dining was allowed from June. Dine in is up 25% vs 2020 (in June alone) and down 24% on 2019. Delivery is down 2% on last year but up 11% on 2019.
• This is a confusing picture with a lot of moving parts. Trade is not ‘normal’. Students have not returned to university (due to online trading) but this should provide a boost later in the financial year. Office traffic and tourism is also yet to recover.
• Synergy benefits on ingredients and labour have been impaired by higher inflation. Sales prices have been raised, meaning that this should still, net-net, be a positive.
• The 10% growth in average order size? New products, salads, sauces etc.
• The company does not plan to dual list. It accepts liquidity is low. It is concentrating on proving positive momentum. There are no capital raises planned in H2. The co has a ‘satisfactory cash balance.’
• The targeted openings should be financed from cash flow and from senior debt. ACP ‘does not want to be diluted’. Debt may be accessible once the repositioning has been completed. There may be bolt-on acquisitions.
• The co is ‘well-positioned’ should there be another lockdown. Nobody wants to hear this but, looking at what’s just happened in The Netherlands, it is worth bearing in mind.
The author, writing in the 1760s, was Scots philosopher, David Hume.
PUBS & RESTAURANTS:
19 July removal of restrictions: Go to work but don’t go to work, party hard but don’t party hard…
• Restrictions are to be removed and staff will not (in many circumstances) have to self-isolate from the middle of next month – but there are a lot of unknowns. Not least, how operators and customers will react in the light of their new-found freedoms. The Guardian reports that ‘senior doctors have warned of “potentially devastating consequences” after Boris Johnson confirmed on Monday that he would press ahead with lifting most remaining Covid restrictions in England on 19 July.’ The battle lines are being drawn and the bear traps are baited. The ‘exit wave’ (which pre-supposes there is an exit to the pandemic) could see 200 people a day dying later in the year.
• Further comment: See premium email
• Late night operators: One of the biggest changes will be for operators that could not open – and now can. This goes for small venues, where distancing made it impractical to open and, more importantly, for night-clubs. Mask-wearing here just isn’t going to happen and Sajid Javid has a point when he says that it might be less harmful to re-open in the summer than in the winter (when infected people might be more likely to spread Covid in enclosed spaces post-infection). Still, with an unrestricted R rate of 7, there will be an impact.
• Michael Kill, CEO of the Night Time Industries Association, says ‘the decision to go ahead with reopening on July 19 is the correct one.’ Though it may be correct, that’s an opinion, rather than a fact. Mr Kill goes on to say ‘after 16 months of crippling restrictions, businesses in the night time economy are ready to play our part in the safe reopening of society.’ He says ‘there are some important hurdles ahead for our sector, including changes to the isolation rules which have the potential to throw the recovery off course, but for those businesses that have made it this far in the pandemic, I feel confident that the sense of community and togetherness the sector has shown to this point will help us overcome these challenges.’
• Further comment: See premium email
• First minister Nicola Sturgeon has said that the whole of Scotland will move to level 0 on 19 July, but she adds that hospitality will face a midnight curfew. Ms Sturgeon says ‘this reflects the fact that indoor hospitality, despite the sector’s sterling efforts – and I want to pay tribute to those – does remain a relatively risky environment, particularly late at night when people might be less likely to follow rules.’
• S4labour reports ‘the Euros-Finals weekend saw sales fall by 3.9% compared to the same week in 2019. However, hospitality sales were up 10.3% on the previous week.’ It says ‘the breakdown indicated food sales increased by 1.6% but drink sales were down 9.1%.’ Although up against good weather comps in 2019 (typically helpful to wet sales), this seems a little counter-intuitive. S4labour says ‘it’s ‘s clear that speaking to our customers, a lack of staffing resulting from Brexit, COVID restrictions and Track and Trace are affecting staff availability. This is leading to a squeeze in the labour market for an industry that is heavily dependent on people. Hence, hampering the ability to trade.’
• One in five workers in the hospitality and retail sectors are reported to be self-isolating per industry leaders. The Commons business select committee heard UKH relate the problems that the sector, with its young staff, is facing. Some 60% of hospitality staff are under 30.
Other Covid news:
• Working from home: Changes are not immediately apparent but British Land says it has collected 99 per cent of the rent due for its offices in June. This may reflect retail park traffic more than office footfall.
• Meanwhile, the BBC reports that many businesses are to take a cautious approach when it comes to taking staff back to the office from Monday. It says ‘many businesses said they will opt for a staggered approach for employees.’ Accountants Deloitte says it will increase office usage to c50% of capacity from next week and it expects to stay at that level until September. NatWest will only be bringing back “priority workers” in the short run.
• Competition in delivery. In the US, Grubbub has launched a guarantee promising discounts on future orders if its consumers do not get on-time delivery at the lowest available delivery price. Grubhub positions this as ‘protecting the reputation of its restaurant partners’ rather than as taking a swipe at the competition. It may be both things. NRN reports ‘if a diner finds a better price for their order on another third-party delivery platform, Grubhub will make up the difference up to $10 and offer an extra $5 in Grubhub Perks.’
• The Bank of England says that the UK’s banks will have a critical role to play in supporting firms and households as furlough unwinds. The Bank’s Financial Policy Committee says that debts have built up over the pandemic and adds that there are a number of “debt vulnerabilities.” No kidding? The Bank also points to bloated asset prices (brought about, it has to be said, by its own policy of QE) and says that ‘in some markets asset valuations appear elevated relative to historical norms.’ If it is referring to the UK housing market then a) it should maybe say so and b) it could be expecting some sort of negative wealth effect if valuations fall.
Company & other news:
• DP Eurasia has updated on trading for the first 6mths of the calendar year saying that it has seen ‘strong momentum achieved with unprecedented demand in Turkey.’ The company says that the number of stores is up by 35 units to 789 with group system sales up by 58% across the group and up by 72% in Turkey. Comps in 2020 were notably weak.
• PepsiCo yesterday reported Q2 numbers and raised its earnings forecast for the full year. The company said the pandemic had depressed demand for its drinks but commented that vaccination levels were such that demand was returning. PepsiCo said net revenue in Q2 rose by 20.5 per cent year on year to $19.2bn, beating analysts’ forecast of $17.96bn. Net income was $2.36bn, up from $1.65bn a year ago. The company says it expects 2021 adjusted earnings per share to increase 11 per cent on a constant currency basis. It had previously guided to earnings growth in the high-single digits.
• Moët Hennessy has agreed with Italy’s Campari to invest in wines and spirits e-commerce companies and create a European ecommerce player in the sector.
• South Africa is to extend its alcohol ban, the fourth it has imposed during Covid, for two more weeks.
• Unite has said that Amazon is price gouging on certain products. It may be doing the same on costs, paying tax etc.
• In the premium email. SSP (CEO leaves), DPEU (H1 update), more on footfall, TfL decision on masks etc.
HOTELS & LEISURE TRAVEL NEWS:
• Alix Partners has commented on business travel panel discussion saying that ‘the extent to which business travel will recover on pre-pandemic levels remains unclear: predictions range from between a 10% to 50% contraction of the industry. A number of mitigating factors will determine just how hard this hit will be, and not all of them come from COVID-19.’ The sector is also under pressure from environmental lobby groups and by the widespread availability (and now use) of meetings software such as Zooms, MS Teams and the like. Recovery is unevenly spread. Alix Partners says that the US is recovering relatively quickly.
• Sky reports that the UK’s train and bus operators will not require passengers to wear face masks on services in England from 19 July. Airlines have indicated that they will still require face coverings.
• DFDS, which has a vested interest in the outcome, has commissioned research finding that people now feel safer when traveling. It says 15% of UK respondents have booked an overseas trip. This compares to 25% in Germany (where, it should maybe be pointed out, there are nine, easy-to-cross, land borders).
• Further comment: See premium email
• The Scottish government is to remove quarantine restrictions on fully vaccinated travellers coming back from amber destinations from July 19.
• In a sign of near term recovery, Munich Airport says that passenger traffic is “beginning to soar once again.” It hopes to handle over a million passengers this month.
• STR reports that London hotels in June recorded their highest occupancy levels since the start of the pandemic.
FINANCE & MARKETS:
• CPI in the US has risen to 5.4% in the month to June (it was 5% in the year to May) on the back of higher petrol and second hand vehicles prices. Inflation is now at its highest level since 2008. Markets are becoming a little concerned that the Fed may have to raise interest rates before inflation becomes too entrenched.
• Estate agent Knight Frank says that the number of properties transacted in the first week of July was 60pc below the five-year average for this time of year. This comes after that reimposition of stamp duty on most properties at the beginning of this month.
RETAIL WITH NICK BUBB:
• Further comment: See premium email
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 13 Jul 21 Pepsi Q2 numbers
• 13 Jul 21 DP Poland H1 update & presentation
• 14 Jul 21 DP Eurasia H1 trading update
• 20 Jul 21 Young & Co AGM
• 21 Jul 21 Loungers FY numbers
• 21 Jul 21 Nichols H1 numbers
• 22 Jul 21 Britvic Q3 update
• 23 Jul 21 Premier Foods AGM & Q1 update
• 27 Jul 21 Campari H1 numbers
• 27 Jul 21 Games Workshop FY numbers
• 28 Jul 21 Marston’s Q3 trading update
• 29 Jul 21 Molson Coors Q2 numbers
• 29 Jul 21 Texas Roadhouse Q2 numbers
• 30 Jul 21 DPP AGM
• 3 Aug 21 Domino’s Pizza H1 numbers
• 5 Aug 21 Bank of England MPC meeting
• 10 Aug 21 Intercontinental Hotels H1 numbers
• 11 Aug 21 Deliveroo H1 numbers
• 11 Aug 21 Hostelworld H1 numbers
• 12 Aug 21 TUI Q3 numbers
• 18 Aug 21 Carlsberg H1 numbers
• 19 Aug 21 Rank FY numbers
• 2 Sept 21 Jet2 AGM
• 22 Sept 21 Ten Entertainment H1 numbers
• 1 Oct 21 JW Wetherspoon
• 22 Oct 21 Intercontinental Hotels Q3 numbers
• 26 Oct 21 Campari Q3 numbers
• 24 Nov 21 Britvic FY numbers
• 8 Dec 21 TUI FY numbers
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