Langton Capital – 2021-07-19 – PREMIUM – Freedom Day, Tracker, pingdemic, JDW, Flutter, Hawksmoor, Boparan etc.:
Freedom Day, Tracker, pingdemic, JDW, Flutter, Hawksmoor, Boparan etc.:
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A DAY IN THE LIFE:
Well, one’s never pleased to see the back of a weekend and it’s fair to say, that that one was a scorcher.
Which is a bit of a mixed blessing, of course.
Because Brits melt above 25 degrees. Forget fifty degrees in Vegas. That’s just illegal. For the UK, thirty is the real fifty and it means that working outside (something we referred to on Friday as an urge that overtakes us all from time to time) was an impossibility and, with residential air conditioning only a fond dream during the week or two every couple of years that it’s needed, there wasn’t much work getting done inside, either.
Yet here we are on Monday again, it comes as regular as clockwork and, for once, it was relatively pleasant as well as sensible to get up at stupid o’clock to make a bit of progress before the needle’s rise means that we’ll be sticking to our seats and dripping onto our keyboards again.
Indeed, a bit of a breeze would be nice. You might catch on the coast but, before minds drift on towards holidays, beaches and the like, let’s move on to the news:
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JUNE SALES TRACKER:
The latest Coffer Peach Business Tracker suggests that sales across the industry in June were down only 1% on the same month in 2019.
• Sales were down 1% on 2019 on the month but, in a sign of the damage done prior to last month, rolling 12mth sales are down 27%.
The month of June:
• The Tracker ‘shows sales were nearly level on both a total and like-for-like basis,’ with the same month in 2019. It adds that June was markedly better than May, when total sales were down by 26% on May 2019.
• Restaurants better than pubs. It says ‘consumer demand was particularly strong in restaurants, where total sales were up by 3% in June. Pubs recorded a 2% drop, with mixed weather and restrictions dampening any benefit from the Euro 2020 football tournament.’
• Bars worse. The Tracker says ‘sales were down by 11% in bars, where social distancing and early closing requirements continue to impact footfall.’
• London not good. The Tracker reports ‘a particularly good month for regions beyond London’. It says sales outside the M25 were up 4% in June, but down by 11% inside.
• Delivery still strong. The Tracker says ‘many operators continue to benefit from strong delivery and takeaway sales.’ CGA has previously reported that takeaways and delivery sales ‘have more than tripled from pre-COVID levels.’
• The Tracker reports that spend per head is up.
Rolling 12mth numbers:
• The rolling 12mth numbers are less good, due to the several periods of enforced closure that they cover.
• Managed sales were down by 27% in the year to June this year on the previous 12 months.
CGA & Tracker sponsor comment – main focus, costs, profitability & staff shortages.
• CGA says the numbers exhibit resilience. Kark Chessell says ‘with an easing of COVID restrictions imminent, it suggests a bright outlook for the eating and drinking out sector.’
• But he says that higher costs (presumably net of the beneficial impact of 5% VAT on food & soft drinks) are depressing profitability.
• Chessell says ‘hospitality remains fragile, and it will need sustained support and concessions from government in the months ahead if it is to help drive the UK’s economic recovery.’
• Coffer Corporate Leisure says ‘let’s not pretend the road ahead is going to be smooth but what is clear is that consumers want to eat and drink out and the trend is upwards. This continues to be a difficult time, but optimism remains in the hospitality sector.’
A few words on the labour market:
• RSM adds ‘the easing of restrictions later this month should provide more opportunities for get-togethers although it’s clear that a combination of Brexit, Covid restrictions and test and trace continue to have a huge impact on staffing availability.’
• RSM says ‘this squeeze in the labour market for a sector that is so heavily dependent on people is likely to dampen sales over the coming months.’
PUBS & RESTAURANTS:
Easing of restrictions & Covid news:
• The BBPA reports that 6 in 10 pub goers say they are looking forward to meeting up with friends and family more easily at the pub from 19 July. The study, conducted by KAM Media, saw that 47% of Brits said they were looking forward to the atmosphere returning to normal when restrictions end.
• Emma McClarkin, CEO of the BBPA, said ‘After nearly 18 months of closure or heavy restrictions, this is a huge moment for our sector. Only now can the recovery of our pubs and breweries begin.
• The government is set to extend pavement licenses by a year until the end of September 2022 to aid the recovery of pubs, bars and restaurants. The Ministry of Housing, Communities and Local Government (MHCLG) indicated that the change could become permanent.
• Robert Jenrick, Secretary of State for Housing, Communities and Local Government, has received a letter from The One Voice group of hospitality industry and consumer trade bodies welcoming the move to extend Pavement Licenses. The group said ‘We will now need a consistent, collaborative and pragmatic approach from Local Authorities to ensure that the spirit of this decision is reflected locally, in order that hospitality can truly take advantage of this permanent expansion of their outside areas.’
• The Society of Independent Brewers (SIBA) has said the government’s hospitality plan is ‘very positive’ but added ‘ if the Government’s proposed changes to Small Breweries Relief go ahead then it will all be for nothing and hundreds of local breweries across the UK could be forced to close.’
Staff shortages, pingdemic etc:
• With a number of industries going without workers and some workers going without pay, having to cancel weddings etc, it’s not clear yet what, if any, backlash there may be as a result of the PM and chancellor apparently seeking (or at least momentarily investigating the possibility of) swerving the need to self-isolate over the weekend. The speed of the U-turn suggests that the original proposal, to do what Michael Gove did earlier and not self-isolate, wasn’t going down too well with bank-benchers or focus-groups.
• Further comment: Per the Telegraph, Brexit is hampering companies ability to capture pent-up demand from Covid-19 unlocking as a widespread staff shortage has triggered wage rises and inflation. ‘From the chef point of view, it’s the hardest it’s ever been,’ said Ed Vokes, managing director at Evolve Recruitment.
• Per city AM, NHS pings and staffing shortages have turned manufacturing, bin collections, retail, transport and healthcare upside down. The government is now reviewing the Test and Trace app’s sensitivity.
• The Telegraph reports that there could be a shortage of meat products shortly due to restricted supplies of CO2 (which is used to expel oxygen and increase the shelf-life of meat). Additionally, it would seem likely that the pingdemic is having an impact on labour availability in meat processing plants. A shortage of CO2 can also restrict brewing volumes. There are various warnings of staff shortages emanating from bodies and companies such as Nissan, Rolls-Royce, hospitals and schools, hospitality, the care services, meat factories & others. UKH says ‘without better intervention, operators will continue to be forced to reduce their operating hours or to close venues completely, missing the opportunity to begin on their road to recovery.’
• The AA has pointed out that petrol prices are currently at their highest level in almost eight years. The elevated petrol price along with the need to pay scarce lorry drivers more money, will result in higher transport costs. This will be pervasive across the economy.
• The Insolvency Service reports that in June 2021 there was a total of 1,207 registered company insolvencies across England and Wales. This consisted of 1,116 creditors voluntary liquidations (CVLs) – twice the amount in June 2020, 39 administrations – 61% lower to that in June 2020 and 38 compulsory liquidations – 46% lower to that in June 2020.
• CFNA data shows that the volume of imported spirits increased significantly from January to May 2021, up 117% year on year to $780m.
• RT cites a survey showing that 38% of Russians never touch a drop of alcohol, while just 1% of the survey’s respondents claimed to drink on a daily basis. 51% of all respondents over the age of 60 said that they shun alcohol.
• The Daily Mail reports that there are further moves to ensure that restaurant tips are passed on to staff. It reports there are ‘calls grow for new laws to put an end to restaurant bosses pocketing tips intended for staff.’ Just how widespread the pocketing of employees’ tips is, is unclear. The Mail says ‘restaurant owners are banned from keeping cash tips left for waiting staff, but there’s nothing to stop them taking a cut when the bill is settled by debit card.’ This is true but most reputable operators will take either nothing or a small amount to cover administration and other costs.
• Public Health England has released data suggeseting that around 7,000 people died from alcohol misuse last year, a number up 20 per cent on 2019. Whilst pubs & restaurants were shut for much of the year, sales of alcohol from supermarkets rose by around 25%.
• J D Wetherspoon has announced that starting from 19 July the company will retain measures such as floor screens, hand sanitizers at the entrance and at various locations, maintain increased cleaning, maintain directional signage, increase natural ventilation, encourage customers to use the order and pay apps, maintain internal capacity in pubs at the same levels as today and maintain current reduced capacity limits for employees in staff rooms.
• However, customers and employees will be able to wear face masks at their discretion, group sizes will not be limited to six and the NHS Test & Trace system, or paper forms, will be voluntary.
• Tim Martin, chairman, said ‘While risks from COVID-19 cannot be eliminated completely, we believe that the July 2020 guidelines are a sensible backstop for the industry and strike a fair balance between health, employment and the economy.’
• Naked Wines reports today that its shares will begin trading on the OTCQX Best Market, in the United States. CEO Nick Devlin says ‘we are pleased to have qualified to trade on the OTCQX Market, the highest tier of the OTC Markets Group, which will complement our existing AIM listing. Trading on OTCQX will provide US institutional and retail investors, and our colleagues, the opportunity to share our growth as we build on a breakthrough year for Naked Wines, following an unprecedented channel shift to online, accelerated by the COVID-19 pandemic.’
• Technology. The ups and downs. Morrison’s is to test a supermarket with no checkouts or staff. Overnight, however, the news has emerged that a fire has hit an Ocado distribution centre. The fire was caused when three of the robots that pick groceries collided at the Erith site.
• The Times reports that Hawksmoor is looking to list. It says the ‘the upmarket steakhouse chain could join the queue of companies that are planning to float on the London Stock Exchange.’ It adds ‘while Hawksmoor’s plans are at an early stage and a flotation is among a number of avenues under consideration, the move underscores the booming popularity of stock market listings.’ The chain is backed by Graphite Capital. Founder Will Beckett says a floatation is not imminent. He says ‘we’ve been exploring a variety of options, including an IPO. We want to be in the best shape possible for the numerous opportunities that are already coming our way post-Covid.’
• The price of shares in Soho House dropped almost 10% in its US market debut from its $14 listing. The company owns the 28 Soho House clubs, including Soho Farm House, which together have around 119,000 members and host A-list celebrities such as supermodel Kate Moss and actor Eddie Redmayne.
• Oakman Group will retain table-only service from Monday, citing health and safety of their customers and staff. The company will retain all their existing Covid measures including screens between tables, hand sanitiser stations and high-intensity and regular cleaning regimes, however, facemasks will not be insisted upon.
• Boparan Restaurant Group has opened The Restaurant Hub, a multi-brand dining destination in Sainsbury’s Superstore on Selly Oak Boulevard in Birmingham. The Hub features five of BRG’s high street restaurant brands including the new Caffe Carluccio’s concept, Gourmet Burger Kitchen, Slim Chickens, Ed’s Easy Diner and Harry Ramsden’s. Boparan says ‘the Restaurant Hub brings our and our partner’s most popular brands together in one place, offering diners the chance to access an array of signature dishes and to mix and match all their favourites in one meal occasion.’
HOTELS & LEISURE TRAVEL NEWS:
• From 19 July, all Britons who have had two Covid jabs heading back from amber list countries were told they would not need to complete up to 10 days’ isolation at home. However, travellers returning to England from France will still be forced to quarantine next week even if they are double-vaccinated.
• Per STR, US hotel demand grew only 3% week to week, with 26 million room nights sold for the week ending July 10, and U.S. hotel industry occupancy reached 67.2%. Weekly U.S. hotel demand for the week was 92% of what it was during the comparable week in 2019.
• Travel Weekly has reported that, when leaving to return to the UK, enhanced checks at airports in destination could cut waits for passengers in the UK (but possibly lengthen them in resort).
• Bulgaria has banned UK travellers from entering the country. This comes just days after the UK government moved Bulgaria to its green list and confirms that, as mentioned before, you need two to tango. The above has not surprisingly led to holidays being pulled, not least because they would have consisted only of a sit on the tarmac before passengers would have had to return to the UK. Jet2 says ‘as a result of the Bulgarian government’s travel restrictions, we have suspended all flights and holidays to Bourgas up to and including 31st July 2021.’ It goes on to say ‘all affected bookings will be cancelled with a full refund excluding any previous administration or cancellation fees.’
• Flutter this morning announces that it has ‘completed a debt re-financing transaction that will reduce its effective cost of debt and provide it with additional liquidity, enhancing the financial flexibility of the Group.’ It says it has repriced & upsized its existing Term Loan B facility by $1.5bn (£1.1bn). In addition, it says ‘the c.$3bn USD component of the facility [has been] priced at LIBOR +225 bps, 0% floor, with an up-front fee to lenders of 25 bps’ and ‘the c.€500m Euro component of the facility [is] priced at EURIBOR +250 bps, 0% floor, with an up-front fee to lenders of 50 bps.’ The group will repay $1bn of 7% Senior Unsecured Notes on 21st July and there will be a ‘net increase in available liquidity of circa £250m for general corporate purposes.’
• Flutter says the resulting debt package will be ‘125 bps below existing margins across both USD and EUR components.’ It says ‘the Group received strong support for the transaction with a material number of new lenders supporting over 25% of the order book’ and says ‘as a result of the transaction, we estimate that the Group’s weighted average cash cost of debt will fall from 4.2% (at 31 December 2020) to approximately 2.5%. Based on the Group’s debt position at the end of 2020, this will equate to annualised interest savings of approximately £50m per annum.’
• The Times carries an interview with Cineworld’s CEO Mooky Greidinger in which the director is questioned regarding the shareholder revolt against plans to pay him up to £65 million of bonus shares with the same going to his brother. He says that ‘there is a possibility that management will get nothing.’ All remaining restrictions will be lifted from today. New Bond and Top Gun movies come out later this year. The Times points out that ‘Cineworld’s ballooning debt mountain sparked fears in some quarters that the group might not survive the Covid crisis’. It quotes Greidinger as saying he was always confident the company would make it.
FINANCE & MARKETS:
• The Bank of England seems to be edging towards accepting that inflation is currently a bit of a thing. MPC member Michael Saunders has said it might be appropriate “fairly soon” to reduce the level of stimulus provided to the economy. It’s worth remembering that this is a part of a process. First scale back help, then remove it altogether and then, and this has not been attempted before, the assets acquired by the Bank will need to be sold back into the market.
• Deputy governor of the Bank of England Dave Ramsden has said that he could see inflation rising to 4% later this year. It is currently 2.5% in the UK (but, interestingly, it is 5.4% already in the US).
• The Telegraph runs a piece saying that the spread of the Delta variant could ‘derail the UK’s recovery.’ It says forecasters are warning that it could dampen spending over the summer.
• Sterling weaker at £1.3755 and €1.165. Oil price lower at $72.90. UK 10yr gilt yield down 4bps at 0.63%. World markets lower on Friday & London set to open down around 53pts as at 7am.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines on Saturday were dominated by the last-minute decision to force British holidaymakers to self-isolate on their return from France, even if they have been double-vaccinated: the Daily Mail screamed “French Holiday Chaos”, but the Times, the Guardian and the Telegraph also had very similar headlines about the “chaos”. The FT ran with “Lifting curbs poses “threat to the world””, flagging that global health experts have condemned Boris Johnson’s decision to lift most Covid legal restrictions on Monday despite the current surge in new Covid cases, with some scientists fearing that the UK could become a breeding ground for new variants…
• Saturday’s Press and News (2): In terms of Retailing stories and news, there were plenty of upbeat headlines about Burberry, despite the 5% fall in the share price on Friday: the Telegraph flagged that “Burberry sales rebound as the young follow influencers”, the Times said (similarly) “Burberry back in fashion with young”, the Guardian noted that “Burberry sales bounce back to pre-virus levels” and the FT highlighted that “Younger shoppers drive 55% China sales rise for Burberry”, whilst the Daily Mail noted the benefit of the tie up between Burberry and the celeb model Kendall Jenner.
• Saturday’s Press and News (3): In other news, the Times went big on the Sky News scoop that the Barclay brothers are weighing up an IPO of their Very home shopping empire next year, with the Business editorial noting that although Online stocks command high valuations, investors will need reassurance over Very’s reliance on consumer credit sales and that the mooted £4bn valuation “looks a stretch given the clouds on the horizon”. Slightly oddly, the main Business story in the Daily Mail was the attack by the Retail veteran Bill Grimsey on the non-execs at Morrisons for accepting a low-ball private equity bid: “Non-executives at Morrisons under fire for selling out”. The Guardian had a feature interview with Deliveroo boss William Shu (“Chief “super optimistic” despite bumpy ride”), as well as a feature on the boom in holiday bookings in Scarborough, noting that retailers are running
• Sunday’s Press and News (1): The front pages of the Sunday papers were dominated by the revelation that the Health Secretary, of all people, was having to self-isolate after testing positive for Covid, despite being double-jabbed…the Mail on Sunday asked whether Boris Johnson and the Cabinet would try to dodge the self-isolation rules (“Javid’s Covid sparks No 10 Pingdemic”), whilst the Observer went with “Sajid Javid tests positive as health chiefs tell PM: don’t let Covid rip”, noting that Johnson could avoid isolation by joining the Civil Service trial that allows people to work by taking a daily Covid test. The Sunday Times had a photo of the crowds on Bournemouth beach and the headline “Johnson swelters over “freedom day” mayhem”. The Sunday Telegraph had a photo of Sajid Javid leaving No 10 on Friday morning, but its headline was “Children will only be jabbed if
• Sunday’s Press and News (2): In terms of Retail stories, we were expecting more about the Morrisons bid situation, given that Saturday was meant to be the deadline for CD&R to raise its bid, but the Mail on Sunday flagged (at the end of a story that Morrisons is working on a hi-tech contactless store to rival the Amazon Fresh stores that have been opened in London) that the Takeover Panel has given CD&R (and Apollo) more time, given the agreement made by the company with the rival Fortress consortium. The Mail on Sunday also highlighted that Sainsbury’s staff and customers want to keep wearing masks and that the former stockbroker Richard Griffiths owns a third of Mothercare after the recent complex restructuring, but one of its main Business stories was that Mahmud Kamani of Boohoo (along with Matt Moulding of THG) has invested a lot of money in the £500m float of Revolution
• Sunday’s Press and News (3): In other news, the Sunday Telegraph Business section had a slightly odd photo on its front page of shoppers queuing inside the recently opened St James Quarter shopping centre in Edinburgh to illustrate the news that consumer caution may hold back the economic recovery. The Sunday Times Business section had a photo on its front page of fans of Rihana outside a Sephora store to illustrate the news that the French beauty giant has agreed to buy the Online cosmetics retailer Feelunique for £132m. The Sunday Times also flagged that Mike Ashley is trying to get round his agreement not to take legal action against the former Directors and administrators of Debenhams and that the Fenwick family has been quietly seeking buyers for their flagship Bond Street department store at a price of £500m.
• Sunday’s Press and News (4): The Sunday Times also had a couple of interesting features. The first was about “Amazon’s great grocery grab”, based on a visit to the recently opened Amazon Fresh in Chalk Farm in north London, noting that although rival supermarkets fear the worst if Amazon’s checkout-free stores begin a tech arms war, some observers feel that to make a sufficient impact in grocery Amazon will need to make an acquisition to get more stores. The other feature was an interview with the new boss of John Lewis, Pippa Wicks, at the John Lewis Westfield store, flagging that after having to make deep cuts at the business she is now trying to grow it again (“After her Co-op crisis mission, now it’s the John Lewis redemption”).
• Sunday’s Press and News (5): In terms of all the Economics comments and columns in the Sunday papers, we would, as usual, highlight the column by the Sunday Times Economics correspondent David Smith (“Plenty of bumps in the road on the long walk to freedom”), in which he noted that “Freedom Day” isn’t turning out as hoped at the Treasury and that “Having to restart pandemic support isn’t the plan. But it wasn’t last autumn”. On a more cheerful tack, the column in the Sunday Telegraph by the veteran City commentator Jeremy Warner is also worth a shout-out: headlined “Why I’m becoming a serious bull on prospects for the UK economy”, he flagged that “even if forced into a temporary U-turn, the strategy of “learning to live with Covid” nevertheless seems the right one”.
• Today’s News: There has been no official update from Ocado, despite the reports in the press about a fire at its new Erith depot caused by robots colliding…and there is no more news on the Morrisons/Fortress bid situation, as that grinds on, with the rival bidder CD&R (as well as Apollo) keeping its powder dry for as long as possible. In fact, there isn’t much company news at all around this morning, although Naked Wines has announced that trading in the company’s shares will begin today on the OTCQX Best Market in the United States: “Trading on OTCQX is an important step for Naked, in addition to the AIM listing it gives the business exposure to a wider audience of potential investors by easing cross-border trading for our US investors and employees”.
• This Week’s News: Dealings start in the recently floated Revolution Beauty (under the ticker “REVB”) today. Tomorrow brings the latest 4-weekly Kantar grocery sales figures, plus The Works’ finals. On Thursday we get the Howden interims, the Wickes H1 update and the Mulberry interims. Friday then brings the monthly GFK Consumer Confidence index and the ONS Retail Sales figures for June