Langton Capital – 2021-07-27 – PREMIUM – The consumer, NewRiver, Playtech, Games Workshop, staffing & other:
The consumer, NewRiver, Playtech, Games Workshop, staffing & other:
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A DAY IN THE LIFE:
So, the number of out-of-office replies to our morning email roughly trebled this Monday and, rather than try to beat the holidaymakers in question, Langton will soon be joining them.
Hence, there will be no email next week or the week after as we jet, or rather drive, to the sunny climes of the Yorkshire Dales followed by the steamy environs of the Deep South (a.k.a. the Derbyshire Peak District).
We’ll be doing out bit, undertaking on-the-ground, staycation research. This will doubtless involve chatting up publicans, sampling beer, pies and chips and shovelling down ice-cream.
But we’re here for the remainder of the week and, come holiday-time, we’ll tweet the odd bit on @brumbymark. On to the news:
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PUBS & RESTAURANTS:
• The latest Deloitte Consumer Tracker, covering Q2 this year, shows that ‘consumer confidence bounced back to its pre-COVID-19 level.’ The accountant says its confidence index gained ‘nine points compared to the same period a year ago. It marks the highest ever recorded yearly growth and is back to levels of confidence seen last in January 2021.’ It says that consumer spending in the quarter shifted ‘from goods to services as discretionary spending increased by 19 percentage points this quarter compared to Q1.’ It says ‘food and drink manufacturers had to switch their efforts rapidly from mainly supplying the grocers to also supplying the food services and the hospitality sectors.’
• Deloitte points to four trends. These have been covered here & elsewhere and include ‘a focus on health and sustainability, the proliferation of online shopping channels, the increased demand for direct-to-consumer models (DTC) including especially the subscription model’ and the use of intelligent technology to personalise goods & services.
• Further comments: It takes two to tango and, with hospitality units legally allowed to trade without restriction, it’s more important than ever that the consumer also feels willing and able to spend. Deloitte says that ‘confidence about job security rose by four percentage points to minus 5% compared to Q1 2021 and sentiment around job opportunities and career progression gained six percentage points to minus 6% over the same period.’ Minus numbers aren’t great but, relatively, people are feeling better about their jobs. This historically can drive spending decisions.
• Some slight concerns. Deloitte points out that ‘both optimism surrounding debt and disposable income slowed down in Q2 2021 compared to Q1. Confidence about levels of debt dropped by three percentage points to minus 2% compared to the previous quarter and is one percentage point down on a year ago. Indeed, consumer borrowing figures were up for the first time since last summer, a further indication that consumer spending has resumed.’ It might not be the cleverest thing, to borrow more to spend and then feel bad about it. Deloitte also cautions that ‘consumer confidence about their household levels of disposable income fell by two percentage points to minus 12% in compared to Q1 2021.’ This is still four percentage points higher than a year ago.
• Deloitte says that increased confidence ‘should translate into increased consumer activity into Q3 2021.’ Interestingly, some 49% of respondents said they would spend more on holidays and hotels in the coming year with 31% saying they will increase spend on eating out. The accountant points to supply bottlenecks as a potential source of concern going forward.
• IGD predicts that food-to-go will be worth £15.6bn at the end of 2021, 82.5% of its 2019 value. It is forecast to return to its pre-Covid levels in the second half of 2022, six months earlier than expected. Nicola Knight, Senior Analyst for Food-to-Go, said ‘by 2026, the market will be worth £22.7bn which is 20.5% more than 2019.’
• However, IDG also found that in retail, the share of the food-to-go market is forecast to reduce to 21% in 2021 from 24% in 2019. Nicola Knight said ‘In 2021, retailers have faced increased competition from foodservice operators who adapted quickly to changing consumer habits and demands. And, due to the decrease in demand and shift in shopping habits, retailers reallocated space to other categories.’
• Further comment: Definitions can be problematic but, as we understand it, food-to-go will have been adversely impacted by the move towards working from home as well as the tendency across consumers to order goods online rather than pop into town to buy them on the High Street.
• We can see that travel hubs are less busy, city centre offices are yet to fully re-populate and, though city-centre footfall is better than it was, it is not yet approaching 2019 levels. We believe these trends will be slow to reverse – and they may never, in fact, do so. Hence, we find it easier to agree with IDG’s assertion that the market this year will be only 82.5% of its 2019 size rather than its believe that the market in 2026 will be some 20.5% bigger.
• The COVID operations sub-committee of Cabinet will meet later to discuss extending the rollout of daily COViD testing sites to ease the concerns of industry and frontline services by allowing further exemptions from isolation. The hospitality industry is not expected to be covered.
• UKHospitality warns that hospitality ‘faces a summer of venue closures and reduced service’ as workers will not be exempt from self-isolating if they are ‘pinged’. Kate Nicholls, CEO of UKHospitality, said ‘We now face a summer of venue closures and reduced service, when we should be at a seasonal peak. The sector will do all it can to provide great service, but it will be with one hand tied behind our back.’
• Ranjit Singh Boparan, owner of casual dining chains and 2 Sisters Food Group, warned that even the Christmas turkey was under threat because of a wider shortage of skilled workers, such as butchers, in the wake of Brexit, in an interview with Sky News.
Company & other news:
• The Guardian looks at how the new normal could differ from the old. Time will tell but it points to increased pavement drinking, table service and the use of apps. It says there could be fewer independent pubs and more chain outlets.
• The NTIA is calling on supporters of the late night industry to write to their MPs to call for more support for venues and for fewer restrictions on trade.
• NewRiver Q2 updated. Having announced yesterday that it had agreed to sell its pub business, Hawthorn Leisure, to Admiral Taverns, NewRiver has this morning updated on Q2 trading saying that ‘our operational metrics including rent collection, leasing activity and occupancy have remained strong throughout the first quarter and, most significantly, the Company has agreed terms to dispose of its Hawthorn pub business, which delivers on a key strategic priority announced in April 2021.’
• Further comment. The company says it’s aggregate proceeds from the disposal of the pubs ‘are intended to be used to reduce net debt, significantly strengthening NewRiver’s balance sheet by resetting LTV to below 40% on a 31 March 2021 pro-forma basis, which is in line with Company guidance. The disposal of Hawthorn, once completed, will enable the majority of future proceeds from non-core retail disposals, of which we currently have £73 million exchanged or under offer, to be recycled into resilient retail assets and NewRiver’s regeneration portfolio which offer superior income and capital growth opportunities.’
• NewRiver says ‘our rent collection figures remain robust, reflecting the affordability of our rents and our strong relationships with occupiers. These attributes mean that we have seen very little impact across our portfolio from the extension of the government’s moratorium on commercial rents until March 2022. The vast majority of our occupiers are making rental payments in accordance with their original lease terms or deferral agreements.’ The company adds ‘the announced disposal of Hawthorn, once completed, will enable the majority of future proceeds from these non-core retail disposals to be redeployed into resilient retail assets.’
• In the US, Boston Beer’s latest numbers reportedly suggest that the boom in sales of hard seltzers could be abating. The company reported Q2 sales of US$602.8 million, up on last year but below Wall Street’s expectations. The company says ‘the hard seltzer category and overall beer industry were softer than we had anticipated.’
• Black Box Financial Intelligence in the US has confirmed that June sales across the US restaurant industry have recovered to pre-pandemic levels. The sector analyst reports that spend per head is up but declining guest counts could still be a cause of concern.
• Albert Schloss is reported set to open a unit in Birmingham, perhaps in November as a part of the Paradise development. The company says this is ‘set to be a retreat from the modern world, where guests are invited to discover new things, celebrate one another, and revel in the wünder of Schloss. Expect roaring fires, raucous performances, tankards of Europe’s finest bier, and endless naughtiness’.
• HGEM research shows that consumers are divided over the removal of facemasks in hospitality settings, with 50% of respondents saying they believed masks should be worn in pubs, restaurants, and other foodservice venues. Almost four out of five consumers believe staff must continue to wear facemasks, and moreover, 58% would be less inclined to visit a venue if they knew mask wearing was not required for staff.
• Per MA, nightclubs in the UK are set to require vaccine passports in the style that is about to be enforced in France for all hospitality venues. Ariane Lapègue, Charles Wells country manager France, said ‘From August, to go into a pub or a restaurant you need to show your Covid passport on your phone and the bar or restaurant will need to scan it…We will need to have more staff otherwise the staff won’t be able to check.’
HOTELS & LEISURE TRAVEL NEWS:
Traveller numbers. Signs of life but only partial recovery
• Ryanair reports a surge in bookings over recent months, leading the airline to be hopeful of a ‘strong recovery’. In its Q1 the firm saw a 196% increase in revenue as well as customer numbers rising from 500,000 to 8.1 million.
• Research by York Aviation for Airlines UK shows that more than half a million jobs are reliant on the aviation sector’s revival, with average salaries 22-60% above national average. The organisation’s chief executive Tim Alderslade added ‘Almost every constituency in the UK is impacted, and many are truly dependent on the well-paid jobs aviation generates.’
• Heathrow will introduce a £5 drop-off fee in October for arrivals by car, taxi or private hire vehicle. Blue badge holders and emergency service vehicles will be exempt. Heathrow reported an adjusted pre-tax first-half loss of £787m and cumulative losses from Covid-19 of £2.9bn.
• Airlines UK maintains that international travel from the UK is yet to “meaningfully” recover, despite the easing of some restrictions. Us visitor numbers to the UK are running at around 20% of pre-pandemic levels. Visitor numbers from the EU are at around 65%.
• In the US, Destination Analyst reports that optimism about the pandemic in the U.S. has plummeted and regression in safety perceptions has caused Americans to feel like normalcy is now further away. Expectations that the pandemic will get worse rose to 43% this week, compared to 19.6% last week. A quarter of Americans have postponed an upcoming trip and 18.9% have cancelled a trip specifically due to the Delta variant.
• Reuters reports that the US is to retain its ban on travellers into the country from the UK in light of rising infection numbers in the US and remaining high numbers here. It quotes an official at the CDC as saying ‘given where we are today with the delta variant, the United States will maintain existing travel restrictions at this point.’
• STR reports that ‘the U.K. continues to lead Europe in hotel occupancy with four straight weeks above 60%.’ It says ‘demand is almost exclusively leisure-driven as the U.K. has benefitted from a successful vaccination program, a phased reopening and improved travel sentiment overall.’ STR adds ‘other countries are showing improvement in recent weeks for those very same reasons, but this is still far from a normal summer in Europe.’ The highest occupancy level in the UK, some 63.5%, came in the week to 18 July.
• Further comment: The swing to leisure customers is a) indicative of the strong staycation market in the UK but b) it will have a drag on margins. The change in ‘sales mix’ will see guests spending less both on the rooms they take and on ancillary goods and services. Leisure guests also typically book later, meaning that visibility could be somewhat reduced.
• Games Workshop Group has reported full year numbers for the year to 30 May saying that revenue for the year rose to £353m from £270m last year with PBT up to £150.9m from £89.4m.
• Further comment. GAW group reports EPS of 373p, up from 219p and the dividends paid for the year will be 185p, up from 145p in the prior year. CEO Kevin Rountree says ‘after a tough year we are delighted that the Warhammer hobby and Games Workshop are in great shape; thanks to everyone involved and thanks to everyone that continues to keep us safe and well.’
• Regarding the outlook, Games Workshop reports ‘we will continue to do what is right for Games Workshop and our customers. We will focus on what is in our control; delivering on our operational plan rather than worrying about, for example, any short term share price volatility or the weather.’ The CEO says he is ‘mindful of the uncertainty caused by COVID-19 and Brexit.’ He says ‘like every other company we have our internal plans as to our future performance, which show a range of outcomes which are not shared with the stock market: predicting the future is always a risky business. To help inform shareholders and followers of Games Workshop as best we can, we will continue to provide regular updates of our trading in each current year (much as we do already).’
• Tesla has reported a surge in profits during Q2. The company reports that sales rose to $12bn in Q2, up from $6bn a year ago – admittedly at a time when its US factory was shut down. The carmaker delivered a record 200,000 cars in the quarter. Tesla says ‘we continue to work hard to drive down costs and increase our rate of production to make electric vehicles accessible to as many people as possible.’
• Playtech has updated on trading saying that its ‘very strong online performance continues.’
• Further comment. The company adds that ‘H1 results were in line with its expectations at the start of the year albeit with a different mix of contributions than originally anticipated. The very strong performance from B2B online, particularly Caliente, and Snaitech’s online business offset the impact of the longer than expected retail closures in Italy. Playtech’s business in Asia was stable through H1, in line with the levels achieved in H2 2020.’ The company says ‘whilst the COVID-19 pandemic continues to pose challenges and the macroeconomic outlook remains uncertain with the possibility of further unexpected lockdowns, given the strong H1 performance and the momentum within the business, the Board is confident of the Company’s prospects for the remainder of 2021 and beyond.’
FINANCE & MARKETS:
• The EY Item Club has reported that the British economy is growing at its fastest rate in 80 years. It says that it could recover its pre-pandemic size by the end of this year. The economy contracted by 9.8% last year and could grow by 7.6% this.
• The Item Club goes on to warn of the rising threat from inflation saying that this could impact growth. It says inflation could hit 3.5% by the end of this year and the unemployment rate could rise to 5.1% before falling back to 4.6% in 2022. EY says ‘while consumers have accumulated their largest stockpile of savings since the second world war, the big question is whether they will actually start to spend these funds once restrictions on activity are lifted. The assumption is that they will, but this is not guaranteed. The picture for consumers is not entirely positive: savings are concentrated among higher-income households, while higher unemployment and inflation will weigh on real income growth.’
• Zoopla points out that UK house prices have almost tripled in the last 20yrs.
• Sterling stronger at $1.3827 and €1.1715. Oil up at $74.76. UK 10yr gilt yield up 1bp at 0.58%. World markets mixed yesterday. London set to open down around 17pts.
RETAIL NEWS WITH NICK BUBB:
• Today’s News: There is plenty of news out today, but little sign of anybody being cautious about the outlook. The final results from Games Workshop (market cap £3.9bn) show that sales grew 31% in the y/e May, to £353m, with PBT soaring from £89m to £151m, despite all the pandemic disruption and Kevin Rountree, the CEO, says, modestly, that “After a tough year we are delighted that the Warhammer hobby and Games Workshop are in great shape”. The final results, for y/e April, from Moonpig (market cap £1.45bn) are headlined “Strong maiden results and clear progress executing against the strategy outlined at IPO”, with revenue up 113% to £368m and the group says that “the new financial year has started moderately ahead of expectations…we now expect group revenue in FY22 to be approximately £250m to £260m”. And the final results from the Online fashion retailer In the Style (market cap
• This Week’s News: This evening the Apple Q3 results are published in the US. Tomorrow we get the Music Magpie interims, as well as the Ted Baker and Card Factory AGM’s. Thursday then brings the Pets at Home Q1 update, the Dr Martens Q1 update/AGM and the B&M AGM, plus the Amazon Q2 in the US.