Loungers’ H1, MARS’ meeting, Christmas, inflation, 888 & other:

A DAY IN THE LIFE:

Bit busy with meetings. Yes, proper meetings. On to the news:

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LOUNGERS H1 NUMBERS:

Loungers has released its H1 numbers and our comments thereon are set out below:

Headline numbers: Loungers reports revenue of £102.4m in the 24wk period vs £53.5m last year. Adjusted EBITDA is £27.1m vs £13.2m. The company reports a PBT of £12.8m vs £0.1m last year with EPS of 10.4p against 0.1p. The company reminds investors that ‘the 24 week period being reported on includes four weeks to 16 May where the Group’s sites were restricted to external trading only, and a further nine weeks to 18 July before the removal of the remaining Covid restrictions. Accordingly, only 11 weeks of the period were absent from any Covid restrictions.’

Highlights:

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MARSTON’S ANALYSTS’ MEETING:

Following the announcement of its full year numbers, Marston’s hosted a meeting for analysts and our comments thereon are set out below:

The Covid pandemic & aftermath:

• Marston’s believes that it has ‘navigated the pandemic well’ and, due to the creation of the Carlsberg, Marston’s Brewing Company, it has not needed to issue equity.

• Although the company made an operating loss in the year, stripping out the CMBC loss means that the group’s pubs made a profit.

• The LfL sequencing (see earlier Flash Note) is positive. That LfL sales momentum dropped only from +2% to +1.3% when VAT on food & soft drinks rose from 5% to 12.5% is positive news.

• Re Marston’s positioning, it is largely a suburban operator and has only c3% of its units in city centres. It reports that it has not experienced labour shortages to the extent that some other operators have

Current trading & outlook:

• MARS has fixed contracts for the majority of its food & drink purchases beyond the end of FY22. It believes it is facing cost increases of c3% on food & drink and around 5% on wages & utilities. The co says it can mitigate around a half of the increase & cover the rest by a 2% price rise

• CEO Andrew Andrea says that, whilst the return to the pub has been welcome and widespread, some customers are still staying at home and footfall is down

• Older customers ‘are coming back’ but demand is sensitive to Covid news. Bookings are more common and impulse visits are down. Outdoor space is at a premium. Working from home will take time to unwind & it benefits suburban pubs

• Re margins going forward, the co is not giving guidance but says that it could be in a position to do so after the important Christmas trading period. December is twice as busy as Oct & Nov combined

• Current LfLs are +1.3%. Accommodation is ‘still strong’ but no food / drink split is given. There is little discounting at present

• Re the impact of the VAT increase on 1 Oct. MARS says it did not take price as much as some of its competitors earlier in the pandemic and thus was able to move prices when VAT went up. There has been no customer push-back. No decisions have been made re the 1 April 2022 move to 20% VAT. The co says it will ‘review prices in April’.

• Whilst spend per head is up and visits are down, both are ‘single digit percentages’

Balance sheet & borrowing:

• Cashflow in the year was +£118m (including the £228m received via CMBC). In FY22, the group will pay £50m in deferred VAT but also receive a stage payment for the beer company of £28.2m

Strategy:

• Aims. As mentioned earlier, at the corporate level, the group aims to raise sales from a pro-forma of £800m in the year just reported to >£1bn in FY25. It also intends to reduce debt (now £1.232bn) to <£1bn. The company does not believe it will be reliant on M&A to get to £1bn of sales

• Aims. At unit level, MARS is driving its ‘Pubs to be Proud of’ campaign. It is cutting delivery and also breakfasts other than at units with beds in order to concentrate on core trading periods and encourage customers to ‘get out of the house’

• ‘Make Great’ campaign singles out specific targets such as Make Sunday Great and Make Capex Great

• Strive for Five aims to up-sell and targets five purchases per visit, for example starter, main, sweet and two drinks or a mix of the above.

• Evolving the food offer. Whilst still committed to the offer, the company aims to reduce its reliance on away from an offer that is too reliant on very high volumes with an exposure to discounting. Units will be assigned to either Community, Signature or Revere. Some £50-55m is to be spent with a targeted return of 30%. Some 25 conversions should take place this FY. Those completed suggest ROICs of between 35% and 61%. The ‘low hanging fruit’ will be first in line for conversion

• The Pillar scheme will see more food-led pubs are to be considered for franchise. MARS will control buying and margin. Some 32 have been transferred with more EBITDA generated for both the tenant and Marston’s. Another 30 units will follow in FY22. Some 250 units could be refurbished in total

• Innovative acquisitions. The group would like, at the right time, to undertake more ‘Brains-style’, capital light, corporate transactions. MARS says it is ‘working with funding partners’

• CMBC. There was no dividend in FY21 but one is expected this year. Synergy aspirations have risen from £24m to nearer £40m.

Langton Comment:

• Marston’s reports that it has coped with the pandemic well and says it has a clear strategy for the future.

• As mentioned previously, the current picture (and the comps from last year) is confused by EOTHO, 5% VAT, 12.5% VAT, removal of business rates, furlough payments and then the end of furlough meaning that forecasting is more difficult than ever. Marston’s believes that it will have a fuller understanding of the position post-Christmas

• The strategy is clear and achievable. Whilst execution will be key, the group has proved its evolved concepts in the field and the reported Fortress approach to Punch Pubs suggests that there major financial investors that recognise the long term value held in the sector

• There is no dividend but Marston’s knows that this is a matter of some urgency. It say it will need to be covered, be sustainable and be capable of growth.

• Marston’s shares have slipped back on Covid-resurgence concerns but, although there are challenges ahead, we believe that the company remains well-positioned to prosper.

PUBS & RESTAURANTS:

The impact of Omicron on bookings (particularly Christmas bookings).

There’s a lot of feedback as to how Omicron either is – or is not – impacting bookings. Momentum had been positive with one company telling us that it had been tracking 70% behind Christmas 2019 but had accelerated over ‘recent weeks’ to currently be only 10% behind. But, although that’s only a week or so ago, that’s history post the emergence of the new variant.

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AlixPartners CGA Market Recovery Monitor shows that the  total number of operating pubs and bars in the UK fell by 3,247 between March 2020 and September 2021, falling from 47,927 to 44,680.

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The BBPA has welcomed the government’s proposals to improve the current structure of Small Brewer Relief (SBR) to more closely align with economies of scale and remove barriers to growth. A BBPA spokesperson said ‘Combined with the recent duty freeze and proposals set out in the new Alcohol Duty Review, we hope this will now stimulate business growth and investment in Britain’s brewers of all sizes at a crucial time in their recovery post-covid.’

Conversely, SIBA has said that it is ‘disappointing that some small brewers between 2,500 to 5,000hl will have to contribute more in beer duty under the new system’ but acknowledged that ‘the rate is more manageable than was proposed in the consultation.’ SIBA continued, saying ‘The changes also remove the ‘cliff edges’ that hindered brewers in the past and sets out a path to growth and a workable framework for the future.’ 

Boris Johnson has said another lockdown is ‘extremely unlikely’. He says, however, that the government is keeping everything under review. He has urged people not to cancel their Christmas plans including parties and large gatherings. Asked if parties should be cancelled, he said ‘the answer is no. The guidance remains the same, and we’re trying to take a balanced and proportionate approach.’ UKH’s Kate Nicholls says a lockdown would be a serious blow to the sector.

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Inflation:

The BRC reports that shop prices rose by 0.3% in November. This follows a decrease of 0.4% in October. The BRC says ‘the impact of labour shortages, rising commodity prices and transportation costs have now very clearly taken their hold on consumer prices.’ It says ‘with food prices rising, and particularly fresh food… we may find some of our Christmas shopping a little more expensive this year.’

Analysis undertaken by the CEBR for BBC Panorama suggests that a typical UK family will spend £1,700 more per year on household costs in 2022. This could see the inflation rate rising to 4.6% by Christmas.

COMPANY & OTHER NEWS:

Jeremy Clarkson’s latest venture sees him enter into the world of brewing, with his beer shooting up to the top of the platform’s online charts, outselling well-known brands such as Corona, Stella Artois and Budweiser. Clarkson wrote  that he originally wanted to call the beer ‘Lager McLargerface’ but after being asked to reconsider settled on calling it Hawkstone.

The Morning Advertiser’s Drinks List for 2022 names Heineken 0.0, which is expected to be available on draught in pubs across the country from next year, as the number 1 drink in the no and low-alcohol category. However, Heineken 0.0 still saw losses of 13.6% and 11.4% in volume and value respectively.

Stock Spirits Group PLC has announced that its shares have been delisted from the London Stock Exchange and the Prague Stock Exchange with effect from 8am yesterday morning.

JDW chairman Tim Martin has said there is “no apparent logic” in Fidelity’s criticisms of its corporate governance.

LEISURE TRAVEL & HOTELS:

The WHO has advised people over the age of 60 or at risk of developing serious illness should postpone international travel.

Inghams has suspended all its departures to Switzerland for this December following new quarantine rules on arrival, following the decision by Switzerland to put the UK on its red list. The ski operator said customers were now being offered the option to move their booking free of charge or cancel their booking and receive a full refund.

Sykes Holiday Cottages has seen its portfolio be increased by 500 properties following the takeover of Northumbria Coast & Country Cottages. Sykes now offers 20,500 holiday cottages across the UK, Ireland and New Zealand.

OTHER LEISURE:

888 has announced that it has been awarded a provisional sports betting licence from the Virginia Lottery.

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Sportech has announced that, ‘further to the Company’s announcement on 1 November 2021 regarding Sportech’s exclusive discussions to potentially sell its terrestrial lottery supply contract, the period of exclusivity afforded to the potential buyer has been extended to 17 December 2021 in order to bring the negotiations and any resulting transaction to a conclusion.’ It cautions ‘there can be no certainty that this transaction will proceed and a further announcement will be made if and when appropriate.’

Co-founder Jack Dorsey has stepped down from his executive role at Twitter, handing over to CTO Parag Agrawal. Twitter stakeholders Elliott Management and billionaire investor Paul Singer have called on him to step down from one of his roles at either Twitter or Square, his digital payments company. Twitter’s shares rose 11% after the news broke on CNBC before being briefly suspended.

Lego will give its 20,000 employees three extra days of holiday and a special bonus after a year of bumper revenues. The company reported a net profit of more than $954m in H1 2021, up 140% YoY, with revenues up 46% to $3.49bn.

Meta’s acquisition of Giphy, an online gif generator, is expected to be blocked by the CMA, which would mark the first time the CMA has put a stop to a deal put forward by a Big Tech. The CMA argued that Meta would be able to cut off rival company’s access to gifs. Meta shares fell on the news.

FINANCE & MARKETS:

The Irish Maritime Development Office reports that the volume of goods shipped from the Republic of Ireland to the EU without coming through the UK is up 50% in the last 6mths, IMDO says it is ‘clear that the new trading arrangements between Ireland and the UK have had a significant and negative effect upon ro-ro freight traffic between the two countries.’

Shares yesterday fell after Moderna said it believed the Omicron variant is “highly infectious” and it is “highly possible” the effectiveness of vaccines is decreasing. The company told CNBC in the US that it ‘took around four months for Delta to take over Beta, and it seems it’s taking just a couple weeks for this new variant to take over Delta.’

Inflation in the Eurozone has risen to 4.9% in November.

Sterling mixed at $1.3326 and €1.1752. Oil up at $71.68. UK 10yr gilt yield down 3bps at 0.82%. World markets down yesterday but Far East better today and London set to open up around 59pts.

RETAIL WITH NICK BUBB:

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