Langton Capital – 2022-05-11 – PREMIUM – Compass Group, TUI, Hostelworld, business & consumer confidence etc.:
Compass Group, TUI, Hostelworld, business & consumer confidence etc.:
A DAY IN THE LIFE:
We had one of those days yesterday. One of those that too many owners of relatively old dogs owners will be familiar with.
Anyway, we’ve reintroduced Start the Day. It’s on the right in bold (or at the bottom if you receive the Word version of this email). It features:
• Start the Day with a Song (back after its Covid shutdown. Suggestions, especially more recent releases, welcome),
• Quotey McQuoteface (a Quote & general knowledge quiz),
• A Little Birdie Told Us (interesting stuff whispered in our shell-like – comments & contributions welcome)
• And Yesterday’s Tweets (which does what it says on the tin).
On to the news:
In addition to comments from the BRC and Barclaycard, Accountant Deloitte has added its voice and reported its latest Consumer Confidence Index suggesting that ‘consumer confidence fell for the third consecutive quarter in Q1 2022.’ It says real incomes fell and interest rates rose. Stark though the comment is, it will not come as new news to many.
Setting the scene:
Deloitte says that the various economic shocks, Brexit, Covid & the Russian invasion of Ukraine, have resulted in inflation and this ‘led to a significant deterioration of consumer confidence.’
It says its ‘Consumer Confidence Index declined by five percentage points to minus 17% compared to Q4 2022 representing our Tracker’s largest fall since Q1 2020 when the UK entered its first lockdown at the start of the pandemic.’
Deloitte says ‘the decline in confidence was mainly the result of a steep drop in consumer sentiment around their personal finances.’ Energy bills are rising and this has become obvious to most consumers.
The consumer reaction:
• Deloitte says ‘with costs surging many consumers have been using their savings or taken on debt to finance their spending and maintain similar living standards.’ This is a finite measure.
• The accountant says its ‘measure of consumer confidence in levels of disposable income fell by 23 percentage points, to minus 49%, its sharpest quarter-on-quarter fall, reaching its lowest level since the Deloitte Consumer Tracker began in 2011.’
• With interest rates rising, it says ‘sentiment about levels of debt also worsened losing six percentage points to minus 11% its lowest level in nine years.’
• It says the above ‘is a major concern for the UK economy given that consumer spending accounts for half to two-thirds of all economic activity.’ Consumer spending is often the driver in the UK.
• Consumer sentiment on the state ‘of the economy has dropped by 20 percentage points this quarter, to minus 73% – lower than when COVID restrictions were introduced in the UK back in Q1 2020.’
• This has been good but Deloitte says ‘our survey also points to consumers starting to anticipate a change in their job prospects, as sentiments around job security and job opportunities declined by three and two percentage points, respectively, but both remain higher than the same period a year ago.’
• The state of the jobs market is a major, major driver when it comes to consumer spending.
• Overall spending. Deloitte says ‘one in two consumers (54%) are buying fewer goods or services in a conscious effort to save money. The data also shows that a third of consumers who are spending less (35%) said they are choosing cheaper brands or stores and a quarter (25%) are taking advantage of sales or discounts.’
• Big ticket. The Tracker ‘points to people cutting back on major goods purchases, for example postponing buying large household appliances such as washing machines or furniture and items for the home.’ Husbanding cash in this way could come to the rescue of the hospitality industry, at least in the short term.
• A two speed economy. Deloitte says that the gap between affluent and less well-off households is widening. The accountant says richer demographics have benefited from ‘savings accumulated during the pandemic [and] rising house prices.’ It says such consumers ‘have been turning their attention to spending more on socialising including on going out to bars and restaurants.’ It says ‘lower-income consumers have no choice but to cut back on all things that are non-essentials.’
• Deloitte says ‘in Q1 2022 overall spending on holidays and hotels was up by 13 percentage points, while spending in restaurants or on going out rose by nine and five percentage points, respectively.’
• Deloitte says ‘wages are unlikely to keep pace with inflation and economic sentiment has fallen this quarter.’
• It adds, however, that ‘several factors help explain why consumer spending is likely to keep growing in the face of falling real incomes. Rising employment and higher asset prices are supportive of spending and not all consumers rely on earned income to finance spending.’
• We would caution that using savings or capital in order to spend cannot be a permanent solution. Deloitte says some consumers ‘can fund spending by borrowing, having paid down credit card and other consumer debt over the last two years.
• This isn’t too clever longer term but, in the short term, Deloitte believes ‘higher-income households are likely to account for an even more disproportionate share of spending this year.’
Elsewhere, the National Institute of Economic and Social Research has said that it believes the UK will fall into recession later this year. It says that as many as 1.5 million households across the UK, maybe 6m people, will struggle to pay for both food and the energy bills needed to keep them warm over the next year. It calls on the Chancellor Rishi Sunak to do something to help people from sliding into debt.
• The NIESR says 1.5m households could ‘face the choice between eating and heating’. It adds that real incomes will drop by 2.4% and says that ‘the hardest hit households are facing bills worth more than 90% of their disposable income, in some cases as much as 94%.’ It says that is ‘just food and energy, not accounting for other essentials and certainly not savings. It is a dramatic situation for households across the UK.’
• The NIESR adds ‘prices will push up bills, drag down demand and increase income inequalities. The big squeeze on budgets will hit the lower-income households hardest who live in some of the most economically and socially deprived parts of the country.’ It concludes ‘to stop an additional 250,000 households from sliding into debt and destitution, the chancellor should instate a £25 per week universal credit (UC) uplift for at least six months.’
• The NIESR goes to say ‘to help the lower-income 11.3 million households that struggle to make ends meet, we call for a one-off cash payment of £250 in 2022-23. This emergency support costs about £4.2bn, which is affordable given the fiscal room for manoeuvre that the OBR in March put at £20bn.’ The NIESR told Yahoo Finance ‘that slide into destitution is happening right now, these bills are happening right now. They’re not happening in October, or next winter, they are happening now. So, if we want to avoid destitution then the chancellor should act straight away.’
COMMENT ON THE QUEEN’S SPEECH:
Prince Charles yesterday read the Queen’s speech in parliament.
UK Hospitality CEO Kate Nicholls comments ‘the measures in today’s speech will do little to bring immediate relief to the pains that hospitality businesses are feeling in the short term…Making pavement licences permanent is a really positive move…’
• She adds ‘the Government is right to look at the planning system which is unnecessarily burdensome and time-consuming…Proposals to get empty premises back into use – if properly considered and scrutinised – can make a huge difference in rejuvenating empty properties and, in turn, reviving high streets…It is encouraging that Government is taking action to simplify and update the business rates system but this needs to be combined with concrete action to reduce the overall burden of rates on hospitality.’
The CBI commented, saying the Queen’s Speech focus on ‘infrastructure, energy security, and skills all lay the foundations for sustainable, longer-term growth…what’s needed now is a relentless focus on delivery.’
The BCC responded to the Queen’s Speech by saying it welcomes the ‘measures for business, but unless the Government takes immediate action on the economy, they will come too late to help many firms…If we can ease the pressure on businesses then they can keep a lid on the price rises being driven by surging energy bills, staff shortages and higher taxes.’
• The BCC says ‘an emergency budget is needed to provide firms with the breathing space they need to raise productivity and strengthen the economy.’ It adds ‘the costs crises facing firms and people in the street are two sides of the same coin. If we can ease the pressure on businesses then they can keep a lid on the price rises being driven by surging energy bills, staff shortages and higher taxes.’ The BCC concludes ‘only after an emergency budget will some of the legislation set out in the Queen’s Speech have a chance to drive our economy forward.’
PUBS & RESTAURANTS:
The president of the European Investment Bank has said that around £6.8bn of wheat is currently in Ukraine, but cannot be exported because the war has blocked off transport routes. Ukraine was the sixth-largest exporter of wheat in the world last year. Such disruption is likely to perpetuate current price volatility.
• The EIB’s Werner Hoyer says ‘Ukraine is the wheat basket of Europe, and it’s sitting on €8bn worth of wheat right now from last year’s harvest. They cannot export it, they have no access to the sea.’ It says ‘they are sowing like crazy right now, and they will expect probably a good harvest, maybe 70% of last year’s harvest, in a couple of months – and then what to do with it?’
Christie & Co’s hospitality team completed six individual pub sales across the home counties during March alone. Christie & Co said there was a good mix of buyers seeking opportunities outside of city-centres, a trend which has arisen from the pandemic.
Bibby Financial Services has produced its annual SME Confidence Tracker survey of 500 UK SME owners and decision makers and has found that 81 per cent would right now consider some sort of cash injection from external sources to support them. It says that 12% would consider crowd funding.
• Bibby says the top three options for accessing capital were: business loans at 34%, credit cards at 30 per cent and overdrafts at 29 per cent. Smaller companies are concerned about inflation (42%) and the conflict in Ukraine (37%). It says ‘UK businesses face a heady cocktail of issues that threaten to impact growth forecasts for 2022 and beyond, including soaring inflation, skills shortages, and a cost-of-living crisis not seen on such a scale in the 21st century.’
• Bibby continues ‘while our report highlights a stoic resilience amongst the UK SME community, many are still struggling to keep their heads above water and operating on a day-to-day basis, rather than looking ahead to growth.’ Bibby adds ‘SMEs faced the pandemic with fortitude and now they must continue to adapt and change to carefully manage the rising costs of doing business.’ It says ‘it’s evident that cashflow challenges and payment issues continue to plague businesses, and it’s now more important than ever that they have access to working capital to support day-to-day operations, and to repay debt taken on at the height of the pandemic.’
• Bibby concludes ‘they cannot succeed alone; it’s critical they receive support from the private and public sectors, and we’d urge policymakers to closely look at wider tax cuts and energy grants to help SMEs and to ensure they continue to play a pivotal role in the UK’s economic recovery.’
Compass Group has reported H1 numbers saying that revenue in the half year rose by 37.9% to £11.6bn with operating profit up by 134.5% at £673m. Earnings per share were 26.9p compared with 9.5p in the prior year. The company has announced a H1 dividend of 9.4p (2021 – nil). The company says this represents ‘strong growth’ that has taken ‘revenue above pre-COVID level.’
• Re the outlook, CPG says that it is increasing its FY 2022 organic revenue guidance from 20 – 25% to around 30% growth. On margin, it says ‘guidance remains unchanged’ the group expects ‘FY 2022 underlying operating margin to be over 6%, exiting the year at around 7%.’ CEO Dominic Blakemore says ‘we continue to recover strongly from the pandemic and have achieved the important milestone of revenue exceeding our pre-COVID level on a run rate basis.’
• Mr Blakemore says ‘we have seen a notable improvement in Business & Industry and Education as employees return to the office and students to in-person learning. Net new business growth has been excellent, particularly in North America and Europe where we have mobilised a significant number of recent wins and benefited from our highest ever client retention rate.’
• The CEO continues ‘we are mindful of global inflationary pressures, which have been exacerbated by the tragic events in Ukraine. Although we expect inflation to increase and continue at a heightened level in the medium term, we have a resilient business model to help mitigate this challenge. Inflation also provides a further impetus to outsourcing as organisations seek savings and we are capturing this growth opportunity as demonstrated by our record new business wins.’
• The company says ‘given our strong first half performance and positive outlook, we are increasing our full year organic revenue growth guidance from 20 – 25% to around 30%. Whilst we are cautious about the inflationary environment, our margin guidance remains unchanged, with full year underlying operating margin expected to be over 6%, exiting the year at around 7%.’ In conclusion, it says ‘looking further ahead, we remain excited about the significant structural growth opportunities globally, leading to the potential for revenue and profit growth above historical rates, returning margin to pre-pandemic levels and rewarding shareholders with further returns.’
Rosa’s Thai will open its first site in York on 1 June, located on Coney Street. The opening marks the 29th restaurant for the group.
HOLIDAYS & LEISURE TRAVEL:
TUI has reported Q2 numbers, saying that it is ‘delivering further operational and financial progress.’ It says that ‘Q2 Group revenue of €2.1bn, an improvement of €1.9bn year-on-year’ saying this is ‘reflecting the more normalised pre-pandemic travel environment versus the prior year, with March achieving the highest monthly revenue within the quarter as operations ramped up after a more subdued January and February post Omicron restrictions.’
• TUI says it flew ‘71% of financial year 2019 capacity…in Q2, just ahead of our mid-point of initial Winter 2021/22 programme expectations.’ It adds this is ‘reflecting the increasing consumer confidence in departure, pent-up demand and the ramp up of operations.’ Importantly, the co says ‘we exited the second quarter with an operated capacity of 75% in March 2022.’
• TUI adds that ‘1.9m customers departed in the second quarter, an increase of 1.7m customers versus the prior year, with the highest departure volume achieved again in March.’ It says the Q2 operating loss was ‘almost halved to €-329.9m loss versus prior year, (Q2 2021: €-633.0m loss), driven by a strong operational recovery in the second half of the quarter on easing of Omicron restrictions, with Hotels & Resorts delivering a third sequential positive quarter since the start of the pandemic.’
• TUI says it ‘generated a significantly positive operating cash flow, driven by substantial working capital inflow as the business returned to a more normalised pre-pandemic environment for travel and bookings and operations recovered, helped by the easing of Omicron-related restrictions in the second half of the quarter.’ Looking forward, the group says ‘after two years of turbulence, we expect to return to significantly positive underlying EBIT for financial year 20223 and we remain committed to reducing our German government exposure further.’
• Re the full H1, TUI says ‘Group revenue was €4.5bn, an increase of €3.8bn compared to the previous year’ and adds ‘the Group’s operating loss (adjusted EBIT) amounted to €-603.5m in H1. It decreased by €705.3m and thus by more than half compared to the previous year’s value (H1 2021: €-1,308.8m).’
Hostelworld, which will host its AGM later today, has updated on trading saying ‘the strong start experienced in the first 12 weeks of 2022 has continued through April and into early May. In particular in week 18 net bookings reached 73% of 2019 levels and, due to higher booking values, revenue reached 97%.’
• It says ‘we are seeing the recovery continue across all destinations and demand segments. In particular, booking demand into Europe, our largest destination in 2019, has almost fully recovered to 2019 levels with some markets exceeding 100%.’ Hostelworld adds ‘long haul bookings have now reached 70% of 2019, with trips from the US and Canada into European destinations at 2019 levels.’
• Hostelworld says ‘we are very confident in our business model and in our proven capability to capture the pent-up customer demand to travel.’ It says ‘despite a number of external factors including inflationary pressures and the ongoing conflict in Ukraine, we anticipate this strong recovery trajectory to continue.’
A study by Skyscanner has found that 86% of travellers plan to spend more or the same on international travel than they did in pre-pandemic 2019, with half planning to spend more. Of those spending more, 48% are putting money towards longer trips and 43% on accommodation upgrades.
Martin Alcock, owner and director of the Trade Travel Consultancy, speaking at the Barclays 2022 Travel Forum, claims that the holiday booking window had begun to lengthen ‘in the last couple of weeks’ with customers starting to book further out.
• Mr Alcock says that, in the recent past, ‘cash has been squeezed for a variety of reasons and throughout the pandemic we have seen the trend of booking later and the booking window shrinking.’ He says that longer notice periods before taking a holiday could be a sign of improved confidence. He says prices have risen by 20% to 30%.
Tui Airways announces that food and drink will be served on its flights, in a U-turn from the advice it issued over the weekend. Previously the airline had recommended passengers should bring their own food and drink on board as it was suffering from staff shortages in its catering supplier.
Sabre CEO Sean Menke claims that business travel is now closing the gap on leisure travel demand. The difference in recovery between Sabre’s ‘domestic TMC’ and ‘non-TMC’ bookings closed to just 7% in April, down from 37% the year prior.
• Looking at the behaviour of certain sectors, Sabre says ‘although still below the total recovery of most other sectors, the financial, consulting and IT sectors, which are historically heavy travellers, ended Q1 accelerating rapidly, faster than at any point since the pandemic started. These sectors also ended the quarter at their highest levels of overall recovery since the pandemic began.’ Business travellers will historically pay more to travel. They book earlier and are more likely to consume premium products.
Heathrow has increased its 2022 passenger number forecast by 16% from 45.5 million to nearly 53 million. The forecast means Heathrow expects passenger numbers to reach 65% of pre-pandemic levels this year. Heathrow expects to remain loss-making through the year and does not forecast paying dividends to shareholders in 2022.
• Heathrow CEO John Holland Kaye says ‘we all want to see travel get back to pre-pandemic levels as quickly as possible, and, while I am encouraged by the rise in passenger numbers, we also have to be realistic.’ He adds ‘there are significant challenges ahead. The regulator can either plan for them with a robust and adaptable regulatory settlement that delivers for passengers and withstands any shocks, or they can prioritise airline profits by cutting back on passenger service, leaving the industry to scramble when things go wrong in future.’
Hindenburg Research, a US firm known for shorting stocks, has said Elon Musk could submit a lower bid for Twitter, owing to a slump in tech stocks and a weak financial performance at the social media platform.
Meanwhile, soon-to-be Twitter owner and the world’s richest man Elon Musk has said that he will reverse Donald Trump’s ban from the platform once he takes control. He said banning former president Trump was a ‘morally bad decision and foolish in the extreme.’
FINANCE & MARKETS:
Toyota and Tesla have been impacted by shutdowns in China. Shanghai is under restrictions for the sixth week. Tesla is reported to have suspended most of its manufacturing operation in the city.
Sterling mixed at $1.2331 and €1.1696. Oil price lower at $104.88. UK 10yr gilt yield down sharply at 1.85% (off 10bps). World markets a shade better yesterday and London set to open up around 37pts as at 6.30am.
RETAIL WITH NICK BUBB:
• Today’s News: After months of buoyant trading and constant profit upgrades, the Vertu Motors finals for y/e Feb are very strong, with PBT jumping to £81m on sales of £3.6bn, but trading profits for March and April were only flat (at c£19m) and the company has refrained from giving any guidance for the new year, merely noting that “The outlook will depend on the available supply of new vehicles and continuing consumer confidence. The group’s excellent financial position provides the resilience to overcome any economic slowdown and resources to continue to grow”. And the funeral services operator Dignity has reported a 22% drop in Q1 revenue. Yesterday afternoon, at 4pm, Frasers Group announced that Mash Holdings, Mike Ashley’s private company, had edged up its stake to just over the 68% mark, as a result of the continuing share buyback programme. At the last minute, little Angling
• This Week’s News: Tomorrow brings the Superdry pre-close update and the Howden AGM.