Langton Capital – 2023-09-29 – PREMIUM – Seedrs, Hostmore, Flight Club, late-night market, the economy & other:
Seedrs, Hostmore, Flight Club, late-night market, the economy & other:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: Broadly speaking, the dog and I have the same attitude towards art; basically that, if you can’t eat it (the dog) or prop a wobbly table up with it (yours truly), what’s the earthly use? However, I’m by no means impervious, it would appear. Because, when a van Gogh appeared unannounced as my Windows lock-screen, it knocked me back. I couldn’t help but notice how striking it was. I’m fighting against the desire to rabbit on about the texture, the contours and colour contrasts, the deep emotions etched into the canvas, the trauma, the desperation and the almost visible internal outrage the man felt as his sanity crumbled… So I’ll keep that to myself but it was a good drawing nonetheless. Anyway, it’s Friday, it’s not raining and the weekend is almost upon us. Have a good one & let’s move on to the news: CGA – UPDATE ON UK NIGHTCLUB MARKET: Langton: There can be money to be made in mature industries, even in those in decline. But a sensible question, surely, to ask at this point – for nightclubs or for any other industry under pressure is – if they didn’t exist, would you build them now? CGA has updated on the UK nightclub industry saying that around a third have disappeared since Covid. It says ‘Covid and changing consumer habits have led to a sharp drop in Britain’s nightclubs as consumers’ high tempo habits diversify and shift towards a broader range of outlet types and periods of the day.’ Stats: • Data from CGA and Alix Partners in their latest Hospitality Market Monitor shows a 30.0% net decline in nightclubs between the start of the COVID-19 pandemic in March 2020 and June 2023. • The research suggests ‘this is more than double the 13.0% drop in all licensed premises over the same period.’ • The Hospitality Monitor reports that ‘ten years ago, Britain had nearly 1,700 nightclubs, but in June the total was barely half that at 873.’ • It says ‘the sharp decline reflects the impact of long periods of COVID-related closures of nightclubs, which were among the last venues to emerge from trading restrictions.’ Non-Covid-related evolution: • Dancing with strangers and smooching were perhaps to be discouraged during Covid. • But the latest Hospitality Monitor also says that there have been ‘longer term changes in people’s habits that have diversified the late-night market. • It points to the rise of: o Competitive socialising venues o Gigs & festivals o And ‘other experience-led and immersive concepts.’ • CGA says ‘the market has seen a growing diversity of alternative high-tempo experiences, and bar numbers have fallen by only 3.1% since March 2020 – a fraction of the 30.0% drop in nightclubs.’ • The research suggests a smoothing across other day parts and a rise in the popularity of experiential venues as contributing to nightclubs’ decline. • CGA still says that ‘half of global consumers plan to visit venues that offer an exciting experience, with street food/pop-up markets and food and drink festivals also showing popularity with over half of consumers (57%).’ Author’s comments: • CGA’s Karl Chessell says ‘COVID-19 hit nightclubs harder than any other licensed sector, and lockdowns were the final straw for hundreds of venues. But our research shows the late-night market isn’t disappearing – it’s just changing. Bars, pubs, competitive socialising venues and other new leisure concepts all now rival nightclubs, giving consumers a greater choice of venues than ever.’ • He says ‘young adults remain eager for big nights out with their friends, and while clubs are still a part of their mix they are also open to alternatives that deliver memorable social experiences and good value.’ • Graeme Smith, AlixPartners’ MD, says the data ‘highlights just how severely the night-time industry has been impacted by both the pandemic, changing consumer behaviour and increasing competition in the late night market with consumers looking for more immersive experiences (including competitive socialising).’ • He says ‘we’ve seen a recent explosion of experiential bar and restaurant concepts across the industry, and with bars and other venues also now staying open later into the early hours, consumers have a wide array of experiences and options to choose from.’ • Mr Smith says ‘as the industry becomes increasingly dynamic, these venues need to compete more than ever to become the late-night experience of choice, whilst keeping evolving consumer habits front of mind.’ Langton comment: • Nightclubs have been around for some time and there remains a market for (perhaps a diminished) number of outlets. • However, it does appear that societal change has caught up with at least some of the venues previously operating. • From an investing and accounting point of view, it does raise a question over longevity. • Not just of nightclubs but of other concepts such as some of the experiential offers that are currently causing nightclubs something of a headache. • A boring but important accounting question will be ‘are you depreciating your assets correctly?’ Are operators, for example, depreciating marble bar tops over their physical lifespan when they might be out of fashion next week? • Furthermore, what about goodwill paid for assets that might become unfashionable? And pre-opening expenses, lease premiums and the like. Comments welcome. PUBS & RESTAURANTS: Support for pubs: A report by think-tank Localis urges the UK government to provide greater support for pubs through tax rebates, arguing they are vital community spaces that combat isolation and bring people together. The report advocates reinstating a Minister for Pubs role to coordinate help for the sector…. • Localis comments ‘across Britain, pubs have consistently played a pivotal role in knitting communities together and promoting social cohesion.’ It says ‘pubs are the beating heart of many communities, playing multifaceted roles in local daily life. This is why the decline of pubs is cause for great concern. With each closure, both tangible and intangible voids are left behind.’ • Localis concludes ‘the lessons are clear: pubs, in all their forms and across all locations, remain integral to British social cohesion as hubs of activity, community, and social capital. This makes their presence all the more crucial as community safety nets and beacons of light, offering a lifeline hope for many people looking for a real sense of local belonging.’ • Emma McClarkin, chief executive of the British Beer and Pub Association, said ‘With closures continuing to rise and pubs under threat from further duty and business rates cost hikes we hope the Government will seriously consider the proposals put forward by this report so the foundations can be laid to help pubs continue to do this brilliant work in their communities long into the future.’ Regarding the consumer: The average interest rate on a 5-year fixed mortgage in the UK has fallen below 6% for the first time since July, a positive sign amid the cost of living crisis, though 2.4 million fixed-rate mortgages are due to expire between last July and the end of 2024, according to UK Finance. Winding up petitions: The Times writes that figures from Company Watch show that HMRC is getting increasingly bolshy, petitioning courts to wind up 1,522 businesses for not paying tax owed in the year to Aug, up from 351 in the same period last year. British Gas Trading is ranked 2nd most active this year, with 40 petitions. Other news: The Morning Advertiser comments on the Late Night Levy, which was introduced in 2011, and quotes Poppleston allen as saying ‘clearly against the backdrop of high inflation, soaring business costs and a challenging economic environment, the leisure and hospitality sector would prefer the levy be scrapped altogether – it is another financial burden placed upon the sector during what continues to be a tough time for operators….’ • NTIA CEO Michael Kill says ‘with taxation and inflation already drowning the sector, the Government must reconsider its position on late-night levy’s.’ The NTIA says the payment ‘is just another stealth tax on top of others which is systematically penalising businesses that operate at night, with no clear benefit.’ COMPANY NEWS: Hostmore, which operates the TGI Friday sites in the UK, has reported H1 numbers for the 26 weeks to 2 July saying that revenue slipped from £98.5m last year to £93.6m. The company reports a loss before tax of £10.8m (2022: loss £17.1m) and a loss per share of 8.5p (2022: loss per share 10.6p). The company says that the period was a transitional one, with new management appointed. It says that its H1 revenue, adjusted for differences in VAT, was only 2% down versus H1 2022 and adds that H2 revenues to date (24 Sept) were up 2% vs last year. It says cost reductions are ongoing and says that the ‘cost inflation of purchased inputs, including food, drinks, and utilities, [is] now stabilising with significant portion under long-term contracts or hedged at favourable prices…’ • Hostmore, whose shares have fallen from around 130p when they were introduced to the market to around 14p now, says that it has been focusing on its loss-making stores and says that ‘new store openings [have been] deferred until at least 2025, saving approximately £15 million of cash expenditures.’ • The group says that H1 2023 net debt was £31.3 million, which it says is an ‘improvement from guidance of £32.2 million.’ It adds that the ‘refinancing process [has] commenced with existing and potential new lenders.’ It says this is expected to be concluded by end of Q1 2024. • Chairman Stephen Welker says ‘during the period we have undertaken a very thorough review of our cost structure and store estate. We are pleased that the actions taken have dramatically improved the financial outlook of the business, thereby keeping us on the path to repaying all of our borrowings and initiating shareholder distributions.’ • CEO Julie McEwan says ‘the initiatives taken in the first half of 2023 have built a leaner and more focused organisation.’ She says ‘notwithstanding the challenges facing the sector, the early success of our turnaround programme enables us to look to the future with confidence. The leadership team we have in place is focused on building a platform for future growth and shareholder returns, with the Group well placed for the remainder of 2023 and in the years ahead.’ • Langton. The numbers are not pretty and both a) establishing some sort of niche in which the company can profitably operate in the 2020s and b) dealing with legacy debt issues that could cause very serious problems, remain critical. There are material risks regarding the company and, whilst one wishes it well, it is hard to see how would-be investors could be confident enough to buy shares at this juncture. Flight Club Darts Ltd has reported numbers for the year to 25 December 2022 to Companies’ House saying that revenues rose from £24.6m to £53.8m. The company reports an operating profit of £3.8m (2021: £134,000) before interest costs of £6.9m. Some £1.55m of the charge related to bank interest but the bulk, £5.35m. was convertible loan interest. RedCat Pub Company is to appoint Richard Lewis as CEO. He will take over from Phil Birbeck. Lewis was former chief operating officer at Greene King, with his last role being UK & Ireland CEO for SSP. RedCat has acquired over 100 pubs and pub hotels with over 1,400 rooms since its inception in February 2021. Seedrs Ltd has reported its FY numbers for the period ended 31 December 2022 to Companies House. Revenue fell by 15.4% YoY to £6.9m, with the revenue decrease driven by a combination of lower deal and investment volume, fees per deal and a drop in performance of other associated investor revenues. Similarly, gross profit fell by 15.2% to £6.8m. Operating losses at Seedrs significantly widened to £8.0m from £2.7m in the prior year, with the increase in part owing to “increased investment into core business operations, as well as development of growth initiatives, particularly in view of opportunities created by the acquisition…’ • This led to a material deterioration in the company’s net operating profit margin, falling to -116% in FY22 compared to -33% in FY21. Loss before tax also increased YoY, reaching £9.7m for the year, compared to £2.8m the year prior. • The loss in the company’s retained earnings account widened by £9.7m to -£36.9m. Seedrs received equity capital injections of £8.4m in the year, and a further £2m post period-end in March. The company ended the period with £6.2m of cash, up from £4.8m as at the end of the year prior. During the year, Seedrs raised £10.7m of cash from financing activities. The company does not hold any bank debt. Net assets increased by £1.7m to £6.0m in the period. Salford-based brewer and pub operator Hydes announced record turnover of £34.1m for 2022/23, up from £28.3m the previous year, despite challenging economic conditions including high inflation and energy costs…. • Hydes, which operates nearly 50 pubs in North West England and North Wales, said that it has continued investing in its estate while limiting price increases to remain competitive. Panera Brands has appointed its Board Member Patrick Grismer as Lead Independent Director as the JAB Holding-owned company moves towards becoming a public company. The appointments add financial and hospitality industry expertise to Panera’s board as it evolves its business in preparation for going public. Gail’s Bakery estimates it has whitespace for 300-500 more sites in the UK and will explore different models to expand the brand… • …though the artisan bakery chain may also consider European expansion in the future. Gail’s has had a strong first half of its financial year, opening over 10 shops to reach a 121-strong estate. Guinness is opening its second US brewery, Guinness Open Gate Brewery and taproom in Chicago on September 29, featuring experimental draught beers alongside classics like Guinness Draught Stout produced on-site at the 15,000 sq ft facility located in a former railway depot. JW Lees has launched its ‘latest creation, ‘Light’’. It says the ‘refreshing and vibrant 3.4% draught lager’ is ‘perfect for those seeking a quality yet approachable beer option.’ Giggling Squid is to open a site in Shrewsbury in December Scottish brewer Innis & Gunn posted turnover growth of 7.8% to £22.7 million for the year ending December 2022, crediting the recovery of on-trade business after pandemic closures, as well as strategic investments in brand partnerships and new taproom openings…. • The brewer maintained its position as Scotland’s top craft beer brand off-trade and fastest growing premium lager on-trade amid supply chain cost pressures impacting profit growth. HOTELS & LEISURE TRAVEL: Global hotel occupancy has rebounded 10% above 2022 and is expected to grow 11% in Q4, with Europe projected to outpace the US for the first time, signalling worldwide occupancy recovery and stabilisation post-pandemic according to data from Amadeus. The data shows the hotel industry continues to normalise after COVID-19 disruption. Ryanair CEO Michael O’Leary has warned the strong travel demand and higher airfares seen this summer “can’t continue…” • He says demand is not endless amid economic struggles and weakness in UK bookings; O’Leary believes while October-December bookings are slightly ahead of last year, people are booking earlier at higher fares but it’s unclear if that will persist into winter. The Airports Council International has published its latest quarterly air travel outlook saying that global passenger traffic is expected to recover to pre-covid levels in early 2024 as it hits some 9.4 billion passengers. It goes on to say that recovery in Europe may slow down in 2023 and 2024… • The ACI says some 2.3 billion passengers are expected in this year in Europe, or 95.5 per cent of the 2019 level. This will grow next year to around 2.5 billion passengers, or 101.4 per cent of the 2019 level. ACI World’s Luis Felipe de Oliveira says ‘ACI World projects that global air travel will nearly return to pre-pandemic levels by the end of 2023, with all regions expected to reach this milestone by 2024.’ Le Ski quotes YouGov research and says that some 1.28 million Brits will take a skiing holiday this winter, up from 1.12 million last year… • Le Ski says ‘we already have 60% of our programme sold for this winter.’ It adds ‘this is a great indicator of a post-Covid recovery that is seeing more and more skiers coming back to the mountains. It has been harder for firms to source staff for chalets in ski resorts for the season from the UK since Brexit. Signature Eden Limited, which owns the Dixie Dean Hotel in Liverpool, entered administration on 5 August 2022. It was unable to repay its debt to its secured creditor, Lyell Trading Limited. Joint administrators say that trading has been adversely impacted by rail strikes, the cost of living crisis, exceptional costs and payments. OTHER LEISURE: Sky News reports that US private equity firm Dynasty Equity has taken a minority stake in Liverpool Football Club…. • Seller American multinational conglomerate Fenway Sports Group said ‘the minority investment will primarily be used to pay down bank debt incurred during the COVID-19 pandemic and capital expenses made to enhance Anfield, build the AXA Training Centre, repurchase Melwood training ground and, most recently, acquisitions during the summer transfer window.’ • The majority owner says ‘longer term, the partnership between Dynasty and FSG will also explore further growth opportunities for Liverpool FC.’ FSG bought Liverpool FC in 2010. ” the announcement continued. 888 Holding’s shares dropped 13% yesterday after the company warned on short term profitability. FINANCE & MARKETS: The CBI reports that the private sector in the UK is unlikely to see any growth between now and Christmasa. It says ‘private sector activity fell slightly in the three months to September, according to the CBI’s latest Growth Indicator. This month’s contraction matched the pace of decline seen last month and extended the mild downturn seen over the last year…’ • The CBI says ‘services reported another fall in business volumes in September (down 9%), reflecting mild contractions across both business & professional services (down 9%) and consumer services (down 7%).’ • The CBI says ‘manufacturing also saw output decline in the quarter to September (minus 10%), while distribution sales were broadly unchanged (minus 3%). Alpesh Paleja, CBI Lead Economist, comments ‘September’s Growth Indicator continues to highlight broad-based weakness in private sector activity, as tighter financial conditions, persistent skills shortages, high costs, and an uncertain outlook weigh on growth.’ • The economist says ‘although the private sector is expected to narrowly avoid a contraction in the fourth quarter of 2023, it’s concerning that no sector anticipates meaningful growth. ‘ • The CBI says ‘the upcoming Autumn Statement provides an urgently-needed opportunity to lay the groundwork for sustainable growth and renew the Government’s vision for the UK as an internationally competitive destination for investment. As outlined in the CBI’s Autumn Statement submission, bold action is necessary to give firms the confidence to invest in and expand our economy’s productive capacity.’ The IFS reports that it believes there is a 90 per cent chance that UK public borrowing in 2027/28 will be ahead of OBR estimates. It says the excess could amount to some £40bn. The IFS says that ‘in 100,000 simulations of future shocks and subsequent policy responses, we estimate that there is just a one-in-ten chance that borrowing in 2027–28 turns out lower than the OBR forecast.’ The SMMT reports that car production fell by almost 10% in August after six months of growth. LSEG Deals Intelligence reports that corporate dealmaking in the UK has fallen to a 14-year low. LSEG says ‘we are seeing double-digit percentage declines for both the domestic and cross-border deal categories, and declines have been recorded across all sectors.’ Zoopla reports that UK house sellers are having to cut asking prices to source buyers. It says the average discount to the asking price rose to 4.2% in September, the highest since 2019. The discount was 4.8% in London…. • Zoopla says ‘the more than doubling in mortgage rates since last 2021 together with increases in the cost of living represents a big adjustment for home buyers and the wider market.’ The Guardian quotes Nathan Emerson, CEO of Propertymark, as saying that buyers and sellers are finding an “affordable middle ground”: Sterling mixed at $1.222 and €1.1548. Oil price down a little at $95.05. UK 10yr gilt yield sharply higher at 4.59% (up around 20bps). Markets broadly better yesterday and London set to open around 3pts higher as at 6.30am. RETAIL WITH NICK BUBB:
• Today’s News: Ahead of the much-awaited Nike Q1 results in the US last night, the lowly share price had been pricing in bad news/downgrades, but Nike managed to beat expectations handsomely on earnings (thanks to a one-off tax benefit) and although revenues were sluggish (only 2% up), the company put a brave face on things (“Q1 offered proof of what NIKE can deliver when we connect great innovation, great storytelling and great marketplace experiences to consumers” said CEO John Donahoe) and the shares climbed by nearly 8% to $96.6 in after-hours trading. The Naked Wines “AGM” is being held today (at 4pm), but there has been no update, apart from the news that they will also be holding an EGM, on Oct 23rd, as last week’s finals came too late for the customary 3-week gap between the publication of the Report & Accounts and the AGM. The Revolution Beauty AGM voting results from • Asda Income Tracker Watch: The monthly Asda Income Tracker, a measure of ‘disposable income’ which measures the amount that UK households have left to spend on discretionary purchases after paying taxes and essential bills (groceries, utility bills, transport costs, mortgage or rent payments) has just come out with its survey of August 2023 (as prepared by the Centre for Economics and Business Research). Interestingly, the survey saw annual growth (of 6.8%) for the fourth consecutive month, taking average disposable income to the highest it has been since March 2022 at £224 per week (driven by strong gross wage growth and the unexpected slowdown of inflation). However, the improvement is not being felt equally, as disposable income fell for 60% of UK households in August, with the lowest earning households still bearing the brunt of the cost-of-living crisis.
• Today’s Press: According to the invaluable Guardian morning email briefing, the Guardian itself leads its front-page with the headline “Sunak puts car drivers first in new election battle line”. The Hadrian’s Wall tree is depicted in happier times – the Daily Mail shows the felled sycamore under the headline “Moronic” and few would disagree. “Sunak to block new 20mph zones” is the Daily Telegraph’s splash – for its picture lead, it ties the killing of Elianne Andam in Croydon to the Ulez debate, with a Tory minister saying the London mayor, Sadiq Khan, should “focus on crime” instead of emissions zoning. “She was the light of our lives” says the Metro, quoting Elianne Andam’s family. “Our lovely girl went to school and never came home” says the Daily Mirror. The schoolgirl, aged 15, is also on the front of the Times while its lead story is “Tory shift to higher taxes ‘may never be • Yesterday’s Press: One of the main Business stories in the Telegraph yesterday was that Iceland boss Richard Walker, who had been trying to get selected as a Tory Party election candidate, may flip to Labour instead (“Conservatives fear Iceland chief is poised to flip to Labour”). • Next Week’s News: As we move into October/Q4, next week kicks off on Tuesday with the Greggs Q3 update and the Boohoo interims. Wednesday then brings the Tesco interims, the Topps Tiles pre-close update and The Works AGM. Friday is then a big day for Motor dealers, with the Lookers takeover deal completion and the Pendragon EGM to vote on the recommended Lithia deal (ahead of which the management will have to say what it thinks of the rival offers from the Hedin and Penske consortium and from AutoNation). |
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