One of the many coronavirus casualties has been the after-work drink. like the commute, its not a ritual missed by all.
For the uks stricken pubs and bars, however, its a big problem. since we emerged out of lockdown, measures such as the 10pm curfew on pubs, social distancing and homeworking have put the handbrake on the evening economy.
Already pub groups have announced widespread job cuts and yet more pain is looming. scotland has introduced a 10-day lockdown for pubs while uk prime minister boris johnson is drawing up tough new restrictions across swaths of the north of england.
Hospitality is big business in the uks service-dominated economy, accounting for about 4 per cent of gross domestic product and 9 per cent of employment, according to the trade body ukhospitality. deutsche bank analysts estimate that a nationwide two-week lockdown could lead to a 1 percentage point drop in monthly gdp, all else being equal.
Fears of further coronavirus measures are weighing on the listed boozers. londons motley crew of pub owners loungers, fullers, jd wetherspoon, marstons, mitchells & butlers and youngs are all trailing the wider market by at least 12 percentage points. upmarket proprietor city pub group has seen its shares collapse by about 73 per cent. revolution bars, owner of the vodka-chugging chain of the same name, is down a stomach churning 86 per cent. debt markets have not fared much better.
Even the biggest players are not insulated. the 950m bond of slug and lettuce owner stonegate, which back in july financed a takeover of the uks largest pubs operator, ei group, now trades at 92p on the pound.
A recent letter from 100 big hospitality companies warned the government that without immediate extra support for the sector, many businesses will be lost for years to come.
Take a closer look, however, and the picture is not so bleak. were looking at record levels of polarisation in the space, said douglas jack, an equity analyst at broker peel hunt. some of the sector is doing incredibly well.
Much has been made during the pandemic of how working from home is reshaping business, and it is evident in our drinking habits. loungers, which runs all-day bars that serve largely suburban and small-town areas, saw like-for-like sales rise almost 30 per cent in the two months after the lockdown was lifted compared with the same period last year. similarly, the restaurant groups suburban and rural pubs have grown a touch under 20 per cent year on year since reopening. its central london locations, on the other hand, saw sales plunge 38 per cent.
Its of no surprise that revolution bars has been at the sharper end of the virus measures, as maintaining a 6ft gap with strangers while addled on vodka is difficult at the best of times. a boost from the governments eat out to help out scheme saw it beat its gloomy midsummer forecasts through to september. but late-night entertainment has never been an easy business. recall the bankruptcy of nightclub owner luminar in 2011. its privately owned successor, deltic, has yet to reopen a club since march.
If workers continue to shun their commutes and the after-work drink (or four), a retreat from urban locations will be slow and expensive for the pubs, given leases often stretch to 25 years. but that wont stop them. the latest data from industry tracker cga shows that 83 per cent of pub operators are no longer looking to expand in city centres.
Pub groups have shored up their financial positions too in bid to ride out the transition and further lockdowns thanks to favourable capital markets and lower costs upon reopening. city pub group, jd wetherspoon and youngs were among those who raised equity in early summer. loungers brought its net debt down by two-thirds post-lockdown. private pub groups, without the same level of access to the capital markets, may find themselves picked off when we eventually emerge from the virus, if theyre still around. that may prove a boon to the well capitalised survivors.
So can a case be built for buying the boozers? look through the beer goggles to 2021 estimates, and the publicans look relatively cheap, with many trading on forward price-to-earnings ratios in the single-digits. yet with pub doors to close again across large parts of the country, more risk-averse investors may prefer to wait before placing a first order.