UK pubs have been relatively resilient over the past few years, with industry LfL sales running up around 1%. The Conservative majority and UK economic boost our economists expect should therefore be positive for pub demand. However, we would have expected more of a boost had Labour won, given the significant increase in public spending.
In addition, there is perhaps greater wage cost risk given that the faster Brexit timetable might bring a tighter labour market, particularly in the relatively unskilled area of hospitality under the Conservative proposals for the UK’s future immigration system (the plan is to grant short-term visas in sectors suffering a staff shortage, but it is unclear when this will start and how a shortage will be measured).
In addition, another increase in GBP arguably makes overseas acquirers of cheap UK pub assets less likely, and we note that pub share prices have enjoyed a strong rally since the CKA/GNK and TDR/EIG acquisitions over the summer. We recently downgraded Mitchells & Butlers from Overweight to Equal-weight.
Precis
ANALYSTS’ VERDICT
Jamie Rollo on the pub sector under the newley elected Conservative Government
UK pubs have been relatively resilient over the past few years, with industry LfL sales running up around 1%. The Conservative majority and UK economic boost our economists expect should therefore be positive for pub demand. However, we would have expected more of a boost had Labour won, given the significant increase in public spending.
