Yesterday’s General Election announcement is likely to provide short-term headwinds in the hotel and travel sector with strengthening of GBP to $1.28 and €1.20 curbing enthusiasm for inbound travel thus potentially negatively impacting Merlin Entertainments and Whitbread, according to leading analyst Simon French at Cenkos.
French said: “Furthermore the timing of yesterday’s announcement has been viewed by some (Alan Bowen, legal advisor to the Association of Atol Companies) in the travel industry as ‘a disaster’ with customers historically stopping spending money on holidays and other big purchases during an election campaign.
“In addition we expect the ‘lates’ market to favour unhedged operators who can pass through the FX benefits to consumers rather than tour operators locked into higher prices through FX hedging. This does not bode well for Thomas Cook and TUI Group.
“The sharp movements in currency may also lead to share price pullbacks in significant US$ earners with Carnival, Compass Group and InterContinental Hotels Group all materially exposed.
“Finally we have some sympathy with the view that the Triennial stakes and prizes review into gaming machines and advertising is likely to be delayed and we think it could yet become a manifesto issue for Labour and the SNP. Either way this is likely to continue to act as a brake on industry consolidation – unhelpful in a slowing UK market with tough Euro 2016 comparatives to be lapped in June and July. Longer-term we view the likely outcome of a significant Conservative majority as paving the way for a softer Brexit negotiated over a longer period of time. This bodes well for areas such as imported inflation, reducing the need for rising interest rates, and immigration as well as more political issues such as the status of Gibraltar.”