Election week was always going to be big news across the country and in the stock market it was no different. Ahead of the result the prospect of a hung parliament had the All-Share index subdued, but it opened up almost 2% today following the news of a continuation of Tory leadership, bringing the weekly change to up 1.4% for the UK index. The M&C20 outperformed markedly as domestic stocks were strong on relief that the government’s economic strategy is likely to remain unchanged.
We’d argue that the election result has been disproportionately good for the pub industry, which is reflected in the M&C20’s stunning 4.8% rise this week. In terms of policies, a Conservative government is less likely to make moves towards amending zero-hour contracts, which would have forced some operators to change staffing levels, and is also perceived as less likely to reduce the drink driving limit in England, which seems to have had a fairly large impact on drinking levels north of the border.
The coalition government has been supportive of the pub industry - cutting beer duty in their last three budgets, and given the disproportionate amount of support the Conservatives received from the pub industry in this election (the letter in support of the Conservatives signed by business leaders was signed by heads of Fuller’s, Marston’s, Greene King, Enterprise and Shepherd Neame) there is hope that this government will be sympathetic to the industry’s causes.
Enterprise was the biggest riser this week, up 11.6%, with Punch up another 2.8% on the back of two weeks of strong gains, as it becomes increasingly apparent that the companies are developing contingencies, such as establishing managed divisions, in response to the MRO. The election today arguably makes it more likely that the amendments to MRO will go through the Commons unchanged later this year, as the Tories are less likely disrupt legislation they have already approved. Additionally the MRO’s most vocal supporter, Greg Mulholland, despite holding on to his seat, has lost almost all of his parliamentary colleagues. Enterprise has its first half numbers on Tuesday and is expected to also update on strategy.
JD Wetherspoon shares have risen 5.7% on the back of its figures on Wednesday. The shares were down on Tuesday in anticipation of the group’s Q3 update, however more than recovered their losses on Thursday and continued their rally to around 800p on Friday. The company intimated that it was planning to buy back more shares, and the company’s margins were up slightly to 7.5%.
Both Marston’s and Mitchells & Butlers were strong this week, rising 6.9% and 7.9% respectively, ahead of both groups’ first half numbers on Thursday. Marston’s shares appear to have moved into a new trading range, with the current price around 170p, having spent more than a year unable to break through the 155p level.
Greene King is an underperformer this week, rising just 0.5% following what was a fairly weak trading update on Tuesday. The market may be mildly cautious ahead of the Competition Commission’s decision regarding the group’s merger with Spirit which comes out on Monday.
SSP Group’s shares were up 4.3% this week. The fall in the oil price in recent days, having recently broken 2015 highs, may have led to some relief amongst investors in travel companies, and, by association, SSP.
Commentary provided by Will Brumby of Langton Capital
