The M&C20 significantly underperformed this week as a result of the House of Commons vote which may signal the end of the beer tie, says Will Brumby of Langton Capital.
The M&C20 lost 2.8% of its value this week falling to 1,187 points while the FTSE all-share gained 0.9% to 1,041 points.
Tenanted pub operators took a hammering this week, with Enterprise seeing its shares down 17.2% and Punch losing 16.7% of its value. The potential undoing of the 400 year old beer tie has left the markets uncertain of the future for the tenanted pubcos, and financial markets are damning when it comes to lack of clarity. We’d expect the shares to rebound somewhat when the companies’ futures look more certain, however this may take some time as the industry looks set to mount a legal challenge to the proposed legislation.
The managed operators also saw their shares dip on the back of the beer tie vote, with Greene King, which has a short 700 tenanted pubs, and Marstons, which has some 300, seeing their shares down 3.9% and 2.3% respectively. Spirit saw 3.8% come off its market cap as the market worried the Greene King bid may fall through as a result of the vote (an outcome we believe is unlikely).
We’d argue that the markets have overreacted somewhat, given that most estimates suggest the impact to primarily managed pubcos should be in the region of 2%, with Market Rent Only revenue streams thereafter less dependent on beer sale fluctuations.
Youngs saw its shares up sharply after it posted strong half year numbers, in which like for like sales were up 7.9% in the company’s managed division and Earnings per Share for the company were up 18.7%. Fullers also updated the market on its first half this week, with similarly strong like for like growth of 6.5% for its managed estate. London has continued to outperform the provinces and strong sales growth from both London based companies continues to justify their relatively high Price/Earnings ratios.
Cineworld’s shares were up 3.8% after the company updated the market on trading for its first quarter. The company outperformed its peers in what was a tough year for cinemas with the World Cup and hot weather impacting trading in the summer. Cineworld’s shares have been week this past year following the company’s unexpected entry into the Israeli cinema market, however, the Israeli business appears to be on track, with the group’s Central &Eastern Europe and Isreal division seeing revenue up 4% for the quarter. Comps for the winter look milder for cinemas following a tough winter last year, and a stronger film schedule this year.
Analysis provided by Will Brumby at Langton Capital
