Two leading analysts have given generally upbeat assessments on the prospect for the leisure sector after news of strong trading over Easter.
The Coffer Peach Business Tracker found that like-for-like sales across 22 leading pub and restaurant operators over the four-day Easter holiday were 7% up on the same holiday period last year.
Douglas Jack at Numis said recent weakness in shares prices across the sector represent a buying opportunity.
He said: “Some commentators have become downbeat due to the weather, but poor weather alone would be a bad reason to sell pub shares, in our view. Overall, pubs have performed resiliently over a cold/wet 12 months, such that forecast downgrades, if any, should be minimal and dividend decisions should be unaffected, particularly as a year of easy comparatives has started well in April. “
“We expect any weather-related changes in forecast to be minimal and inconsequential. For the pub operators, poor weather may have removed forecast margin of safety (created by LFL sales, cost savings and high returns on capex). However, with the exception of Fuller Smith & Turner and Greene King, they have time to make up for any trading shortfall over the spring/summer. The last time it reported, Fuller Smith &Turner was trading ahead of expectations anyway.
“The majority of pub sector profits are generated over the summer half-year, so poor weather conditions in January-March (the quietest quarter) are much less relevant than they will be in April-September, when comparatives will be easy. Thus, we would use recent weakness as a buying opportunity.”
Geof Collyer at Deutsche Bank said Easter was a “cause for celebration”.
“The expectation of poor trading in the forthcoming interim management statement and results season has been the cause of the recent spate of underperformance in the pub sector. However April last year was -2%, so the Easter trading should help drive April’13 lfls up by c +2% to +4%.
“We would expect Greene King to lead the way again in terms of current trading – its retail lfls were down in double-digits in the last 2 weeks of April ’12 and it has the greatest Southern bias. M&B has been the sector’s lfls laggard of late so it will be hoping that its poor comp (lfls were -3.6% for the 5 weeks to 12 May ’12) and its greater food exposure could provide a pleasant surprise.”
However, Collyer cautioned: “Whilst it is good to have the Easter data, the March figures have yet to come out and we still think LFLs for last month will be down when they are published - probably next week (they are usually due c. 14-15 of the month).
“We know that the weather has played genuine havoc with pub and restaurant trading so far in 2013. Snow in January was intense and hit all regions badly for at least two weeks, whereas analysis of the UK weather map during February and March could lead one to conclude that the weather has been less disruptive for those in London and the South East.
“Industry LFLs for February were +3.3% (vs. -3.7% in Feb’12). Our forecast for March is for -2.0% vs. +1.9% for March ‘12. March last year was before the deluge, and was when we had most of our ‘summer’ in the UK, with the last two weeks of the month seeing most of the UK basking in a minor heat-wave. The comp is tough and LFLs are almost certainly going to be negative for the first three months of 2013 in aggregate for the sector at large – as they were last year.”
