The outlook for the licensed retail sector will toughen after mid-2010 as the consumer environment is hit by rising unemployment and VAT hikes, according to a City analyst.
Douglas Jack from Numis Securities said that while the sector was currently benefiting from improved consumer confidence, weak like-for-like comparatives, improved inbound tourism, AWP machine upgrades, a 4% pub supply reduction and a monetary and fiscal boost ahead of the elections, the situation would not last.
He warned that in the long-term with unemployment rising and VAT and personal taxation due to increase in 2010, interest and exchange rates needed to remain low.
Jack said that he believed that companies such as Domino’s Pizza and JD Wetherspoon were the best placed to ride out an uncertain outlook and would continue to outperform operationally.
He said he had also upgraded forecasts for Greene King, Fuller, Smith & Turner, Prezzo and the Restaurant Group due to good trading and over-cautious assumptions.
If the property market fell again, Jack said that the pub to residential house conversion opportunity should still come and while Punch Taverns should manage to sell the vast majority of its tail-end pubs before it became an issue, he was less confident about Enterprise Inns and Mitchells & Butlers, which were both locked into paying down bank debt with insufficient non-core disposal programmes.
Jack added that pubs were also set to benefit from 1 October as restaurants were forced to pay tips in full to staff, which was likely to result in higher prices.
