Proactive Investors - Hospitality sales perked up by 5.2% like-for-like in March led by pubs at 7.2%, which Stifel suggests marks a welcome return to real sales growth (CPI 3.2%) after a slow start to 2024.
Easter falling largely in March this year will have helped, added the broker adding Loungers (LON:LGRS) and Young’s appeal the most as across the sector operating costs and especially wages will prove sticky this year.
Young's and Loungers can deal with these headwinds, adds Stifel, as they are the operators with higher margin structures and/or the ability to profitably expand their estates.
“Young’s is the only PubCo expanding its estate (organic and M&A, eg City Pubs); while Loungers is rolling out 30+ sites pa”
“We think this will be more a driver of outperformance in a soft LFL profit environment.”
Stifel adds that Young's is the pub industry's 'gold standard' or a premium 'defensive' with a record of, and appetite for, growth and value creation.
“Young's is the only operator we expect to surpass FY19's profit level this year (+12%); delivered whilst investing more capital in its pub estate than peers.
“The City Pubs acquisition brings a quality portfolio of scale, and should be accretive to earnings as cost synergies are delivered.”
Loungers, meanwhile, "has a broad demographic appeal, and the all-day trading proposition and neighbourhood locations play well to evolving consumer behaviours".
"The rollout programme (30 new sites pa) is self-funding, capitalising on the power shift from landlords to tenants.
“At a 12% FCF yield, these traits seem to be underappreciated by the market.”
Shares in Young’s were 1% lower at 964p today and Loungers were down 1.3% at 213p.