What does the delayed reopening mean for UK shares?
Despite being technically able to trade, June has brought a raft of difficulties for businesses in sectors such as tourism and leisure sector. A delay to the lifting of COVID rules means pubs and businesses continue to face tough trading, while the decision to move Portugal to the ‘Amber’ travel list has damaged public confidence in overseas holidays, possibly with implications for the rest of the summer.
As we own several companies affected by the delayed reopening, however, we thought we would offer some quick thoughts below.
Travel – take-off delayed
The outlook for travel operators remains unclear. UK consumers typically spend £38bn abroad over the summer but restrictions are now starting to eat into the peak summer period. Some operators have suspended bookings, for example, due to administrative issues around restrictions and processing refunds.
For certain companies, we can still see a route to recovery. Better capitalised businesses should be able to make it to the other side of the pandemic. While there have not been any high-profile failures, we believe this could change as government support is withdrawn. With marketing often the highest variable cost for travel operators, fewer competitors should translate into higher profits. Indeed, 2022 is likely to offer a period of ‘super-normal’ profitability for those left, with the survivors benefitting from strong demand.
Domestic leisure looking brighter
The outlook is perhaps slightly better for the domestic leisure economy. Demand should be strong once restrictions are lifted, with consumers ready to spend some of the £140bn in excess savings built up during the pandemic. People are likely to eat out more often and eat or drink more when they do so. You might choose to have the full three courses rather than just dessert, for example, or opt for a more expensive meal. We have a number of positions in restaurants, pubs and leisure operators across the UK desk.
Indeed, the biggest challenge for leisure operators this summer might be the weather, assuming restrictions are lifted in July. Warm weather and cloudless skies might keep people away from bowling alleys and cinemas, for example, as was the case over the final Bank Holiday weekend in May. Where possible, we are keeping closely in touch with management teams to understand how they are trading and to understand the implications for our investor’s capital.
The UK is not just a reopening story
UK equities are not just about travel and leisure stocks. We continue to find exciting new opportunities with a buoyant IPO market, as well as companies growing through existing trends such as the rise of pet ownership or greater home spending.
It is also worth mentioning that we do not hold ‘reopening’ positions just to take advantage of the reopening. Where we have invested in this group of businesses, we have done so because of their long-term growth potential and supported them through the pandemic, or because they have used the crisis to restructure. The Restaurant Group is a good case in point, with Jamie Forbes-Wilson having written about the company previously here. We will continue to keep you regularly updated, including through our monthly Strategy Perspectives which you can find here.
Stocks mentioned in this article are for informational purposes only and do not represent a recommendation to buy, sell or hold the security in question.
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