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Many leisure companies are nursing big share price losses
The pains facing the leisure sector are clear to see when looking at share price performance for UK-quoted companies dependent on consumer spending.
At some point the sector will throw up some bargains, but we’re not quite at that stage yet as there is still too much capacity versus demand. You should expect further earnings downgrades near-term.
Restaurant firms, most pub companies and theme park operators are battling a slowdown in trading and the outlook remains poor. Inflation is rising faster than wage growth, high levels of consumer debt are a concern and the prospect of rising interest rates could dent consumer sentiment.
Bowling and cinema are the only positive segments of the leisure sector judging by share price performance of relevant stocks.
We all like a treat, even in tougher times, and these two activities have a long history of being more resilient than people think. However, they aren’t completely immune to a slowdown in trading. We’d rate bowling as the higher risk of the two activities from an investment perspective.
Our cinema stock preference is Cineworld (CINE) as it has greater scale than Everyman Media (EMAN:AIM) including overseas operations.
Troubles piling up
The Coffer Peach index, which tracks the performance of the pubs and restaurant industry, saw like-for-like sales in September fall by 0.9% across the UK; and down 1.6% in London.
Theme park and attractions operator Merlin Entertainments (MERL), which is arguably a bellwether for the leisure sector, said on 17 October that it had experienced difficult summer trading due to terror attacks and unfavourable weather. Its outlook statement was also subdued.
Attractive yields... but share prices could fall further
Pub companies Greene King (GNK) and Marston’s (MARS) have both seen their share price fall by more than a fifth this year due to tough trading conditions. That’s pushed up their prospective dividend yields.
Greene King is yielding 6.2% and Marston’s is on 7.1%. Investec analyst Karl Burns says he remains cautious on Marston’s ‘despite the attractive yield’ as he believes earnings visibility continues to deteriorate. (DC)
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