Pub companies were lockdown losers but can adapt to tough trading conditions

theguardian.com:

With the benefit of hindsight, one can say that the stock market got wildly overexcited a year ago about the recovery prospects of consumer-facing companies. When the restrictions came off, went the thinking, punters would enjoy themselves and lockdown’s corporate losers would be transformed into winners.

As happens often, an essentially sound idea was overdone. Shares in Mitchells & Butlers, the UK’s biggest pubs group, rallied from 120p in autumn 2020 all the way to 325p in spring 2021 in anticipation of good times ahead. Since then, they have fallen back to 211p. Rival Marston’s has followed a similar trajectory: from 40p to 100p and now back to 58p.

Jim Chanos, the famed short-seller, was right when, at the height of last year’s bullishness, he diagnosed too much wishful thinking on the part of investors. “The worst thing that can happen to reopening stocks is that we reopen,” he said cutely. Real life is hard, especially when reopening is followed by soaring energy costs, higher food prices, wage inflation and a brutal cost-of-living squeeze.

There is, though, a fair argument that investors, having overdosed on optimism, are now underestimating the ability of the likes of M&B and Marston’s – both well-run companies – to adapt to tough trading conditions.

Both companies in their half-year reports on Wednesday flagged cost pressures as “a significant challenge for the industry”, as the M&B chief executive, Phil Urban, put it. His group puts cost inflation at 11.5% this year versus 2019 levels, and is assuming 6% for the next year. But both firms also seemed encouraged by current consumer behaviour. “Trading remains stable and we look forward to an uninterrupted summer,” said Marston’s boss, Andrew Andrea.

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