Fevertree toasts lockdown success and Young’s unveils pubs reopening plan

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“Just as dark clouds cast a shadow over the UK as a bout of rain brings the recent sunny spell to an end, stock markets around the world are also looking a bit gloomy,” says Russ Mould, Investment Director at AJ Bell.

“The recent rally has come to an end with the FTSE 100 retreating by 0.2% to 6,369, stocks in Europe falling by approximately 0.5%, and parts of Asia also in the red.

“The UK market has been pulled down by a poor showing from banks including Lloyds, down 2.1%, and oil producers. Brent crude slipped 1.1% to trade just below $40 a barrel amid market concerns about major oil producers reaching an agreement on output cuts.

“All eyes are on the European Central Bank meeting later today with investors expecting more support for the euro zone economy."

Fevertree Drinks

“It seems many of us have been enjoying a gin and tonic during lockdown, judging by Fevertree’s latest trading update. Strong sales of its tonic waters in convenience stores and supermarkets is welcome news for the business given how its growth trajectory had been under pressure prior to the coronavirus crisis.

“One could possibly call Fevertree a lockdown winner as consumer confinement may have prompted more people to try its products and loyalty may have been strengthened among existing customers.

“This isn’t just a UK phenomenon; sales of Fevertree’s products in the US for home consumption have also done well very during lockdown. This is particularly important as the drinks company is still trying to crack the US market, so the sales boost effectively lays stronger foundations for the future.

“On a broader scale, Fevertree’s earnings are still likely to suffer because of a sharp decline in sales to hotels, pubs, restaurants and bars, most of whom are either shut or operating at low capacity. However, the company will still benefit from having its brand exposed to the consumer in shops and so it won’t have been forgotten once leisure outlets ramp up operations again.”

Young's

“Pubs operator Young’s has announced plans to reopen all of its venues by 3 August. This positive news may be toasted by patrons but they may choke on their pints when they find out what a trip to their local could be like in a ‘new normal’.

“The pub is supposed to be a warm, convivial environment. Will a more sterile setting with staff in masks and gloves, ordering drinks purely through an app and tables set two metres apart really appeal? On the other side of the equation will such measures be sufficient to calm fears over a risk of infection.

“The debate over whether to keep social distancing to two metres or reduce it to one could be key in whether pubs are viable.

“Beer gardens might be one answer to the challenges of operating amid the pandemic and sites with lots of outdoor space will clearly be best placed – hence Young’s saying it may reopen some of these in mid-July. The company and its peers will be praying the exceptionally sunny weather the country enjoyed in May returns in time for their reopening.

“The rapid introduction of lockdown measures left Young’s with lots of fixed costs it couldn’t take out such that the closure of pubs for just 10 days of the financial year to 31 March resulted in a £7.7m hit to profit.

“The furlough scheme and a pay cut for top executives has helped to stem the bleeding and the company has also unsurprisingly shelved dividends for the time being – with confirmation there will be no first half dividend for the current financial year.”

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