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Cumulative number of global vaccinations has overtaken number of infections
Thursday 18 Feb 2021 Author: Martin Gamble

The UK government hitting its target to vaccinate all vulnerable groups by 15 February and the virus replication rate falling below one is helping the market get very excited about the prospect of the economy being unlocked as ‘reopening trades’ in the travel and leisure sector regain their popularity with investors.

The onus is now on Boris Johnson to articulate a clear Covid-19 exit strategy with an update scheduled for 22 February.

The government’s prior reluctance to provide a clear plan has prompted some firms in the hospitality sector to tap shareholders for a second time in order to secure extra funding and provide headroom in the case of further slippage.

Pub operator JD Wetherspoon (JDW) raised £93.7 million on 20 January at a 5% discount to its prior closing price, and on 25 February Mitchell’s & Butlers (MAB) which owns All Bar One and Nichols announced a heavily discounted (36%) £350 million rights issue.

According to Numis analysts Wagamama owner  Restaurant Group (RTN) and catering firm SSP (SSPG) are also likely to raise new money given the relatively tight headroom of their banking facilities.

The extra funds come on top of the sector raising £400 million of cash from shareholders in 2020 as well as accessing £500 million of funding through the governments various coronavirus
loan schemes.

Numis reckons that most hospitality firms are working on the assumption that they won’t be able to reopen until the second quarter which implies, they will miss out on the boost that Easter trading would provide.

This means an earlier opening than currently expected would have a positive impact on hospitality shares, with those that moved early to secure extra funding arguably in a better position to take advantage.

Data from Australia which reopened in the Autumn suggests people are twice as likely to want to eat out compared with before the pandemic, pointing to strong pent-up demand.

The opportunity to pick up market share from weaker operators while benefitting from strong demand means some companies could get back to profitability faster than anticipated.

In addition, there has been significant capacity reduction over the last 12 months which has positive implications for margins. However, the potential for a strong growth hasn’t been lost on trade and private equity buyers.

Pubs group Marston’s (MARS) turned down (4 February) an offer from US private equity firm Platinum Equity. Meanwhile, former chief Greene King chief Rooney Anand has raised £200 million from investors including US investor Oaktree Capital to invest in the sector.

In the event that overseas travel remains off the agenda due to the risk of importing new strains of the virus, pubs and restaurants could get a much needed shot in the arm.

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