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What a reopening delay would mean for stocks
The latest official figures show new coronavirus cases rising at their fastest rate since March 2021 due to the more transmissible ‘Delta’ variant which is putting pressure on the government to choose between leaving some measures in place after June 21 or postponing so-called Freedom Day by a couple of weeks.
The UK isn’t alone in balancing risks of new variants against the progress made in blocking the link between infections and hospitalisations through an effective vaccination programme.
The Seychelles is one of the most vaccinated countries in the world, but recently was forced to reimpose restrictions.
Since the government removed Portugal (3 June) from the green list of countries deemed safe for travel while adding no other countries, travel companies have reported very hot demand for staycations.
For example, the Financial Times reported that holiday rentals company Awaze saw a 40% increase in demand compared with the same day in 2019, while Trainline (TRN) said bookings for the next two weeks surged 86%.
Even if you are lucky enough to secure a booking, anecdotal evidence gathered by Shares indicates that some companies are simply not equipped to handle the extra demand with a reported two plus hours waiting times food and drinks.
A shortage of hospitality staff (see page 7) is no doubt having a big impact on the level service despite reduced capacity due to social distancing protocols.
With demand outstripping supply, consumers have been warned to expect higher prices with Which magazine reporting that some popular holiday resorts such as Brighton have seen a 127% increase in the cost of accommodation, year-on-year.
Some parts of the hospitality sector will benefit from the staycation trend such as restaurant/café/bar operator Loungers (LGRS:AIM) whose estate is exposed to coastal towns and any delay to workers going back to the office will result in more time and money spent locally.
That said, a delay to full reopening may impact hospitality shares more than otherwise would have been the case because investors seem to have got carried away and according to Shore Capital, valuations are now pricing in a ‘rapid recovery’ in profits.
The risks of investor complacency were illuminated when best premium bar operator Revolution Bars (RBG:AIM) shocked investors with a deeply discounted share placing on 26 May, less than two weeks after issuing a bullish reopening statement.
If the Government decides to keep some restrictions in place for longer than its original roadmap, it wouldn’t be surprising to see more rights issues as firms move quickly to shore up their finances.