It’s Friday. In normal circumstances many of us would be finishing up work in a matter of hours. The good weather is starting to creep back in and the depths of winter are behind us. A trip to the local pub for a few would be perhaps top of the agenda for many.
Fat chance. For the vast majority of the last 12 months, pubs around the UK have either been shut completely or heavily restricted in terms of opening hours and capacity.
UK companies in the hospitality industry have seen their profits severely dented. One of those is pub group Marston’s. (LSE:MARS).
The Marston’s share price nosedived in March last year as the reality of the coronavirus became clear. The group lost 78% of its value in around three weeks’ trading.
There may be light at the end of the tunnel, however. With Boris Johnson announcing a roadmap to reopening the country alongside a mass vaccination programme, the shares have recovered in recent months.
Marston’s shares have bounced 25% in the last month alone, edging towards pre-pandemic levels. Can the company keep the momentum going amid new optimism around pubs reopening?
Beer gardens
Under the reopening plan announced by the PM this week, licenced premises will be allowed to open on an outdoor service basis only from 12 April.
The indicative plan suggests that from 21 June all social contact restrictions will be lifted, allowing hospitality venues to operate as they were pre-pandemic.
That’s good news for the Marston’s share price as far as I see it. The quicker its venues can get back to normal trading conditions the higher likelihood of profits returning.
That said, any further setbacks with any of the roadmap stages could lead to the share price falling again.
Difficult year
In Marston’s full-year results, the company said its underlying loss was £22m, compared to 2019’s pre-tax profit of £95.1m. Another year of those kind of numbers will leave the company in a precarious position.
Profits have taken a severe hit over the last year. During full lockdown restrictions, the company is burning cash of between £3-4m per week. More than 2,000 jobs were cut at the company as a result.
Another reason for the short-term bounce in the Marston’s share price was the interest from US private equity firm Platinum Equity Advisors. Marston’s rejected offers of 88p a share and 95p a share in December, and a third offer of 105p at the end of January.
The firm ended up walking away from the deal. The fact that Marston’s would not take that final offer suggests the company is confident in the share price growing significantly in the long-term.
Times are certainly tough for the business, but I see enough potential upside over the next few years as trading conditions improve. As a result, I would buy the shares for my portfolio or Stocks and Shares ISA today.
