Pubs re-open: and that’s not the only good news for the sector
6th May 2021 |
The UK’s hospitality industry is getting back on its feet again. After what has been a torrid year for the industry, there are signs that the post-pandemic recovery is in full swing.
After the national re-opening of pubs and restaurants on 12 April, the people of the UK were able to enjoy a pint again after more than a year.
Of course, it’s still not quite like it used to be. As you’re no doubt aware, it’s only outside as indoor spaces are still shut until 17 May. So, that means enjoying a drink in the spring sunshine and pretending it’s hot, when in reality, it’s barely 15 degrees and undeniably nippy.
Fortunately that doesn’t stop the good folks of Britain!
Having ventured to the pub this past week, we noticed three things whilst there. Number one, yes, it was still bloody cold. Number two, how busy the pub was. And number three, the lack of staff and the strain that they were under.
We felt a little sorry for them. We know it’s their job, but they were almost being harassed. Many customers were competing for their attention and bombarding them with numerous orders that looked difficult to keep track of.
Due to the pandemic, many workers have left the sector and sought work elsewhere. Figures from the Office for National Statistics (ONS) show that 355,000 fewer people are now employed in hospitality compared to a year ago.
Most recently, specialist hospitality recruiter Caterer.com said last week that its number of vacancies had grown by more than 85% in the last few weeks, with 22,000 roles now being advertised.
What is perhaps more important for us as investors is that assets within the sector are still undervalued. Putting it plainly, there is a lot of money to be made from owning and operating pubs, if run the right way.
One of these stocks is City Pub Group (LSE:CPC).
On 29 April, the company announced that it has acquired a 49% stake in Barts Pub Ltd., the owner of the iconic Kensington Park Hotel (KPH), for £0.75 million. The KPH is a leasehold pub with large trading areas, and has seven hotel letting rooms, with the potential for four more.
City Pub Group will operate the pub under a management contract, and has an option to buy the freehold for £5.5 million up until March 2024.
If you’re unaware of the difference between freehold and leasehold here’s a quick explanation…
A leasehold is the right to occupy a premise for a specified term. With pubs that also means the right to operate and run the pub (business) itself on those premises. However, you don’t own the actual building or land.
The ownership of the actual premises is known as the freehold. Hence in this case, for now City Pub Group will own a 49% stake in the business and up until March 2024 it will have the right to purchase the whole premises (the freehold) for £5.5 million.
Aside from this transaction, City Pub Group announced that it has increased its stake to 24% in a number of companies that form part of the Mosaic Pub and Dining Group (Mosaic). It has done this through the acquisition of shares, for a total cash consideration of £1.18 million.
Mosaic owns nine pubs across the country. The investment by City Pub Group will build on the two companies’ existing relationship, in which they currently negotiate their major liquor supply deals.
As City Pub Group’s release explains, “it is the intention of both [City Pub Group] and Mosaic to assist each other in advancements in technology, especially in areas such as the City Club app.” This “technology” is in reference to City Pub Group’s own app, that offers exclusive member benefits and rewards.
These deals confirm our view that the larger pub groups like City Pub Group should do well as the hospitality sector comes back to life.
We reiterate our HOLD recommendation on City Pub Group. You can find our original recommendation here.
Marston’s (LSE:MARS) is another stock in our portfolio which also stands to benefit from the reopening of the pub sector.
The company is also using technology in imaginative ways to strengthen its business.
On 20 April, Marston’s announced a partnership with “gamified simulation” (a fancy way of saying interactive training) expert Attensi. The partnership will develop a digital app called Marston’s Skills, which will focus on staff training.
Marston’s is the first company in the pub sector to roll out this kind of interactive training. The app will be accessible for all employees and pub retail partners.
The technology itself will create an immersive, virtual Marston’s world where users are given a series of mini games and challenges to complete. It is based on real-life pub scenarios and the company’s core values.
It is hoped that the app will generate a high level of engagement from the employees of Marston’s and its partners.
The company’s human resources director Liam Powell stated that the partnership with Attensi “demonstrates [their] determination to invest in and to grow [Marston’s] people and business”.
To us, the app will undoubtedly help to boost productivity amongst staff. It will equip them with the skills to deal with the pent-up demand that the pandemic has created. As a result, we are anticipating substantial business growth, including lower costs and higher revenues, for Marston’s.
We reiterate our HOLD recommendation on Marston’s. You can find our original recommendation here.
Buy list update
Velocys
One of Velocys’ (LSE:VLS) key project partners, IAG, has committed to powering 10% of its flights with sustainable aviation fuel (SAF) by 2030. Velocys’ (LSE:VLS) key project partners, IAG,
The commitment follows the news that the UK will be speeding up its reduction in carbon emissions, announced in the virtual climate summit, hosted by US President Joe Biden, that took place on 21 and 22 April.
Velocys CEO Henrik Wareborn stated that he is,
“… proud to be collaborating with an organisation who recognises the essential role SAF will play in significantly decarbonising the aviation sector by 2030 and achieving net zero emissions by 2050.”
He also reiterated that Velocys’ specialist catalyst and reactor technology can generate negative carbon emissions. This means that it removes more carbon dioxide from the atmosphere than it emits.
Velocys may see increased demand for its SAF technology from IAG following this announcement. The company is investing $400 million in the development of sustainable aviation fuel over the next 20 years.
Velocys may also attract demand from the wider aviation industry as airlines and other organisations adhere to the new emission standards.
Velocys finds itself at the start of a renewable energy age in the aviation sector. With the UK speeding up the rush to meet emissions targets, Velocys is a likely beneficiary.
We believe that the current share price – at below 7p – is still a great entry price for the stock and with a long-term view holds great potential for positive gains.
We continue to rate Velocys as a BUY. You can find our original recommendation here.
IOTA
There’s a little bit of extra information you need to know about the IOTA migration to Chrysalis – and the associated merger of the Trinity wallet into to the new Firefly wallet as we discussed with you last week.
There is a detail regarding the migration which we have become aware. It wasn’t readily accessible when we put together the update.
If you were using a Ledger hardware wallet to secure your IOTA through the Trinity wallet, then you will need to wait a couple more weeks or so before the integration with Firefly happens.
You can read about it in the blog post here.
The Frontier Tech Investor “Top Three”
Sometimes it’s hard to decide on which stocks to invest in from our buy list
Below is our Frontier Tech Investor “Top Three” section showing three stocks in open BUY positions. If you’re trying to figure out what to invest in next, these are three that we think are a great place to start.
This doesn’t mean our other stocks are no good: this is just a tool to help you spot the next Frontier Tech Investor stock that could be worthy of your consideration.
Kanabo Group (LSE:KNB) – one of the world’s most controversial investment ideas is around the legalisation of medicinal and recreational cannabis. It’s sweeping across Canada and now the United States. Both countries are leaders on the way to legalisation. In Australia a similar path is being followed. And now the UK is on the same track. Kanabo is one of the newest and best plays in this huge investment opportunity. You can find our recommendation here.
IQE (LSE:IQE) – our most recent recommendation, IQE, is a key part of the supply chain getting semiconductors into the world. You can find our latest discussion on IQE here, and a link to the original report here. With a gigantic increase in the demand for semiconductors, the world is facing a “chipageddon”. This is a situation where there simply aren’t enough semiconductors to supply the world’s biggest, most demanding companies. IQE is one of the few UK-listed stocks that are a play on this theme.
Velocys (LSE: VLS)– there’s no doubt that governments will continue to push their “green agenda”. This means that they will do what they can to support industry in ways that will help enable carbon neutral economies. Velocys is a big part of this – developing sustainable fuels for transport and logistics (in particular aviation) with pioneering technology. Some discussion, and a link to our original recommendation of Velocys can be found above. If you’re looking for a great “green energy” play, Velocys is a very good place to start.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Junior Analyst, Frontier Tech Investor
