Morgan Stanley (NYSE:MS) has highlighted its top picks in the leisure sector following a review of data trends over the Summer.
The UK-listed stocks it favours are Whitbread PLC (LSE:WTB), Flutter Entertainment PLC, Compass Group PLC (LSE:CPG), SSP Group plc (LSE:SSPG) and Wizz Air Holdings PLC (AIM:WIZZ).
The investment bank noted demand trends are settling down after a period of high turbulence post-COVID.
“While this means YoY growth rates are slowing, performance over the summer and Q3 to date is generally tracking stronger than Q2 on a comparable baseline, and stronger than our forecasts,” it noted.
For hotels, revenue per available room (revPAR) remains strong across EU/UK/China and similar in the US in recent weeks, and RevPAR is tracking 200-400 basis points (bps) stronger than Q2 on the same baseline for the hotel stocks MS covers.
For airlines, summer air passenger traffic was solid in Europe and at record levels in the US, and forward capacity plans suggest more passenger growth is expected.
Holiday searches continue to run at /above pre-Covid levels for the tour operators.
Pub & restaurant sales accelerated over June/July (though August likely dipped due to bad weather in Europe), while betting margins look encouraging, the bank said.
“The only real area of weakness is in workplace activity and public transport volumes which were weaker in August, potentially affecting contract caterers,” the bank added.
In hotels, Morgan Stanley (NYSE:MS) likes Accor (luxury transition, cash return potential, non-core disposals) and Whitbread (UK market share gains, German transition to profit, cash return potential, non-core disposals).
In gambling, it likes Flutter (US leadership and profit inflection, cash return potential) and Lottomatica (structural market share opportunity from gaming multichannel, cheap valuation).
In catering, MS likes Compass and SSP (both offering strong contract wins, margin upside, buyback potential).
In airlines, the bank likes WizzAir (industry-leading growth at an undemanding multiple).
All these were rated 'overweight' by Morgan Stanley (NYSE:MS) while Carnival was kept at 'underweight'.