Pubs and restaurants were the best-performing hospitality venues over Christmas, solidifying analysts’ confidence that Loungers PLC (AIM:LGRS) and Mitchells & Butlers PLC (LSE:MAB) are the top stocks in the industry.
Like-for-like pub sales jumped by 11.4% year-on-year in December, while restaurant revenues lifted by 11%, data from the CGA revealed.
These hospitality venues were ahead of bars and on the go sales, which grew by 8.9% and 8.7%, respectively.
Much of the strong growth was helped by being up against weaker comparatives, as the festive period in 2022 was plagued by rail disruptions.
However, 2023 trading was still forced to contend with bad weather, weakened consumer spending and cost inflation.
Loungers and M&B top picks
Analysts at Stifel welcomed the “bumper” trading period but were cautious in getting over excited, warning that “staff costs for operators remain sticky”.
Therefore, experts at the broker have remained selective in their stock picks, placing companies like Fuller Smith & Turner PLC (AIM:FSTA), JD Wetherspoon PLC (LSE:JDW) and Marston’s PLC (LSE:MARS) on ‘hold’ – although trading updates later next week may make them reconsider.
Stifel placed a ‘buy’ rating on Loungers, after it argued its smart locations, all-day trading and broad demographic appeal leave it in a strong position to grow despite the macro headwinds.
Loungers also plans to self-fund the opening of 30 new sites in 2024.
As more companies, like Ten Entertainment and TRG, get taken private Stifel believes Loungers becomes “a natural alternative for investors looking to stay invested in the sector.”
For All Bar One owner Mitchells & Butlers PLC (LSE:MAB), Stifel’s other hospitality pick, its strength lies in the fact it is “fundamentally undervalued” on both an asset and earnings basis.
Stifel argues the Miller and Carter owner’s assets are at a 35% discount to its net asset value (NAV), while EV/EBITDA sits at 7x, compared to a long-term average of 8x.
“Ongoing transfer of value to equity holders has not yet been fully appreciated, in our view,” the UK broker concluded.