Marston’s PLC's (AIM:MARS) results show the energy price cap should be good news for the hospitality sector, but it isn’t out of the woods just yet and more drastic measures might be needed to support the balance sheets.
The pub operator remained comfortable in its energy guidance, with the price cap providing a degree of certainty, for at least the next six months.
With the World Cup coinciding with the first unrestricted winter period for two years, there is reason to be optimistic for the sector, said commentators, despite the obvious macro-challenges.
While the price cap goes some way in assisting the balance sheets, Marston’s competitors, such as JD Wetherspoon and Brewdog, have taken matters into their own hands, closing locations that are neither profitable nor fit into the group’s strategy, a move others may follow.
Energy price cap
The latest energy price ‘cap’ was well received by the sector when it was first announced last month, although there was a feeling that extra help could have been provided.
More than anything, it put a stop to spiralling prices and, for at least six months, means businesses have a better idea of what they will be spending.
“The recent announcement by the government concerning the energy price cap was helpful and further protects our first half energy spend,” said Marston’s in a trading update.
“We await the review of the price cap, albeit we remain comfortable with the guidance we have provided on energy costs for the group’s financial year as a whole.”
Mark Brumby, a hospitality analyst at Langton Capital that it looks like the sector as a whole will echo Marston’s view, but notes there is still a degree of uncertainty that still needs to be resolved.
“The problems currently are that we don’t know if it protects firms who fixed their rates before 1 April this year and we don’t know what happens after the first six months.”
“Also, there is likely to be a time delay between prices going up and the help being received.”
Business closures
While the cap has helped, some of the sector’s big chains have culled poorer-performing outlets.
Marston’s chief executive, Andrew Andrea, said “We’ve got some lower-end, non-strategic sites we will sell over the next year or so… our strategy is not to be a city and town-centre pub group.”
That decision follows quickly on the heels of JD Wetherspoon, which said it was putting 32 sites up for sale after announcing a £30mln loss.
Brewdog also said last month it will be closing six pubs due to the lack of help from a “clueless government.”
Interestingly, despite not wanting to be a city or town-centre pub, Marston’s has taken the decision to not sell off any London sites as “they’re still performing well.”
A walk around the City, at least during the week, will attest to that, with bankers and insurance guys standing pint in hand on London’s streets.
London, though, operates in its own bubble compared to the rest of the country, exactly where these sell-offs occur will be noteworthy.
“Pubs have been closing for a couple of decades and there will have been large-scale closures of small boozers across the country – but perhaps more closures in the north as the population won’t have been growing in the way it will in some other areas,” said Brumby.
However, figures compiled by real estate advisers Altus Group (TSX:AIF) showed that in the six months to 30 June 2022, the West Midlands saw the most pub closures, with 28, followed by the South West and London with 23.
The North East, North West and Yorkshire saw 11, 17 and 18 pub closures respectively, some of the lowest alongside the South East, which experienced 15 closures in the first six months of the year.
That would suggest the Northern pubs are dealing better so far with the current market conditions, although the reasons why that may be currently unclear, and may, or at least should be, in a better position when it comes to determining which pubs should be sold.
What is certain, however, is that if pubs are to not be forced to shut down sites to continue to churn a profit, more help than the energy price cap, which has gone some way already, is required.