The pub industry appears to have downed a vodka and Redbull in the past few weeks. First, Marston’s received — and rejected — multiple offers from an American private equity firm. Then former Greene King boss Rooney Anand returned to the sector with £200 million in his pocket.
While Marston’s has hung on to its independence for now, there are certain to be deals ahead. City Pub Group, which owns 48 gastropubs, should be in a position to benefit from the M&A activity.
The group was founded in 2011 and floated on AIM in 2017. Its executive chairman, Clive Watson, previously ran Capital Pub Company, which was bought by Greene King for £93 million in 2011.
Watson, 59, is also known for his appearances on the E4 show Made in Chelsea, which featured his daughters Lucy and Tiffany.
There are several reasons why City Pub Group should emerge from the Covid-19 wreckage relatively clear-headed — and be in a position to make cheap acquisitions.
Its 2020 results were not pretty: sales fell 57 per cent to £25.7 million, despite the summer rebound between lockdowns. However, the company cut costs by centralising marketing and booking operations, and simplifying its menus. Head-office costs were cut by 25 per cent, which contributed to a drop in its workforce from 1,200 to 1,000. All but eight employees are on furlough.
This cost-cutting and streamlining means that in future it will need sales to be only at 50 per cent of the previous level to break even — good news if social distancing measures continue once pubs are allowed to reopen.
There are also industry trends that should count in City Pub Group’s favour. First, independent pubs have borne the brunt of Covid-related closures. Analysts at Liberum expect about 30 per cent of all pubs to shut as the government withdraws its emergency support measures. While that is nothing to celebrate, it will increase market share for the survivors.
City Pub Group will do well from a boom in domestic tourism. Some of its pubs, including the Hoste in north Norfolk, offer bedrooms. Central London is likely to remain flat for some time, but residential areas in the capital, such as Parsons Green, should bounce back.
Shares in City Pub Group are 38 per cent below their level at the start of the crisis, even with a recent rally, and closed on Friday at 119p, valuing the group at £125.8 million. The coming months will continue to be painful for pubs and restaurants, but winners should emerge, and I reckon this will be one of them. Buy.
