Ready to Reopen, England’s Pubs May Take Years to Recover

(Bloomberg) -- England’s pubs can welcome their drinkers back to outdoor areas from Monday, starting an expected three-year long effort to restore their finances to pre-pandemic levels, according to S&P Global Ratings.

Anticipated changes in consumer behavior, including lower beer intake, will push operators to evolve from a “drinks-led focused” business model to include food as a bigger part of their offerings, the analysts wrote.

The ratings firm expects larger pub operators to win market share as smaller businesses struggle with the restrictions imposed to control the spread of Covid-19. Net closures -- total closures minus openings -- stood at 5,975 sites across Britain, an increase of 175% from 2019 levels, the report stated, quoting data from consultancy firms CGA and AlixPartners.

“While the welcome prospect of opening after several months and pent-up demand (booking levels remain very healthy) will drive footfall, S&P Global Ratings expects operating prospects will remain tough over the medium term,” analysts including Raam Ratnam and Alex Roig wrote in a report published on Thursday.

Larger-managed pubs, they added, with a wider range of venues and better access to capital, are likely to fare well during the recovery phase, aided by greater earnings and cash flow per venue.

“Publican tenants, who are typically smaller or self-employed, often have limited access to capital markets and are more affected by economic downturns,” the S&P analysts wrote.

Less Competition

Analysts at Berenberg share a similarly upbeat view on large operators, arguing that the equity of U.K. pub and restaurant companies should be worth more than before the pandemic hit.

“They have less debt (having raised equity), and earnings should be higher due to less competition, pent-up demand, permanent cost savings, and a supportive short- and medium-term tax outlook,” they wrote in a note on Friday.

Marston’s Plc, which has about 1,500 sites across the U.K. including the Pitcher & Piano chain, has kick-started its debt-reduction plan following the sale of its brewing assets, according to Berenberg analysts.

The company’s 200 million pounds of notes due 2032 are trading above par after a bumpy year, according to data compiled by Bloomberg.

Notes of TDR Capital-owned Stonegate Pub Co, which runs chains including Walkabout and Slug & Lettuce, have also been surging since the first Covid-19 vaccines results were announced in November and are now trading above par.

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