I’m still keen on buying City Pub Group shares (LSE: CPC) despite already doubling in the past six months, as pubs start to open their doors to outdoor customers, and domestic tourism this summer is expected to rise.
The group has 48 pubs dotted around the south and east of England. If they do not have a beer garden, from May 17 pubs can begin serving pints again indoors.
Most of its outlets are in good locations to entice domestic tourists, especially in areas of Central London like Covent Garden.
Other pubs are situated on the coast like in Brighton, or in cultural hotspots such as Oxford.
Visit Britain has forecast an uptick in spending of 79% on ‘staycations’ compared to last year reaching £67.1 billion. While this is only 67% of the outlay on domestic tourism in 2019, the expected increase in footfall ought to be beneficial to City Pub Group outlets.
After the first lockdown last year, its watering holes performed well (the Norfolk based pub The Hoste being one example to benefit from tourists).
The group’s trading statement released in January revealed how badly the pandemic hit them, as revenue was down from £60 million in 2019 to £25.7 million last year.
Yet there are positives in the way which the group has reacted to Covid-19 headwinds.
Staff retention is high with all but eight staff having been furloughed, and costs at head office and all other venues have been reduced.
Compromises have been reached with landlords, where minimal rent costs have been agreed, and rent concessions have been negotiated throughout the lockdown period.
An equity fundraise was sanctioned by the group, just as coronavirus arrived in the UK in March 2020. A total of £22 million was raised, with £10 million allocated to reduce bank borrowings.
The group placing itself on solid financial ground during the pandemic, allied with lockdown easing and a successful vaccine roll-out, is why I am interested in investing in City Pub Group shares.
Pub shares march upwards
Currently its typical that shares in pub companies have increased hugely since last autumn when prices were low.
City Pub Group shares increased from a nadir of 53p in November, rising to 144p in February, and since then have been no lower than 122p per share.
Competitors such as Revolution Bars Group and Whitbread have also experienced a similar share price trajectory, despite broadly deteriorating liquidity positions in the sector.
During the summer, I believe City Pub Group shares should continue to rise as pubs open indoors, perhaps reaching pre-pandemic levels.
Yet it’s doubtful to me whether they can double again in the next six months, as winter approaches, and the pub bubble begins to burst…
Social distancing rule is key
All social distancing restrictions could be lifted on June 21, which would be a huge tonic to the pub industry.
Events such as the World Snooker Championships and music’s prize night, the Brit Awards, are being played out at near and full capacity with no social distancing.
This suggests that the government is serious over ending the two-metre rule.
Yet scientists are wary over this inviting further surges of infections, by ending social distancing.
And vaccine ‘passports’ to enter a pub is a contentious issue for the industry, potentially discriminating between age groups.
Whether pubs can operate at full capacity any time soon remains uncertain.