Pub sector on upward course

The view that the UK pub market is over-indebted and under-performing is at least two years out of date, and the sector is "rapidly regaining control of its destiny", according to a new publication.

Peel Hunt's Travel & Leisure publication says that there is a real recovery in the sector in terms of companies' strategy and balance-sheet structure. It says that for some groups this is already showing through in outstanding shareholder returns, while for others it will take a little longer.

Peel Hunt analyst Paul Hickman said: "The market has still not differentiated between the two groups, leading to significant investment opportunities."

The Peel Hunt report highlighted that pub and restaurant company shares, which outperformed the FT All-Share Index in late 2010, have under-performed over the past year. It said: "Operators Enterprise Inns, Punch Taverns, Mitchells & Butlers. Marston's, JD Wetherspoon and The Restaurant Group, as a group, under-performed the index by 10% over 12 months and 8% over the past three months."

The report said that having recovered markedly in early 2009, most of these shares have been comparatively poor performers in the past 12 months, if not actually losing money.

It said: "These share price declines mask the fact that the sub-sector is steadily making its way through the combined issues of high debt and under-performance of operational assets."

The publication said that managed pub like-for-like sales, while volatile, show a gradual upward trend. It said that even though the major tenancy operators have seen sustained downturns, these have been significantly recovered since 2009.

It said: "The average like-for-like shows a gradual but sustained improvement, both for managed and tenanted operations. This sub-sector is now rapidly regaining control of its destiny."