Market Prognosis

A concise summary of the major macro events of the past 24 hours, and selected UK company-specific news.

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January 25, 2023

Save Our Pubs

Macro & Overnight

Germany and the US send tanks to Ukraine.

Defence contractors Raytheon and Lockheed Martin reported strong results overnight in the US.

Microsoft reported good results for 2022 but said revenue growth in its Azure cloud-computing business would decelerate in the current period.

Leading machine tool supplier to the semiconductor industry, ASML said that they expect the market to rebound in the second half of the year, reporting a record order backlog.

UK PPI slowed in December but remained at historically elevated levels recording a 14.7% annual increase at the factory gate for December.

Company Highlight - Wetherspoons - Save Our Pubs

Pub operator Wetherspoon updated for the last 25 weeks with like-for-like sales up 13.1% and 0.7% lower than the same period immediately before the pandemic. Like-for-like sales in the critical December period were +21.3%. However, costs in the hospitality industry are far higher than in the pre-pandemic period, especially labour, food, energy and maintenance. Net debt of £745 million is approximately £60 million lower than the company reported at the same stage in FY2020. The company has invested £80.4 million in 31 freehold properties, opened two pubs in the period, and sold ten. It currently has a trading estate of 844 pubs.

Founder chairman Tim Martin remains cautiously optimistic about the company’s prospects for the financial year. His biggest issue remains the tax disadvantage between the on-trade and the off-trade in the food and drink categories. He said, “The biggest threat to the hospitality industry is the vast disparity in tax treatment between pubs, restaurants, and supermarkets. Supermarkets pay zero VAT regarding food sales, whereas pubs and restaurants pay 20%. This tax benefit allows supermarkets to subsidise the selling price of beer. We estimate that supermarkets have taken about half of the pub industry’s beer volumes since Wetherspoon started trading in 1979, a process that has likely accelerated following the pandemic. Pub industry directors have generally failed to campaign for tax equality, an essential taxation principle. Unless the industry campaigns strongly for equality, it will inevitably shrink relative to supermarkets, which will not help high streets, tourism, the economy overall, or the ancient institution of the pub.” 

UK Company News

CFD and spread betting provider CMC Markets said its net operating income is currently tracking in line with market expectations for the year to March after recovering strongly in January.

EasyJet updated on strong booking momentum, which saw record revenue booking days in January. It anticipated beating the current market profit expectations and added that easyJet holidays are now over 60% sold for this summer.

Brick producer Forterra said its FY22 results should be slightly ahead of expectations and above pre-pandemic comparators. It manages energy costs through forward purchasing, with over 70% of 2023 requirements now secured. However, it sees considerable uncertainty regarding the outlook for the UK housing market and demand for its products in the coming year. Having seen signs of softening demand towards the end of 2022, the company waits to see how their customers’ spring new house selling season develops before issuing further guidance. See note. 

Hill & Smith, the transport engineering supplier, now expect full-year profits to be ahead of the top end of current analyst consensus. It reports a strong US performance. 

Keyword Studios, the services provider to the global video games industry, expects revenue and adjusted profit before tax to be marginally ahead of November’s upgraded guidance. Expectations for 2023 remain consistent with previous guidance.

Marketing services agency, Next Fifteen said that its results for the year to 31 January 2023 are expected to be in line with management expectations. No guidance was offered for the next financial year. 

IoT investor Tern issued a portfolio update. See note



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