Budget proposes alcohol duty overhaul: 3 pub stocks to buy now

HIGHLIGHTS

  • Wetherspoons and Mitchells & Butlers emerged as the highest gainers on FTSE 250 post the announcement of “draught relief” - lower duty on cider and draught beer.
  • The budget also included provisions of ending duty premium of 28% on sparkling wines and cancelling the proposed rise in rate for spirits.

In today’s budget, the UK chancellor Rishi Sunak came up with major announcements for alcohol that has cheered the pubs and bars stocks, with Wetherspoons and Mitchells & Butlers featuring among the highest gainers on the FTSE 250 index.

The surge was due to the announcement of “draught relief” - a lower duty on cider and draught beer.  The budget further simplified alcohol duty with the introduction of a system devised around the principle of “the stronger the drink, the higher the duty rate”.

The new announcements include cutting the main duty rates from 15% to 6%. The budget also included provisions of ending duty premium of 28% on sparkling wines, 5% duty cut on cider and draught beer, and cancelling the proposed rate rise for spirits.

Here is a review of three pub/bar stocks - Marston’s, J D Wetherspoon and Mitchells & Butlers in the backdrop of budget announcements that would help them overcome the pandemic shock.

Marston’s, J D Wetherspoon & Mitchells & Butlers: One year return & market cap

(Data source: Refinitiv)

Wetherspoon (J.D.) Plc (LON: JDW)

J D Wetherspoon is a pub company that operates in Ireland and the United Kingdom. It operates 925 pubs as of June 2021 under Lloyds No.1 bars and 50 Wetherspoon hotels. The company announced that it will slash prices on several of its drinks to 99 pence next month.

Wetherspoon’s total sale revenue in the financial year 2021 was £772.6 million, representing a decline of 38.8%. The company’s bar sales fell by 42.2%, slot/fruit machine sales by 52.5%, food sales by 37.4%, and hotel room sales by 27.1%. The company recorded an operating loss was £105.1 million in 2021 compared to a profit of £7.2 million in 2020.

The shares of Wetherspoon are trading at GBX 1,039.00, up by 5.27% at 1:33 PM BST on 27 October 2021. The shares of the company returned 10.30% in the last one year to shareholders, and the market cap of the company is £1,270.76 million.

Mitchells & Butlers Plc (LON: MAB)

Mitchells & Butlers is engaged in operating and managing pubs, bars and restaurants in the United Kingdom. The company owns Toby Carvery and All Bar One chains.

For the 51 weeks ended 18 September 2021, Mitchells & Butlers’ total sales, including 18 weeks of enforced closure, are 45% of pre-Covid levels. The company benefited from the temporary reduction in the VAT on sales of non-alcoholic drinks and food sales.

The shares of Mitchells & Butlers are trading at GBX 255.00, up by 3.41% at 1:43 PM BST on 27 October 2021. The shares of the company returned 72.00% in the last one year to shareholders, and the market cap of the company is £1,471.26 million.

Marston’s Plc (LON: MARS)

Marston’s is an independent pub retailing and brewing company. It operates in the UK through a network of 1,500 pubs.  In February 2021, Marston’s entered into an agreement to acquire SA Brain in Wales. 

Marston’s total pub sales stood at £402 million for the 52 weeks ended 2 October 2021, 78% of last year’s sales. For the quarter from 25 July to 2 October, its sales were 2% higher across its managed and franchised pub operations. Since 12 April, trading has reached 94% of 2019 levels.

The shares of Marston’s are trading at GBX 77.45, up by 1.04% at 1:13 PM BST on 27 October 2021. The shares of the company returned 51.22% in the last one year to shareholders, and the market cap of the company is £486.07 million.

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