Which stocks to watch as restaurant insolvencies accelerate?

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 Which stocks to watch as restaurant insolvencies accelerate?
Image source: © Irimaxim | Megapixl.com

Highlights:

  • The latest data has revealed that restaurants in the UK are shutting down faster than during the pandemic.
  • The primary reasons behind these closures are said to be surging energy costs, staff shortages, and falling demand.

The UK's hospitality sector has recently been among the most impacted sectors. First, hotels and restaurants were closed due to COVID-19-related restrictions. After the restrictions were eased and the sector started to open, high inflation arrived knocking. Amid the soaring prices and low wage growth, people are cutting down on non-essential spending, like leisure activities, impacting the revenues of the businesses working in the sector.

The latest data shared by advisory firm Mazars has also indicated a worrying trend. It shows that restaurants in the UK are shutting down faster than during the pandemic. During 2021-2022, closures in the restaurant sector rose by 60%, with 1,567 insolvencies reported. In 2020-2021, this number stood at 984. In the past quarter only, there were 453 insolvencies reported, compared to 395 in the previous quarter.

Image source: August_0802, Shutterstock.com

The primary reasons behind these closures are the surging energy costs, staff shortages, and the falling demand amid the cost-of-living crisis.

It may be recalled that last month, industry groups UK Hospitality and the British Beer and Pub Association warned that over one-third of the country's hospitality businesses, including hotels, pubs, and restaurants, could go bust by early next year.

Let's explore some of the publicly listed British hospitality businesses and see how they have been faring.

InterContinental Hotels Group Plc (LON: IHG)

InterContinental Hotels Group is the owner of premium hotel chains. The company has a market cap of £8,319.03 million as of 21 November, and its EPS presently stands at 1.45. Over the past year, the share value has dipped by 3%. IHG's turnover (on book) is currently at £2,475,030.01.

Whitbread Plc (LON: WTB)

Whitbread belongs to the FTSE 100 index, and it is a prominent hospitality company in the UK. The company returned to profit in the first half of 2022, with the group's pre-tax gains reaching £307.4 million for the six months to 1 September. However, the company has warned that the soaring costs would impact its margins in the second half. With a market cap of £5,074.94 million, the company's stock price has provided negative returns of -16.78% over the last 12 months. As of 21 November, the company has an EPS of 0.21.

Wetherspoon (JD.) Plc (LON: JDW)

The company operates several hotels and pubs across the country. The FTSE 250 constituent boasts of a market cap of £594.83 million as of 21 November. The share price has fallen by more than 50% over the past year, but the EPS is positive at 0.15.

Note: The above content constitutes a very preliminary observation or view based on market trends and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.

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