Ten Entertainment stands out as new rules cast more gloom over hospitality

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Hospitality groups gave a gloomy response to the changes to lockdown rules announced yesterday by PM Boris Johnson, though the full impact will not be known until Thursday.


The ending of the lockdown in England was welcomed, but the catch is that the tier system is being tightened and that many outlets will likely emerge in a higher category than previously.


The current curfew has been extended by an hour until 11pm but the new rules mean that even in the lowest Tier 1 areas only table service will be allowed.


Tier 2 outlets, meanwhile, can only serve alcoholic drinks with a “substantial meal” while in Tier 3 drinks will be available on a takeaway basis only.


How areas are rated for COVID-19 risk and what tiers they are in will be revealed by the government on Thursday.


Kate Nicholls, the head of trade body UKHospitality said: “They [the new measures] are killing Christmas and beyond for many businesses and their customers who look forward to, and rely on, venues being open at this time of year. Sadly, for many staff, it will be a Christmas out of work.”


Investors, too, seem to have given up on a pre-Christmas rally with City analysts looking towards Easter and the potential benefits of vaccination campaigns.


The curfew extension until 11 pm, with last orders at 10pm, is helpful said Liberum, as forcing restaurants and pubs to close at 10pm reduced total sales by between 5-10%.


A later curfew will allow kitchens’ time for another sitting and that should help food-led pubs and restaurants especially in the run-up to Christmas, a period that typically accounts for 10-15% of annual sales.


The flip side is that January/February is likely to be even tougher than normal, says the broker.


Liberum notes that when the previous three-tier system was introduced on 14 October, hospitality sales dropped 60-62% in Tier 3, 46-54% in Tier 2 and 22-28% in Tier 1 over the first three days.


Going forward, the new measures will likely mean that Tier 2 performance will now be closer to the previous Tier 3, with Tier 3 closer to lockdown.


On a positive note, operators are very well-prepared for reopening and trading under Covid restrictions, it said, given their experience since July.


Listed pubs, restaurateurs and hotel groups have been able to use the stock market to bolster their financial positions during the lockdown and most are in decent enough shape to survive well past Easter when things are tipped to start to recover.


Liberum highlighted The Restaurant Group (LON:RTN) for its delivery and takeaway offering with its Wagamama arm generating 24% of sales through take-outs.


How pub operators fare will depend on the Tier they find themselves in on Thursday, it added, though Loungers (LON:LGRS) and Marstons (LON:MARS) have a good geological spread.


Looking towards recovery, the broker highlights City Pub (LON:CPC), the Gym Group (LON:GYM), and bowling alley operators Hollywood Bowl (LON:BOWL) and Ten Entertainment (LON:TEG), which was the best performer today adding 10% to 214p.


All these companies have strong balance sheets and all trade well below their historic average ratings, said Liberum.

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