Why have leisure stocks un­der­per­formed?

We ex­plore the rea­sons why th­ese com­pa­nies are strug­gling

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So far in 2018 stocks un­der Canac­cord Ge­nu­ity’s leisure sec­tor cover­age have dropped by 10% on av­er­age. This mis­er­able per­for­mance, which is worse than the wider mar­ket, begs the ques­tion of what is go­ing on with this group­ing of com­pa­nies.

In­vestors should note th­ese com­pa­nies are still prof­itable for the most part, but have strug­gled fol­low­ing slower than an­tic­i­pated profit growth, profit warn­ings or from neg­a­tive in­vestor sen­ti­ment.

MIXED PER­FOR­MANCE FROM PUBS

One of the strong­est per­form­ers is pub op­er­a­tor Ei Group (EIG), driven un­sur­pris­ingly by the heat­wave and World Cup, plus ex­pec­ta­tions that a po­ten­tial sale of its com­mer­cial prop­erty port­fo­lio could gen­er­ate value.

Wet-led pub op­er­a­tor Marston’s (MARS) has not en­joyed the same share price boost as EI, while ri­val Greene King (GNK) has been bat­tling neg­a­tive sen­ti­ment amid con­cerns it can­not main­tain its pos­i­tive trad­ing.

Pizza seller Domino’s (DOM) is among the fall­ers on con­cerns around fu­ture store open­ings, lack­lus­tre sales and slug­gish in­ter­na­tional growth.

While there are solid rea­sons for the sell-off here, the same can­not be said for bak­ery chain Greggs (GRG), par­tic­u­larly after a sur­pris­ingly strong third quar­ter trad­ing.

WHAT IS DRIV­ING THE WIN­NERS?

Cor­po­rate ac­tiv­ity has been pos­i­tive for Premier Inn owner Whit­bread (WTB) with the sale of Costa Cof­fee to Coca-Cola for a sig­nif­i­cant pre­mium at £3.9bn.

Also among the top per­form­ers is Jet2.com owner Dart Group (DTG:AIM), which has rapidly ex­panded its fleet size and added new air­port bases, help­ing to at­tract strong pas­sen­ger growth.

This is in sharp con­trast to the poor share price per­for­mance at ri­vals EasyJet (EZJ) and Ryanair (RYA) amid wide­spread strike ac­tion and higher oil prices.

It ap­pears neg­a­tive sen­ti­ment may also be spread­ing to Hun­gar­ian air­line Wizz Air (WIZZ) as its shares are near one-year lows at £25.99.

Beren­berg’s Adrian Yanoshik ar­gues in­vestors are pric­ing in a profit warn­ing, which is un­likely due to higher de­mand growth and the less com­pet­i­tive en­vi­ron­ment faced by the air­line across much of its net­work.

WHY GAM­BLING COM­PA­NIES ARE STRUG­GLING Gam­bling com­pa­nies have also strug­gled amid tougher reg­u­la­tions de­spite a US Supreme Court rul­ing ear­lier this year al­low­ing in­di­vid­ual US states to le­galise sports bet­ting.

Playtech (PTEC) is the worst per­former down 48.4% at 443.5p as ag­gres­sive pric­ing from new ri­vals in Asia and the clo­sure of its Malaysian mar­ket sparked a profit warn­ing.

Ri­val 888 (888) is also among the un­der­per­form­ers as its re­struc­tur­ing of UK di­vi­sion is prov­ing slow in boost­ing per­for­mance. (LMJ)

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