Why have leisure stocks underperformed?
We explore the reasons why these companies are struggling
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)