There’s finally some good news for investors (and the general public) to cheer about. Time to put down our laptops and get back to one of the great British traditions — going to the pub for a pint. From July 4, many large-scale chains will be opening in some form. This is good news for us, but also good news for the firms. With that in mind, there are two firms that stand out to me and that could be large benefactors here. This make them my top stocks to buy right now.
Key man Martin
JD Wetherspoon (LSE: JDW) is one of the best known pub and restaurant chains in the UK. It operates around 900 locations, and is known for adopting a strategy of low prices and high turnover. Chairman Tim Martin has been outspoken in the past on some business issues and practices. Recently, there was controversy over Martin not shutting any locations, until he was forced to in late March.
I think his unconventional approach will stand the firm in good stead for the remainder of the year, when thinking outside the box will be key. The net debt of Wetherspoons stood at around £800m at the beginning of the year. The debt will need to be serviced, and so initiatives on reopening to generate revenue fast are needed. The government furlough scheme will help (the vast majority of the 43,000 employees are on it for now), but Martin will need other ideas. Given his track record, I’d back him to get the business up to full speed again. We also shouldn’t forget that this is a profitable business (£72.8m net profit last year) entering into peak season. This makes it a buy for me.
Another top stock: Marston’s
The chairman of Marston’s (LSE: MARS), William Rucker, may not have the public prominence of Tim Martin, but he’s experienced and, notably, a chartered accountant. The firm will need such experience in order to turn its finances around.
Pre-tax Profit for the six months to March 28 fell significantly, hampered by the Q1 slowdown. This saw the share price drop almost 10% last Friday. It isn’t quite back to the lows seen in March, but it would need to over double to get back to levels seen in January.
Yet I don’t see the firm as one to stay away from. Reopening on July 4 is the kick-start the firm needs to get back up and running. As flagged with Wetherspoons, the pub industry is a profitable one. This is especially true when you add on the brewery, restaurant and hotel elements. So it makes sense to buy the share price now when it’s cheap, before the bounce-back in demand happens.
I’m also looking to the longer term with the prospects for the firm. Recently, Carlsberg announced a deal to merge with the brewing side of Marston’s. Although this will create a separate company, it shows the willingness of the firm to expand and try new ventures.
Buying both firms at a significant discount now should enable investors to profit from the reopening of sites and the longer-term benefits of being back up and running. Further, with both companies having other operations outside of just physical pubs, the diversification of operation should help to spread any longer-term risk to revenues.
The post Here are my top 2 favourite pub and restaurant stocks to buy now as they reopen appeared first on The Motley Fool UK.
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Jonathan Smith does not own shares in any firm mentioned. The Motley Fool UK has recommended Marstons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020