New lockdown to create market share opportunity for well-capitalised companies, says broker

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Well-capitalised and flexible companies such as Loungers PLC (LON:LGRS) and Restaurant Group PLC (LON:RTN) can take advantage of the market share opportunities arising from the upcoming lockdown, according to Liberum.

The broker expects up to a 30% reduction in supply across hospitality from the impact of COVID-19, with further local and national lockdowns only increasing the potential for further permanent closures.

READ: Which companies will be hit hardest as England enters lockdown this week?

From Thursday to December 2, pubs, restaurants, gyms, bowling alleys and all other leisure operators in England are forced to close, while hotels and other accommodation should only remain open for those who have to travel for work.

Restaurants and pubs may continue to provide takeaway and delivery services, however the takeaway of alcohol is not allowed, meaning several venues will have to shutter altogether.

According to analysts, the cash burn should be similar to the first lockdown, but several London-listed companies in the hospitality and leisure sector have enough liquidity to manage months or even years of closures.

For example, The City Pub Group PLC (LON:CPC) could stay closed for 63 months, same as travel retailer On the Beach (LON:OTB), as both benefit from low operational gearing.

Other drink-led pub operators, such as Young’s (LON: YNGA), Marston’s (LON:MARS) and Fullers (LON:FSTA), also have fewer expenses than food-focussed venues.

Nonetheless, Liberum noted that there will be exceptional costs incurred in relation to closing down, reopening sites and managing inventory and supply chains in the coming weeks.

“Most operators had managed to achieve break-even level of sales and generate positive cash in August and early September on the back of positive trading momentum post re-opening in July,” analysts said.

“Looking ahead, in the short term the focus will switch back to cash preservation and headroom… As we look forward to the reopening of the leisure industry in December, the operational flexibility and break-even levels of each operator is key to navigating the second recovery.”

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