The Leisure and Hotel sector has shown positive returns since the beginning of the year, with invest...
The Leisure and Hotel sector has shown positive returns since the beginning of the year, with investors attracted to the defensive pub and gambling stocks it contains.
From 31 December to 28 April the FTSE Leisure & Hotel sector returned 1.15%, outperforming the broader All-Share index which returned -1.3%.
Over the 12 months to 28 April the sector also outperformed, falling 26.36% against a negative 27.28% return from the All-Share.
Errol Francis, manager of the UK Growth and Equity Income fund at Baring Asset Management, says although the sector has fared well over the past quarter it is not really down to the performance of the hotel sector. The sector encompasses other more defensive industries, which continue to perform well during challenging economic times, such as the pub and gambling companies.
'JD Wetherspoon, the pub group, has risen 27% since the start of the year to 25 April. It had gone through a rougher time previously, but again has shown its defensive nature. These are pubs which are leased out to individuals unlike bar chains such as All Bar One.
'The business model tends to be quite robust and drink is fairly resilient during times of recession. Betting firm William Hill is also currently showing positive returns of 2.5% since the beginning of the year.'
Francis adds the deregulation of gambling which is due to happen sometime in 2004 should have a positive impact upon the sector as new laws allow bigger prizes, more relaxed rules on membership and drinking, which will make gambling environments more consumer friendly.
Meanwhile, hotel stocks are suffering, with Hilton down by 14.5% in sterling terms since the beginning of the year to 25 April. Thistle is up 10% over the same period, but largely as a result of a takeover bid for the group, he says.
De Vere hotel group also rose over the same period by 5%, however Francis says this company is more domestically oriented and as such is less exposed to international uncertainties such as the war in Iraq and the Sars virus.
Stuart Fowler, head of UK equities at Axa, says the hotel industry has been battered since the US terrorist attacks of 11 September 2001, with fears over international travel high both before and during the war on Iraq.
However, the hotel industry has low capacity with little supply coming on stream as hotels are not being built. Thus a recovery in the travel outlook would provide a significant boost to the sector as hotel operators would quickly regain pricing power in an environment of stronger demand.
'There are also a few bids doing the rounds which has helped hotels, but business confidence remains a big factor to consider such as people travelling for conferences and other similar activity. The Sars virus will have an impact on tourism coming into the UK,' Fowler says.
'I like InterContinental, it has been spending money on refurbishing its hotels and should do well out of the work it has carried out but the problem is hotel companies do not make investors very rich.'
Gambling deregulation due in 2004.
Defensive pub stocks still performing.
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