Travel & Leisure - Looking for anomalies VI: Following a bolting horse
14 October 2020
Caesars’ offer for William Hill pushed up gambling share prices, and we believe that there is more to go for in that subsector as more US states regulate. In this note we identify possible other bolters across our other subsectors and those that look, perhaps, a little winded.
Gambling sector share prices have been largely driven by the emerging opportunity in the US. States continue to regulate for sports betting and, sometimes, online gaming, creating new opportunities. The number of US-listed operators continues to increase, which is a positive in that they provide a valuation reference point for US businesses. However, they also serve to make it clear that competition – well-funded competition – is heating up.
In the eye of the storm
The main challenge for travel companies is to survive the current period of little or no trading and prepare for a post-Covid-19 world when travel starts to pick up again. Intermediaries such as On the Beach and Hostelworld are better placed to weather the storm than asset-intensive travel businesses.
Not getting back on the road
In mid-year, the recovery in travel, and hotel demand, appeared to be at the start of a steady recovery. Since then the resurgence of Covid-19 and the consequent limits on travel appear to have choked off the recovery. Leisure/holiday travel may have supported demand in the summer. However, with little or no conference or airline business, the demand for hotels from business is unlikely to take up the slack this winter.
Nothing on the shelves
Most major film releases have been pushed into 2021 and, as a result, cinema operators are contemplating the best ways to survive with very little revenue. We believe that there will be pent-up demand for all leisure experiences, including cinema, once Covid-19 is behind us, but major films will not be released to satisfy that demand until the New Year.
Trading profitably and paying down debt
The pub, restaurant, bowling and gym subsectors are deeply unloved by investors at present. This is despite the return to profitability over July-September, aided by cost reductions and significant government support. Also, there are clear signs that competition is falling away, and that negotiating power with landlords is stronger than ever.