I think Young’s (LSE: YNGA) is the best pub stock to buy today as pubs look set to open early than expected. Ministers are pushing for outside spaces, like beer gardens and terraces, to be allowed to open on 22 June. Inside spaces should open later on 4 July. However, I would caution investors against getting overly optimistic about the pub sector in general.
Its a pub, just not as we know it
For one thing, a new spike in coronavirus infections could push back the reopening dates, or force pubs to shut again. For another, the planned reopenings will be very restrictive. Two-metre social distancing will limit customer numbers to under 40% of normal. There will be queues to get in and for toilets, and propping up the bar will not be allowed.
Some pub chains have already opened for takeaway during the spell of sunny weather. Passing pints over the walls to customers to consume elsewhere was not widespread, and you have to wonder why. It might be because supermarkets and corner shops already sell alcohol for consumption off the premises. Or it could be because most pubs didn’t want to risk people getting drunk in public on their beer.
It could also be that a takeaway service did not make financial sense. Pubs are burning through cash as premises sit idle, but they could continue to do so with limited openings. I think the number of staff will need to be something like a world cup semi-final would call for, but with a fraction of the customers. And those customers might not be knocking their drinks back like they used to.
Young’s boss has said none of its pubs will open before early August. Given that Young’s has already warned of a substantial loss for 2020 and has cut its dividend, it might sound mad to pass on the option to open early. But I see Young’s not in a hurry to rush an opening as a reason why its the best pub stock to buy today.
The company has already informed investors that it could remain closed without going bust until March 2021. It has made use of the government’s job retention and business rate relief schemes, and will not want to jeopardise them until it makes sense to do so. Young’s management expects social distancing rules of one-metre in August, which should allow pubs to operate at around 70% of capacity.
At over two-thirds capacity, it seems Young’s management is confident of at least not adding to the losses it is already making. It could also learn from the experiences of other pubs that may open this month, and avoid a potentially tricky emergency shut down should the outbreak spike again in the coming weeks.
Last orders, please
Getting a slice of Young’s pre-crisis revenue, earnings, and dividend growth would be a steal at the current share price. Emerging from the crisis in an orderly fashion and avoiding doing more damage will help Young’s get back on track. Having management brave enough to keep doors shut until it makes sense to open – and having the financial strength to allow this – bodes well for Young’s. I think its the best pub stock to buy today.
According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…
And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...
It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…
But you need to get in before the crowd catches onto this ‘sleeping giant’.
James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.