Consumer Confidence Boosts Leisure Stocks

Travel and leisure was the largest sector by revenue this results season, totalling £50.8 billion, beating tobacco, financial services and real estate

Emma Wall 19 February, 2014 | 4:11PM
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Never mind any consumer confidence indices - the true indicator of how British households are feeling post-recession is the booming travel and leisure sector. 

According to the Profit Watch annual analysis from stockbroker The Share Centre, the travel and leisure sector the largest sector by revenue of those companies who report their results by the end of December 2013.

Travel agents, airlines, food service companies, pubs and restaurant chains are included in this sector, such as Thomas  Cook (TCG) , Tui Travel (TT.), JD Wetherspoon (JDW), Easyjet (EZJ), and the world’s largest  contract food service company, Compass (CPG).

Collectively they saw £50.8 billion in revenues last year, up 3.2% on 2012. We examine three leisure stocks below and reveal how the analysts rate their chances for 2014.

Intercontinental Hotels (IHG)

InterContinental Hotels Group's fourth-quarter results were consistent with our expectation that the results in Europe would materially improve from previous quarters. The company also announced a 8% increase in its regular dividend.

Results in China have been hurt by an overbuilding of hotels in the country, but we expect China to begin better absorb new room supply in 2014. We currently view InterContinental as moderately overvalued, with the stock trading at a 19% premium to our fair value estimate.  

Compass

Compass Group has released its 2014 first fiscal quarter revenue update reiterating the company’s expectation for positive full-year sales growth after a period of restructuring its European operations.

Consolidated sales grew organically by approximately 4% year over year, led primarily by ongoing success in winning new North American customers and brisk activity in emerging markets. However, organic revenue growth in Europe & Japan remained negative; possibly because of persistent like-for-like foodservice volume weakness in the segment.

Based on these preliminary results, our long-term thesis remains intact for Compass Group, and we reiterate our fair value estimate of £9 per share. In our view, Compass Group's geographic diversity and considerable scale will help the company mitigate the pressures of the European economic environment until conditions in the region further stabilize.

Carnival (CCL)

Carnival's fourth-quarter commentary left us feeling somewhat uncertain about 2014, with cumulative advance bookings behind the pace of last year despite similar prices. While the company's scale and brand support its current narrow moat rating, we remain concerned that the company's competitive advantage from its brand could be deteriorating after numerous mishaps and increasingly price-competitive vacation alternatives. We will maintain our £24.17 fair value estimate today, but believe the stock could have considerable upside once it rebuilds confidence with its consumer, which we think could take some time.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Carnival PLC1,130.00 GBX1.85Rating
Compass Group PLC2,238.00 GBX0.54Rating
easyJet PLC451.10 GBX-0.88
InterContinental Hotels Group PLC8,300.00 GBX0.58Rating
Wetherspoon (J D) PLC742.50 GBX1.02

About Author

Emma Wall  is former Senior International Editor for Morningstar

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