2020/NO.44 - The team at Morgan & Clarke are constantly trying to future predict how trade will pan out in the short or medium future. The day on day takings evidence is beginning to help us. Pubs and restaurants have been open since 2nd July in England and since 4th August in Wales. The evidence is beginning to mount up but being skewed by the Government initiative of “Eat out, Help out” which will end this month. All very self-evident and logical so what is new? What concerns us is the elephant in the room being the time it will take to finally come out of the pandemic once and for all. Months or years to be harsh, nobody knows. We can however have a solid stab at the time frame based on evidence.
One deep concern is this. A number of senior executives in letters of encouragement to tenants have expressed the considered view …
“we expect in 6/9/12 months (delete as appropriate) when life gets back to normal…”
Well no, it won’t. This is the biggest mistake doing the rounds at present because we have all crossed over into a new world of acceptance of the restrictions of Covid-19. You only need to look back nine months.
Do you remember the lead up to Christmas? The bustle of busy shops, chatting over a deserved pint with mates in a crowded friendly pub bar, going to a hot and sticky pop concert, coming home late and glowing from a club. Well you do remember, don’t you?
Enticing your elderly mum out for a Mother’s Day celebration, going on a booze cruise to France, having a quick and cheap New Year’s break to the Costas, not wearing a face mask just to pop in to get the morning paper, commuting to the office and grabbing a latte at Starbucks, going to the dentist or the hairdresser without looking like a nuclear fallout captive. Well you do remember this too, don’t you?
Life will not go back to what it was, and this must colour how we all are required to look ahead. So, what of the easing of restrictions. The team again looked at all the prime economic indicators and financial commentaries. The quickest ‘return’ to some form of normality, amongst a flood of knowledgeable opinions was confirmed by the rating agency Fitch. Commenting on Stonegate the observation was made that …
“end 22 is the earliest for the return of Stonegate to pro forma run rate”
No, we didn’t get the take on that one either. So even Fitch do not want to underwrite a quicker prediction of 6/9/12 months to get out of Covid-19. The generality of economic forecasts is two to three years. Back to normal, or life as we all knew it at the end of 2019? Not a chance.
The National Institute for Economic and Social Research has estimated that the economy will not return to pre-pandemic levels until the middle of 2023, published in an article contained within The Times on the 29th of July 2020.
That is why, contrary to Pubco thinking, we are building reality into each and all of our rent calculations. Solid evidence of the probable income pattern over the next twelve months, based it is accepted on not much evidence at present, but also a three-year lead in profile of coming out of the pandemic. Maybe the penny will eventually drop with the Pubcos. With most of the medium to small Brewery Companies, it already has.