Impact of smoking ban on pub stocks will be short-lived

The ban on smoking in public places which will be introduce this week in England and Wales, is unlikely to have anything more than a short term impact on pub profits claims Luke Newman, manager of the top performing F&C Special Situations Fund.

“During the fierce debate around the introduction of the ban arguments were put forward that it would have a severe impact on jobs and profits,” said Newman, “but having looked at the response to similar bans in Ireland and Scotland, I am very relaxed.”

Newman points out that in Ireland pub profits took a short term hit of around 5% in the initial months following their ban but then resumed a growth pattern.

“Experience suggests that worst hit pubs are those in urban centres where there is less outside space available,” he added. Newman argues that the impact in Scotland was even more muted than Ireland, “namely because we believe the Scots were better prepared in terms of providing outside spaces with awnings and heaters to cater for their customers who refuse to give up their pint and fag.

“Whatever your view on the ban in England and Wales,” he said, ”there has been considerable time for the pub companies to plan ahead and the big pub operators are confident that they are ready for this ban.” Newman is a strong fan of pub operators, a sector which has attractions because of the freehold property element. He currently holds around 5% of the F&C Special Situations Fund in the sector. Holdings include Marston’s, Mitchell & Butler and Fullers, Smith & Turner.

“A by-product of these bans is that they are helping accelerate the focus towards meals where the margins are higher than those available on the drinks side. Whether serving pub grub in a family friendly setting, simple bar snacks or a full-on fancy gastro pub menu, the growth of pubs as places to dine will be good news for medium to long term profitability, whatever the short-term blip for the ban,” he concluded.