Fund Team: Transport & Leisure Update

Oliver Palierakis: Transport & Leisure Sector Leader 2015-16

So far so good for Transport & Leisure. From figure 1 you can clearly see that, YTD, the sector has been performing strongly compared to the FTSE ALL SHARE. This has largely been due to a demonstrated consumer preference to spending their disposable income on activities like eating and drinking out, or going to the cinema.

It is an easy-ish sector to grapple with. One of the most attractive aspects of this sector, from the perspective of a non-professional investor is its tangibility. That is, we are seeing and intereacting with these brands constantly in our everyday lives. Which student hasn’t at least heard of Ryanair Holdings PLC (RYA.L) for example?

Keep an eye on Greene King (GNK.L). One of the UK’s most well known pub and beer businesses and the owner of Hungry Horse. Over 50% of their geographical positions are in the South-East and East of the UK. They aggressively target value seeking customers, offer a consistent brand experience across their stores and are also showing a transition into the technological age. Downside risk is largely from the aggressive growth of craft beer that we have seen in the last 12-24 months. Being an owner of pubs as well as a producer of beers does potentially provide some defence against this threat but be careful.

What about restaurants … hey-Prezzo (PRZ.L), here’s your answer. Casual dining restaurants have been an enormous success. We have been reading particularly good things about Prezzo who are may potentially be about to receive earnings upgrades. If this is the case then now is potentially a good time to grab a slice for ourselves. Downside concerns: This is obviously a HUGELY competitive market and markets are turbulent at the moment. This might be a slow burner but definitely not a bad company.

Domino’s Pizza (DOM.L) has had a stunning year. Currently trading at close to £10.00 per share with a 52wk range of £6.52-£11.21 and we think that this company is only going to keep on growing. It has developed a tried and tested product that consumers love, it has shown good earnings growth over the last year, and most importantly it has proved that it can innovatively engage with technology (Google: “Domino’s easy order button” for more details on this). Downside concerns: For earnings growth to continue, Domino’s will likely need to diversify its menu as well as attempt to steal market-share in categories that are not pizza. These if not handled correctly over the next few years could be dangerous. However, overall it looks like a strong stock.

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