Surveys show that fewer and fewer Brits are keen to visit a pub any time soon

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Propping up the bar and supping a pint — so-called vertical drinking — is becoming a thing of the past.

Mitchells & Butlers started consulting on Monday about job cuts, blaming curfews and closures due to Covid-19 and waning government support. On Wednesday, Liverpool pubs are to shut under new Covid-19 restrictions. Surveys show that fewer and fewer Brits are keen to visit a pub any time soon.

On the face of it, the most affected of the UK’s listed national inn groups are Marston’s, JD Wetherspoon and M&B. It looks like last orders.

Actually, relatively few of the big chains’ premises are in Liverpool or Merseyside. But the lockdowns will probably be extended to other regions before we know it. The big issue is less where taverns are geographically than what they offer — and the burden of debt these businesses carry. 

Pubs offering what the government dubs delphically “substantial” food can stay open for now. A packet of pork scratchings and peanuts is unlikely to cut it. 

Large proportions of Marston’s and JD Wetherspoon’s hostelries are wet-led. Food as a percentage of JDW’s total sales rank among the lowest in the sector. More than two-thirds of Marston’s pubs are old-fashioned boozers.

All three groups are loaded with debt, which even last year was many times ebitda. Earnings of all three are expected to at least halve this year. Marston’s stood at about £1.4bn at the last count or £1.2bn including the cash coming in from the brewing joint venture with Carlsberg opportunely signed this summer. That could be more than 10 times this year’s ebitda. Pub earnings of many groups will barely cover interest bills this year. 

One way or another, whether through covenant waivers, refinancings, equity raises or deals, the trio have secured sufficient headroom and cash to last them into next year. If the pandemic eases and lockdowns are lifted before the spring, drinkers will flock back to their locals in the way they did during the summer. Liberum reckons the traditional pub has a hero status in local communities that will endure through tough times.

If so, Marston’s and M&B’s shares, trading at about 4 times prospective earnings, are cheap. 

They aren’t, though, if the pandemic takes longer to burn itself out. These inn businesses could be in their final innings. Time, ladies and gentlemen please.

Covid test

Oxford Nanopore should be a Covid-19 hero. Instead it is Covid zero: a coronavirus-exposed company that has experienced no increase in value since before the pandemic. 

If ever there was a time to be in virus testing, tracing or treatment, it is surely 2020. Shares in Novacyt, former Aim-quoted tiddler and a PCR test maker, are up more than 100 times in the space of a year. With a market cap of £500m-plus, it is hardly tiddly now. Omega Diagnostics, another Covid-19 test maker, is up about nine times. Shares in Synairgen, which treats the virus’s symptoms, are worth about 25 times what they were a year ago. 

Privately held Oxford Nanopore, meanwhile, has just completed a funding round at the same valuation as in January’s pre-Covid era, roughly £1.7bn, according to number-crunchers at Numis. When it raised cash in 2018, the group was valued at £1.5bn. 

The university spinout strictly specialises in DNA sequencing technology, not diagnostics. But its gene-reading machines have been used to sequence the Sars-Cov-2 virus, helping track its spread. And it has diversified into testing too. On Tuesday listed investor IP Group — which was a founder backer — revealed Nanopore had secured a £113m UK government contract for its LamPORE Covid tests. 

Analysts are all excited about a potential Nanopore IPO. Jefferies’ Ken Rumph reckons the company could be worth $6bn. Talk of a float last year was premature, everyone now agrees, since the company needed more time to demonstrate commercial applications of its biotech and that it could earn recurring revenues. 

Maybe next year. But then investors have been hoping for an IPO for years. Lansdowne Partners, Neil Woodford and Invesco were meant to be patient backers of the private company. But they have since sold, or been forced to sell, large stakes. IP Group — which was also backed by Lansdowne, Woodford and Invesco — also trimmed its stake. It is now down to 15 per cent. 

Nanopore’s investors shouldn’t lose heart. This year’s fundraisings, which set a current price for the group, have been undermined and overshadowed by the plight of its early supporters. Its valuation will catch up with the Covid-19 bump. Investors who can hang in there should. Those who don’t have access to the private company should take a punt on IP Group.

Pub groups: kate.burgess@ft.com
Oxford Nanopore: cat.rutterpooley@ft.com

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