Interview Synopsis

Stonegate Group – 2023 Trading Update & Portfolio Strategy

  • Credit
  • Consumer
  • Europe

UK pub chain Stonegate Group bought rival Ei Group for USD 1.6bn before the Covid pandemic but now, with USD 2.6bn of debt to pay off, is reportedly planning to sell up to 1,000 pubs*. Third Bridge Forum spoke to a former executive at Stonegate to discuss this matter, the trading environment, and Stonegate’s competitive positioning.

As a well-invested estate with clear concept segmentation, our expert is optimistic that Stonegate will perform well in the next 6-12 months in its managed business. However, like its peers, the company faces tall challenges in 2023, including consumer demand dampened by cost-of-living worries, train strikes, soaring energy bills, rising staffing costs, and other supply-driven cost increases.  

Overall pub industry performance has been improving but it is still combatting margin pressures. Like-for-like growth rates were 3%, 1% and 3% in February, March and April respectively vs 2022. However, with inflation running at +10%  “these numbers are considerably below the inflationary levels”, the expert said.

Q2 is “looking more positive”, we were told, with potentially 5% growth thanks to the three bank holidays in May and the King’s Coronation. “Some companies have been reporting May numbers themselves around 9% and 10%, so in line with inflation, which is great news, but it’s a one-off month in having an extra bank holiday in there.” With Q2 enjoying warmer weather, the industry could log 5-10% growth in June.

However, the picture is less certain for the leased and tenanted segment, which as we heard operates on a lower gross profit to begin with. “Their energy costs have been extortionate and they can’t get the same deals as managed businesses can get, and food costs, at the same time, have gone through the roof,” the expert told us. “The individual operator is squeezed at both ends, really being squeezed, and they are not the best pubs in the first place.” If the average tenant made GBP 30,000-40,000 in previous years, today they will be “struggling to break even on the basis of today’s costs”.

On Stonegate’s potential sale of up to 1,000 pubs, the specialist acknowledged that “they’ve got to pay down some debt somehow”. With news reports suggesting the company is looking for GBP 800m, the expert suggested its Craft Union business could be on the cards as a mid-market offering.

“You could argue that they’re building it to sell, and that is only my argument and nobody else’s, but it would make sense in terms of valuation, because if they had to sell businesses in the lower end and they still wanted to get GBP 800m, which is the figure that came out in the press, they’d have to sell a lot more pubs to get that GBP 800m. They’d have to sell 1,500-1,600 pubs to get rid of that.” 


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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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