UK travel and leisure sees capital decline of 75% YoY

As economic headwinds bite, the UK’s travel and leisure sector has experienced a capital raising decline of 75%, according to analysis by investment bank Goodbody. This comes as the sector is tackling an unprecedented rise in costs and “dampening” consumer demand, with Goodbody noting the trend may persist into 2023. 

It reported that businesses in the sector raised a total of £531m in 2022, which is down from £2.5bn in the second half of last year and £2.2bn in the first half of 2021.

This shows that, despite output growth continuing to rise following the dwindling impact of the pandemic, the sector has already started to see the effects of inflation and rising costs, as purchasing power and consumer demand begins to wane.

Analysis of London Stock Exchange data on capital raising from Goodbody shows that in H1 2022, just £5.7bn in new capital was raised by UK-listed companies, making it the slowest start to a year in nearly a decade. When excluding listed investment vehicles, this figure falls to £2.5bn.

The analysis also demonstrates a marked shift from the last two years, where corporates adversely impacted by the pandemic turned to investors to shore up their balance sheets. Capital raising in the first six months of 2022 is less than 50% of that in the first half of 2021, and around a third of the amount raised in the first half of 2020.

In addition, weakening market confidence has meant the number of large transactions has declined very significantly in comparison to figures from 2021. It is reported that no companies raised more than £1bn in a single transaction In the first half of the year, while Ocado Group was the only corporation to raise more than £500m.

Piers Coombs, head of Goodbody’s London office, said: “Following the record pace of fundraising during the pandemic, there is a very different tone to Equity Capital Market activity so far this year. 

“With such a sharp move in valuations across almost all sectors, there is little momentum behind PLCs’ desire to raise new capital. For now, it’s all about honing strategy, starting buyback programmes if appropriate, and focusing on what management can control.”

He added: “Those that are raising capital are mostly doing so on a needs-must basis, and the prevailing macro uncertainty is not helping in providing supportive aftermarkets. That in turn is further impacting market confidence.

“Looking ahead, while it is impossible to say with certainty when activity will begin to pick up, our view is that this will happen once there is more clarity on the interest rate cycle in Europe and the US and, importantly, some visibility on inflationary pressures subsiding. The latter could reasonably come through in late Q3 or Q4 this year, not least as we start to lap into higher comparatives from this time last year. IPO pipelines have moved to the right, with the majority of active processes now targeting 2023 rather than the second half of this year.”