Report of The Chairman

Investment background

I’m sorry to report yet another disappointing investment year. This will come as no surprise given the tribulations our sector has faced and the lack of interest and understanding shown by the UK stock market towards our companies.

The challenges brewers and publicans have faced, stemming from roaring inflation, pressures on consumer income, energy costs, and government indifference, have been highlighted frequently within the pages of earlier newsletters and those of other hospitality industry journals, but the consequences bear reiterating. According to consultants Price Bailey, 769 pubs entered into insolvency during 2023 compared to 518 during the previous year. That leaves the UK’s pub estate at 38,175 premises compared to 41,045 a decade earlier. The accountancy firm Mazars has calculated that 69 UK breweries entered insolvency during 2023 compared to 38 during 2022. CGA, a leading hospitality research house, believe that volume sales of cask beer continue to fall and were 5.7% lower than in 2022.

Tied as we are to a specialised investment remit, it is not surprising that the Club’s unit values have come under pressure. We cannot be as diversified as standard unit trusts or investment trusts are.

At March 2023 month end, the unit value was £3.55; it peaked in December 2023 at £3.69 and ended the year under review at £3.41. Just before Covid-19 hit in December 2019 the value stood at £6.30. There were, of course, variances between individual share prices, with some winners amongst the losers. To illustrate this please see below a small selection of share price movements over the year:-

The pressures affected different businesses in different ways depending upon their business models and operating environment. For many individual businesses it was a test of both pricing power and balance sheet strength, and for the smaller companies, more dependent upon cask beer revenues, sentiment turned against them quite quickly. Valuations generally declined and consequently resulted in both weak returns and heightened volatility.

Some companies have resumed dividend payments but, even so, across the FTSE All Share and AIM indices, 20% of dividend paying stocks cut theirs. Market sentiment shifted from relative optimism to doom-and-gloom and back again.

As the first quarter of 2024 came to an end there were a few encouraging signs of recovery. Most commentators now think that UK interest rates have peaked and that the inflation rate is coming under control. Whilst the challenges have not gone away many company updates are more bullish, both in respect to sales and profitability and real ale consumption. Amidst all the doom and gloom there are still shafts of light: CGA’s data also reminds us that over 40,350 outlets stocked a cask beer and that real ale accounted for just under 10% of all draught beer sold.

Membership

Although we continue to attract new members, I’m afraid that the Club’s overall membership continues to fall. 108 members left and 42 deceased estates were paid out: we offer our sincere sympathies to their friends and families. May I remind you that it is possible to cease paying contributions and to let your investment ‘ride’, subject a minimum residual balance of £20, even if you leave CAMRA.

The Committee also announced some changes to the programme of brewery trips during the year. Please see below for an update.

Governance and administration

The Committee continues to liaise with the boards of the Club’s investments by attending company annual meetings, submitting written questions, and exercising proxy votes and/or by making direct contact with the directors. The Club’s interactions are well received and, generally, welcomed.

The introduction of new Consumer Duty Regulations by the Financial Conduct Authority will affect the manner in which the Club carries out its business with stockbrokers and the custodian. The Committee has undertaken a thorough review of the services currently received and contacted new potential suppliers to evaluate the most appropriate way forward. The conclusion was that we should continue to use the present counterparties, albeit with altered tariffs and changes to the scope of service we enjoy. As a consequence, it is thought that there will be a marginal increase in costs over the year.

I would like to acknowledge the help and support the Committee have received from the Administrative Team at Allens over such a difficult year. We appreciate the strong ongoing relationship we enjoy with Barclays and the timely execution of orders and correspondence by our brokers. I would like to place on record my thanks to my fellow Committee members for their input over the last twelve months and to you, our membership, for your feedback (whether positive or negative), encouragement, and contributions.

Investment outlook

It is impossible to gaze into a macro crystal ball without being forced to swallow crushed glass at the best of times, and these are not the best of times. Moreover, however tempting, it is always unwise to attempt to make precise economic or market forecasts. Notwithstanding that wisdom, it seems appropriate to note that at the time of writing small and mid-cap companies are attractively priced whilst the UK market overall appears to be cheap on both a global basis and relative to its own history.

Given the complex and perturbing global political backdrop and the uncertainty surrounding the important elections taking place this year across the globe, it would be brave to be too positive when the trading environment for many of our companies looks set to continue to be difficult. However, despite the myriad of complicating factors, it can be hoped that the stock market will be allowed to move on and anticipate recovery.

John Hattersley – Chairman – CAMRA Members’ Investment Club