Speculate to accumulate, Barclays advises travel firms

Speculate to accumulate, Barclays advises travel firms

Travel firms were warned they risk missing out if they continue to rein back on investing in their companies as the recession recedes.

Speaking at yesterday’s Barclays Travel Forum, the bank’s managing director corporate banking Graham Buckland delivered an upbeat assessment of prospects for the UK economy.

But he said firms that have been sitting on capital due to concerns about the future need to beware of competitors from overseas stealing a march as the upturn takes hold.

“What we do not want to see, as we come out of being flat, is companies not having invested, so not being able to take advantage of the upturn and, even worse, better invested companies coming in and making consolidation plays,” said Buckland.

He added that he has started to see increased confidence among chief executives and that recent months have seen more “event driven” [merger and acquisition] activity than in the last two to three years.

This was partly due to business owners starting to have more realistic expectations in terms of the valuation of their companies.
Contrary to popular opinion, Buckland said the level bank lending was more down to demand from firms than to how many applications the banks were prepared to approve.

“The bulk of debt is borrowed by the bigger companies. Medium sized businesses in London (£25 million turnover) only borrow 5% of the debt. The bottom line is medium sized companies do not borrow. You are seeing a reduction in people applying to borrow because they are cautious.”

Buckland said it was important business started spending again to kick start confidence and the bank was prepared to work closely with its customers on applications for credit to “get their house in order” and improve the approval rate.

Despite a series of high profile business failure, many on the high street, Buckland said the bank’s experience of the recession is that firms have fared better than the press coverage has suggested.

“Generally speaking all sectors have performed okay. I remember the last recession in the early nineties and companies are better managed today, balance sheets are stronger, we have seen a lot less failures, bad debts and impairments.

“There is a skew. Sectors that are people based are doing a little better than those that are asset based. Technology has done particularly well, and business services and utility management. We have seen failures in the retail space and probably running regional hotels has proven more difficult.”

Buckland high profile retail failures like Woolworth, MHV and Blockbuster were “taken over by events”, the business model changing and a bricks and mortar large retail portfolio meaning they were unable to react quickly.

Of those that have survived a key quality has been good management. “You have got to peddle a bit faster, spin the wheels a bit faster. If you get the management right, if you are peddling frantically you won’t fall into that bottom 3% of failures.”

 

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