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Greene King’s AGM trading statement for 18 weeks to 1 September 2019 reported YoY Pub Company LFL sales down 1.8% reflecting the tough comparatives of last year’s World Cup and good weather. This improved to growth of 1.5% over the last seven weeks of the period which excludes the World Cup.
Greene King
A subsidiary of CK Asset Holdings Ltd, a Hong Kong listed investor, has made a cash offer of 850p per share for Greene King. This represents a c51% premium to the closing price on 16 August and implies a market cap of £2.7bn (EV of c£4.6bn).
The Peach Coffer for July reported a 1.2% increase in LFL revenue for the cohort of 54 pub and restaurant groups against a flat comparative month last year; a period characterised by England’s run to the semi-final of the FIFA 2018 World Cup and sustained hot weather. Unsurprisingly, restaurants performed strongly, with LFL sales ahead 3.8% against weak comparatives (-4.8%), although a flat performance from the pub sector against last year (+2.7%) was encouraging. Overall, we see the July performance, consistent with the LTM, as supportive of a resilient underlying market.
GNK MARS RTN
FY19 full year results were encouraging, with a small 1% beat on profits; EPS grew by +2.7% to 64.3p. Crucially, the dividend has been held flat at 33.2p, which should be well received by the market.
Greene King ended the year strongly with LFL sales growth of 2.4% over the last 16 weeks to give 2.9% growth for the year (Liberum est 2.2%). Net cost inflation is expected to be in line with full year adj PBT guidance of £244m-£247m, giving scope for small beat to our FY19E forecast of £244m and FY20E of £248m.
Greene King has shown another acceleration in underlying trading with Pub Company LFL sales growth now 3.2% YTD, compared to 2.7% at the interim stage. While Christmas trading was boosted by the favourable calendar and more benign weather conditions, we are encouraged by the consistency of the trading patterns with improvements in both drink and food sales and with all brands now in growth. Cost are being contained and the on-going Spirit refinancing allows for greater strategic and cash flow flexibility. Pub Partners and Brewing remain subdued but do not distract from overall improvement. We are upgrading forecasts by a small but significant 1.0%, held back only by the uncertainty of Brexit, and believe further upgrade potential remains. BUY
LFL sales growth of 2.7% in the 24 weeks to 14 October has accelerated to 3.5% over the last 5 weeks - aided by weaker comparatives but also testament to significant self-help. Cost inflation remains fierce but progress is being made to limit the net impact to £10-20m, which should in turn be largely offset by interest cost savings. Further progress is being made on restructuring debt with annualised interest savings of £13m and NPV benefit of £45m. Hence EBITDA was -2.0% to £235.8m but adj PBT +0.2% to £128.2m giving Adj EPS +3.2% to 33.1p and maintained DPS of 8.8p. Net debt/EBITDA flat at 4.2x backed by £4.5bn market value of assets (LTV 47.2% and NAV per share c702p). We believe that the company’s strong cash generation can continue to cover scheduled debt repayments, core capex and dividends with capital recycled from tail disposals to fund new builds. No news on CEO succession but the outlook is optimistic and we do not expect to make changes to our FY19E forecasts. The shares are deeply undervalued trading on CY19E PE 8.1x, EV/EBITDA of 7.3x, Divi yield 6.6%. BUY
Rooney Anand has announced his intention to step down from the role of CEO at the end of the current financial year in April 2019. The process to appoint a successor is underway and an announcement is expected early 2019. Although this causes short term uncertainty, we believe this could be a positive catalyst for sentiment towards Greene King, drawing a line under a period of acquisitions and re-focusing the debate around strategic options. Meanwhile evidence of a turnaround is emerging with the last trading update reporting LFL sales up +2.8% for 18 weeks to 2 September. Overall trading conditions remain subdued but stable with pubs taking share from restaurants. The shares remain deeply undervalued trading on CY19E PE of 7.6x and EV/EBITDA of 7.1x with a dividend yield of 7.0%. Our recent note - Those D Words: debt, dividends & disposals - explored the asset/debt arbitrage opportunity across the sector and highlighted Greene King’s cash flow strengths. BUY.
Trading has significantly picked up over the last few weeks as investment made was given an additional boost by weather and world cup. Over the last 18 weeks LFL sales were +2.8% and +3.2% over the last 10 weeks. Encouragingly the company has confirmed its on-track with cost mitigation and plans to push on with refinancing to reduce cost of debt and increase flexibility. We are not changing our numbers at this stage as we believe it is prudent to retain some caution in light of consumer pressures and Brexit uncertainty HOWEVER we note that a mere +0.8% LFL is now required over the remainder of the year to meet our FY19E estimate of +1.5%. We find this statement encouraging and believe the shares are deeply undervalued trading on CY19E PE of 7.4x and EV/EBITDA of 7.0x with a secure dividend currently yielding 7.0%. We reiterate our BUY recommendation.
In these five short videos Liberum's Leisure Analyst Anna Barnfather outlines the outlook for Pubs & Restaurants for 2018, focussing on competitive pressures, cost inflation issues, the outlook for supply and preferred stocks.
GNK MARS RTN YNGA EIG FSTA JDW MAB DOM 6QH
Greene King traded reasonably well over Christmas, given the circumstances, and we are encouraged that like for like trends are stabilising. Furthermore, we believe that the weather disruption masks green shoots of improvement following £10m investment in pricing, marketing and service levels. The stock remains cheap trading on CY18E PE of 8.3x, EV/EBITDA of 7.6x with dividend yield of 6.3%. While the catalyst of an improving overall performance is still to emerge, the relatively flexible balance sheet and sustainable dividend provides support. We maintain BUY with TP 690p.
We cut FY18 EPS by 6% on weaker LFL trends and are increasingly anxious that consumer demand softness is coming home to roost, an unwelcome bedfellow to existing supply-side pressures. With the exception of premium operators like Young’s, we feel investors are safest avoiding pub/restaurant value traps, and embracing the higher multiples accompanying selected growth companies in the sector (OTB, MERL, PIER, WIZZ, YNGA). We move GNK to HOLD (700p TP).
We expect a flattish profit outturn this year, with enhanced buying scale post Spirit, and operational initiatives (portfolio change, labour scheduling, IT) helping to counter cost headwinds. That said, GNK’s estate has become more value tilted (Fayre & Square, Flaming Grill, Hungry Horse), where customers are arguably more sensitive to the tough consumer backdrop. The lowly valuation discounts a lot of caution, in our view, and we see value on a medium-term investment horizon. We retain a BUY rating, with TP lowered to 800p in line with trimmed forecasts.
GNK delivered an in-line FY17 outcome and self-help initiatives from cost efficiencies and brand conversions should see profits held stable in FY18. At sub-8x EV/EBITDA, and with a near 5% dividend yield, we continue to see value in the equity, albeit with no imminent catalyst and with some caution around the high exposure to the value end of the market. Presentation 9:30am.
Q3 trading is satisfactory but has slowed a tad since Q2, not firmed as we expected, with Pub Company LFLs at 0.8% versus 1.3% at 1H. We trim our FY17/18 EPS by 3/4%. Following a change of analyst, we assume coverage of GNK with an inherited BUY rating – which we retain, albeit with somewhat curbed enthusiasm. The shares have de-rated 10% in the last 12m leaving an attractive valuation and 4.7% dividend yield, backed by solid FCF and freehold assets. BUY, with TP lowered to 850p (from 1050p).
Greene King reported Interim results with revenue up 13.8% to £1,044m, Adjusted PBT up 14.6% to £139m and EPS +4.3% to 36.0p driven by Pub Company LFL of 1.3% and Pub Partners LFL net income +4.2%. DPS rose 4.1% to 8.8p. Although LFL of 1.3% was a little disappointing, Q2 was up against challenging comparatives and the company has commented that trading has since improved thus keeping full year assumption of 1.0-1.5% still in range. Importantly the company now expects synergies of £30m this year, a year ahead of original target demonstrating the self-help potential in mitigation inflationary headwinds. ROCE maintained at 9.4%. We retain our buy.
We are downgrading the stock from Buy to Hold, setting 800p as our new 12m TP and lowering our FY17/FY18 EPS expectations by 7%/10%. This takes us 3%/8% below consensus. Trading has been mixed for c.3 years and the anaemic 3 year EPS CAGR of 3% is uninspiring. Until management can evidence a higher growth rate we feel the group should be viewed as a utility type stock with yield being the main attraction. We prefer Marston’s in the sector and are buyers of it ahead of next weeks YE update.
Greene King released a brief AGM trading update covering 18 weeks to the beginning of September showing Pub company LFL of +1.7%, Pub Partners LFL net income growth 4.5% with Brewing & Brands own volume down 0.5%. It is making strong progress on integrating Spirit with 41 brand conversions and ¼ pubs operating best of both IT systems and is on track to deliver planned synergies. The headline LFL of 1.7% is a slowdown from 2.8% seen at the very start to the year but is still ahead of our FY17 expectations for 1.5%. Importantly, synergies and integration is on track which bodes well for margin gains to offset inflationary pressures. We maintain our Buy recommendation
Greene King reported full year results ahead of expectations, with Sales £2,073m and adj PBT of £256.5m (PGe £249m) to give EPS of 69.9p (PGe 66.9p) and DPS of 32.05p (4.2% yield) – with the beat largely driven by cost savings from the integration of Spirit (£16.7m versus £12m). The company has had a strong start to the year (LFL +2.8%) but mentions likely short term Brexit impact on consumer confidence. We are leaving our forecasts unchanged ahead of the meeting at 9.30am and reiterate our Buy recommendation. Greene King’s freehold backing, low rent roll and self-help/integration initiatives make it less operationally geared than most of its peers. Shares are off c16% post the referendum to now trade on 8.0x 2017E EV/EBITDA and PE 10.2x with dividend yield of 4.2%. Net debt/EBITDA of 3.9x. This compares with the current sector average of 9.8 EV/EBITDA and 15.1x PE.
Greene King will release FY16 results (52 weeks to 01 May 2016) on Wednesday – the first leisure company to report post the referendum with its outlook statement likely to have implications for the wider sector. Like all consumer discretionary businesses, Greene King is vulnerable to a downturn in consumer confidence/spending; however, its freehold backing, low rent roll and selfhelp/integration initiatives make it less operationally geared than most of its peers. We retain our Buy recommendation. Shares are off c18% over the last few days to now trade on 8.0x 2017E EV/EBITDA and PE 10.2x with dividend yield of 4.1%. Net debt/EBITDA of 4.1x. This compares with the current sector average of 9.8 EV/EBITDA and 15.1x PE.
We are lifting our 12m TP by 14% to 1030p to reflect upgrades post recent interims and stay at Buy. Our positive stance is purely a valuation call as the FY17 spot multiples are attractive given a 3 year EPS CAGR of 10% and a c.4% yield. Our concerns about the Spirit deal furthering GNK’s exposure to wet sales and earnings growth largely being synergy driven have not eased. But we acknowledge the Group’s strong track record, enhanced FCF and an attractive pub estate.
A satisfactory Q3 trading update from Greene King this morning which shows it had a strong Christmas and that the LFL trend has improved in Q3 vs H1. No consensus upgrades envisaged this morning, but in the context of mixed peer updates recently, today’s news should be viewed favourably. We stay at Buy with a 900p Tp.
Greene King has reported a Q3 trading update for the 40 weeks to the 7 February 2016 with trading in line with expectations. Greene King LFL sales increased by 2.2%, with the Spirit managed estate up 1.1%. Christmas trading was particularly strong for both Greene King and Spirit, up 5.0% and 5.2% respectively. Pub Partners LFL net income grew by 2.5% and Brewing volume 3.9%. Post today's update we nudge our forecasts up by c1-2% reflecting the solid trading. We increase our target price to 1090p (from 1079p). We reiterate our Buy recommendation with Greene King offering a 3-year EPS CAGR of 9% and attractive 4% dividend yield.
Greene King has developed a reputation as a leading pub company combining a consistent record of successful earnings growth and a meaningful dividend yield. Now 80% larger by market cap than its nearest peer, it continues to lead the consolidation of the sector. Its latest acquisition, of Spirit Group, is integrating well, which significantly underpins earnings and dividend growth over the next two years.
Greene King has announced interim results to the end of October 2015, with trading strong in the period. Total revenue increased 49.2% to £917.7m and PBT increased 46.9% to £121.3m (EPS: 34.5p), ahead of our £101m PBT forecast (EPS: 31.0p) benefitting from cost synergies, fair value adjustments and good underlying trading. Trading in the last 6 week weeks for both Greene King and Spirit managed pubs has accelerated, with LFL sales up 4.1% for Greene King and 2.4% for Spirit. Greene King has provided updated guidance on the Spirit acquisition: cost synergies increased by £5m to £35m (with more go to), whilst Greene King has indicated potential upside from revenue synergies and investing in 300-400 Spirit pubs. We upgrade our FY2016 PBT estimates by c.4% and increase our target price to 1079p (from 1015p). We reiterate our Buy recommendation on Greene King.
A stronger then anticipated set of interims from Greene King this morning which should be well received by investors. Current trading appears to be good albeit no LFLs are given. There is good news on Spirit synergies and we envisage three year consensus forecast moving up by 3-5% post the results. The shares should react positively today and we move from Hold to a Buy with a 900p TP.
An in line Q1 trading update from Greene King this morning. LFL sales growth of 1.3% at the Greene King Managed estate is an improvement on the 0.6% reported after 8 weeks, but it's the least we expected given a soft Q1 comp of 0.4%. Trading across the rest of the business is mixed in our view and there's nothing tangibly new around Spirit. Overall, the update reinforces our view that despite a macro tailwind, intense competition is proving a hinderance to strong pub-restaurant sector top and bottom line growth. We make no forecast changes and stay at Hold with a 830p TP based on a 15% P/E and EV/EBITDA sector discount.
Greene King has announced a positive Q1 trading statement for the 18 weeks to 6 September. LFL sales in Greene King Retail increased by 1.3% in the period (up 1.9% over the last 10 weeks), despite mixed weather conditions in the quarter impacting and the negative impact from the changes to the Scottish drink driving laws. LFL sales growth within the Spirit managed estate increased 0.8% over the 18 weeks. The combined company is seeing growth across all categories. Following today's update we retain our 2016 estimates and await a further update regarding the Spirit acquisition at the December interim results but believe today's update is positive given some recent, slower trading in the UK pub & Restaurant sector. We retain our Buy recommendation and 1015p price target.
We use this note to preview the forthcoming Q1 update and formally publish our new forecasts and target price post the Spirit merger. We anticipate another sluggish trading update next week despite soft comps. If proved correct, this will act as a further ST sentiment drag for both GNK and the sector in general. We have mixed views about the Spirit deal and reinforce the pros and cons in this note. The main positive is that the deal has helped lift the 3 year EPS CAGR from 5% to 8%, but we question whether the quality of earnings has improved. For now we value the group on a 15% YR1 P/E and EV/EBITDA discount to the pubs/restaurant sub-sector to derive a revised TP of 830p (from 797p) and stay at Hold. The main attraction we see in the near-term is the 4% dividend yield.
An inline set of finals this morning from sector stalwart Greene King. The numbers graphically show that the previous year was a difficult one, with PBT -3% and EPS effectively flat. The current year has not got off to a much better start with weak LFL’s reported after 8 weeks despite softer comps. This further brings into sharp focus the lack of momentum in the Greene King managed estate and the impact an increasingly competitive market at the value-end is having. There is no fundamental new news / insight regarding Spirit. Overall, there is nothing in today’s results to influence us adopt a more bullish stance on the stock and thus stay at Hold.
The big event in the Leisure sector next week will be Greene Kings finals on 1st July. These will highlight a difficult 12 months with PBT projected to go backwards (we estimate -3%). The industrial and financial logic of the Spirit deal are well understood and the market will be looking for more colour on synergies, brand rationalisation and organic expansion next week. All this could be overshadowed if current trading remains challenging, despite soft comps. We have no huge axe to grid against Greene King other than having a question mark over the quality of earnings post Spirit. In this regard a pro-forma P/E of 13x and EV/EBITDA of 9.4x look about right vs. peers MARS and MAB. The shares have had a good run in recent days on news of the Spirit deal being consummated and are trading above our TP of 798p. We stay at Hold and will review our TP post the results.
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