An easing comparative headwind
The British grocery scene witnessed an easing of the comparative headwinds created by the virtuous trading conditions of CY2018 and Nielsen records a 1% increase in four week (4W) in July, whilst Kantar has a flat 12W to the 11th August. Ocado on Kantar’s measure was the fastest growing label whilst in-store the limited assortment supermarkets (LAS) press on aided by new space, Lidl UK leading the charge. Of the superstores, Sainsbury is recording better absolute and relative momentum, boosted by favourable comparatives and a renewed focus after the aborted Asda marriage, whilst Morrison, which faces multiyear positive comparatives, lags its superstore peers. Looking into late summer, the comparatives continue to ease, albeit the industry faces whatever the political class throws up ahead of the 31st October; what could possibly go wrong? Whilst so, we continue to believe that the fundamental economics of the UK supermarket scene are sound, rational players driving what Tesco calls the ‘quantum of sales’, focusing upon mix and costs, and with capital discipline and better free cash flow.
GNK MRW SBRY MKS TSCO
20 Aug 19
Peach Coffer Tracker
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
13 Aug 19
Read across from EI Group
It’s fair to say we didn’t see a 285p per share bid for EI Group, formerly known as Enterprise Inns, coming. The all-cash, agreed offer from rival pub group Stonegate values the 4,000 strong tenanted, leased and commercial pub group at £3.0bn or 11.4x underlying EBITDA of £261m. To some degree we struggle to see the commercial logic of combining Stonegate’s managed, predominantly town-centre estate with EI Group’s tenanted estate, beyond the defensive measure of balancing Stonegate’s current position (circuit bars), synergies and property management (including conversions to Stonegate’s brands). Ironically, in a previous research note “Solving the Gordian Knot” (July 2018), we explored the opportunity of combining Stonegate with Marston’s, although the conclusion was that the pro-forma debt metrics appeared elevated. Our long-standing negative recommendation on EI Group has been predicated on high debt levels and limited free cash generation (post-capex free cash flow of c£30-40m), with disposals funding mandatory deleveraging; the result being little earnings growth, no dividends and modest underlying deleveraging, albeit disposals have accelerated this process. Post the agreed offer we upgrade from Sell to Hold.
GNK EIG MARS
18 Jul 19
Cenkos: Leisure Sector -- Suspend coverage
Due to a change in sector focus Cenkos Securities plc has suspended coverage of the following stocks (see table 1). Our previous recommendation and forecasts can no longer be relied upon. Please contact Cenkos for further information.
GNK TUI CCL CPG DOM JDW JE/ MARS MERL MAB FLTR PTEC RTN TCG WTB WMH IHG SSPG
20 Jun 18
N+1 Singer - Greene King - Low growth = utility type assessment
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.
07 Oct 16
N+1 Singer - Morning Song 29-06-2016
Greene King (GNK LN) Stronger than anticipated finals | Harwood Wealth (HW LN) Interims in-line, healthy acquisition pipeline | Infrastructure India (IIP LN) Sale of interest in WMP toll road completes | OMG (OMG LN) Appointment of Non-Executive Chairman
GNK OMG IIP HW/
29 Jun 16
Reasonably attractive risk-reward
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.
26 Feb 16
Satisfactory Q3 update
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.
10 Feb 16
Growth baked in
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.
09 Dec 15
Strong interims, we upgrade to Buy
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.
02 Dec 15
BREWIN DOLPHIN HLDGS (BRW LN) Finals in line, positive margin progress | FINDEL (FDL LN) Is this why Sports Direct bought at 200p? | GREENE KING (GNK LN) Strong interims, we upgrade to Buy | IOMART GROUP (IOM LN) In-line interims; small adjustments to forecasts
GNK BRW STU IOM
02 Dec 15
In line Q1 trading update
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.
08 Sep 15
Upcoming Q1 update unlikely to be a positive ST catalyst
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.
03 Sep 15
Carclo (CAR LN) Trading in line | Greene King (GNK LN) Upcoming Q1 update unlikely to be a positive ST catalyst | Horizon Discovery Group (HZD LN) Collaboration with Redx Pharma | Lookers (LOOK LN) Benfield acquisition for £87.5m – 12.5% upgrades in 1st full year (FY’16) | Redde (REDD LN) Upgrading PBT, strong growth drives dividend | Summit Therapeutics (SUMM LN) Dr Ralf Rosskamp appointed Chief Medical Officer
GNK CAR HZD LOOK REDD SUMM
03 Sep 15
Finals in line but current trading continues to disappoint
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.
01 Jul 15
Forthcoming finals previewed
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.
26 Jun 15