Greene King: Will Interim Results Be An Affordable Treat?
Connor Campbell | Nov 23, 2017 10:55
Despite a poorly received third quarter report in mid-February, the UK’s largest pub retailer and brewer didn’t do too badly at the start of the year, climbing to a 4-ish month high by early April. However, since then the stock had looked pretty damn hungover, plunging all the way to a current trading price, and 5 and a half year nadir, of £4.98.
The company’s full year results at the end of June – just over one year on since the Brexit vote – helped the stock’s journey south. The figures themselves were toast-worthy: like-for-like pub sales grew 1.5%, while total group revenue rose 6.9% to £2.2 billion; this led to a 6.6% increase in adjusted pre-tax profit to £273.5 million and a 3.6% dividend hike to 33.2p per share.
Yet a warning that the ‘challenging environment will intensify over the next few years’ overshadowed the fairly robust numbers, pointing to the now familiar issues of consumer confidence and the squeeze on disposable income as cause for concern. Greene King did say that it believes:
Affordable treats such as visits to the pub will continue to play an important role in consumer discretionary spending
And that it thinks its business model is ‘well placed to outperform the market'.
But this wasn’t enough to reassure investors.
The pub chain encountered more problems in September, as it plunged 15.5% in a single session following its third quarter statement. The update seemed to illustrate the issues mentioned back in June, with Pub Company like-for-likes down 1.2% as the company blamed a disappointing British summer and the squeeze on real wages for the drop. Elsewhere Pub Partners comparable sales climbed 1.4%, while in Brewing & Brands own-brewed volume slipped 0.5%, far less than the 2.9% and 7.0% declines seen in the UK ale and cask ale markets respectively.
As for next Thursday’s half year report, the signs aren’t good. Rival Mitchells & Butlers (LON:MAB) recently stated it wouldn’t pay out an interim dividend in 2018 after rising costs hit its annual profit, news that dragged the All Bar One-owner sharply lower while sending a ripple of fear through the pub sector. If Greene King is to avoid the same fate then it really needs to prove it is coping with the UK’s rapid food and drink inflation.
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Greene King (LON:GNK) has a consensus rating of ‘Hold’ alongside an average target price of £7.31.
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