1. Hello Guest Click here to check FX Binary Point Financial Directory

Greene King boosted by Spirit purchase and strong Christmas

Discussion in 'Market News' started by Lily, Feb 10, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    Company continues to integrate new pubs with analysts positive about outlook

    Investors were toasting Greene King after an upbeat trading statement from the pubs group.

    The business said it was successfully integrating its purchase of rival Spirit, at the same time as recording a record Christmas performance. Retail sales rose 67% after 40 weeks including a 33 week contribution from Spirit, and it achieved record sales of £6.4m on Christmas Day.

    Greene King’s... interim management statement revealed that it has enjoyed a strong third quarter helped by the Christmas fortnight. It continues to make good progress on integration; it has declared £35m of synergies which we think could rise to £40m. In a market where there is little pricing power, the ability to take costs out is attractive.

    But the investment case is not just about defensive cost savings: Greene King is now a much better investment proposition with higher quality earnings, stronger free cash flow and better growth prospects than before. Greene King has a clear route-map to follow and the heavy lifting of brand rationalisation has now started in earnest this quarter. It reports ‘encouraging’ performance from the rebranded trial sites. We reiterate our buy recommendation and retain our 1100p share price target, implying 32% potential upside. The market-induced share price weakness since the interim spike gives investors a good entry point.

    Now the reorganisation is complete and Christmas is in the past, the serious business of rationalising the brands and focusing the capex and effort can get going in earnest. Greene King plans to halve the brand portfolio to ten powerful brands with the most capable management and the majority of the expansion capex being focused here. The key growth brands are to include Hungry Horse, Flaming Grill, Farmhouse Inns, Chef & Brewer and Metropolitan (Premium London estate). This focus is key to Greene King’s medium-term future.The next important date will be systems migration to one platform in early March 2016.

    We reiterate our buy recommendation on Greene King and 1090p price target. Greene King continues to see strong underlying like for like sales growth, whilst the Spirit Pub acquisition will provide at least £35m of cost synergies and potentially £30m of additional profit contribution from investment into the Spirit Pub estate over the next three years

    Based upon the current enterprise value/EBITDA multiple of around 9.3 times, this would equate to additional value of around £600m to shareholders, or a 24% uplift to the current equity value. Furthermore, the 4% dividend yield adds further upside to investors, whilst as Greene King reduces net debt, the stock should re-rate.

    This is a positive update from Greene King and management indicates that expectations for the full year are unchanged. With a positive outlook for earnings growth, assisted by the benefits from the Spirit acquisition, the rating of 11 times earnings for 2016/17 looks undemanding with an attractive yield of 4.1%. We consider the shares have good upside to our target price of 1020p.

    Press reports this morning indicate that ministers are considering reducing the drink driving limit in England, following the reduction in Scotland in November 2014, which impacted pub revenues by 3-4%. This would clearly be negative for the sector.

    Continue reading...

Share This Page