Leading analyst Mark Brumby at Langton Capital has said that Greene King’s H1 numbers were just a shade disappointing and that the “going remains challenging and group has some work to do”.
• What’s happened?
Greene King reported revenues up but EBITDA, operating profit & EPS down. The dilution caused by exiting bottom-end tenancies was expected. But managed units reported slower growth, lower average EBITDA/site & lower margins. Dilution will persist & there’s no upward pressure on forecasts
• What does this mean?
Strategy (more managed units & fewer but better tenanted pubs) remains sound. But there is dilution, managed trading is sluggish & MARS is 18-24mths ahead on execution. SPRT purchase remains on track & will conclude in calendar Q2 next year. Forecasts at that point may edge higher – but with exceptional costs & some execution risk
• Implications, conclusion etc.:
Annualised to calendar 2015, GNK & MARS both trade at 11.3x earnings. But margins & EBITDA per managed pub at GNK are falling, whilst at MARS, they are rising. GNK’s LfL sales are +0.8% for H1 (+1.5% last 12wks) whilst MARS is +2.1% for last 8wks, MAB is +2.4%.
In addition, MARS is further through its disposal programme in terms of dilution & may have more of a clear run re purchasing new-build sites. GNK has the SPRT synergies to digest but we see MARS as offering better value at present.
