Analysts from Panmure Gordon and JP Morgan give their views on Young’s FY results this morning – including a belief that they may be the only pub company actually able to deliver the like-for-like sales increase necessary to keep profit growth on track but why their sensitivity to weather trends could be a downfall.
Mark Irvine-Fortescue at Panmure Gordon decribed this morning’s update as “slightly ahead of market expectations, demonstrating a resilient performance across all parts of the business”.
He added: “At least two national pubcos have acknowledged 3-4% LFL revenue growth required to hold profits flat this year; the difference being we are confident Young’s can achieve it.”
JP Morgan’s Alexander Mees gave Young’s a neutral rating, saying: “Young’s estate of premium pubs is almost exclusively focused on the London market. We believe there is upside risk to market estimates of LFL growth over the medium term. It has the lowest gearing of the pub companies we cover. Young’s trades on a premium of earnings multiples to others in our universe, and after a strong run we see current multiples as fair value.”
Mees identified a number of pros and cons from Young’s situation.
LFL performance exceeds expectations.
Prices increase to offset cost inflation, pushing up margins.
Consumer spending may be more robust than expected.
While Young’s is located in the most affluent areas of the UK, a downturn in
consumer sentiment could have a negative impact on our sales growth assumptions.
Young’s has been reasonably successful in passing cost increases on to consumers,
but any renewed input cost inflation could put downward pressure on margins.
Trading is also sensitive to weather trends, even by the standards of the pub
industry, with over ten riverside sites and outside space in over 70% of the estate.