Analysts at Hargreaves Lansdown have given their view on the trading update from Greene King yesterday, saying the group’s track record deserves recognition and that brand consolidation offers cause for optimism, However, they warn the company faces undeniable headwinds.
Nicholas Hyett, from Hargreaves, said: “Greene King has a great track record of dividend growth. Since CEO Rooney Anand took the reins in 2005, turnover and dividends per share have doubled. Indeed, strip out the impact of a tax-related rescheduling of dividends in 2008/09 and the payout has grown every year for more than two decades.
“However, things are looking a bit tough at the moment. The squeeze on real wages is hitting demand, while the explosion in new casual dining venues means competition for a share of the public’s purse has rarely been higher. Add in a whole raft of cost headwinds and a sizeable debt pile, and things aren’t looking quite as secure as they once did.
“In response, Greene King has upped investment in the estate, cut prices and increased marketing spend. Early signs suggests these efforts are delivering results for the top line, but the impact on margins means profits are falling.
“On the positive side, the group has a sterling track record when it comes to taking costs out of the business. Brand consolidation, in a portfolio that stretches from Hungry Horse and Flaming Grill to Loch Fyne and Wacky Warehouse, should help boost returns from underperforming pubs. Those self-help measures could be crucial to weathering the growing storm.
“Greene King’s track record deserves recognition. However, there are undeniably headwinds ahead, and that makes us more cautious on the stock than we have been in the past.
“It’s a view that seems to be shared by the wider market, with the shares currently trading on a price to earnings ratio of 7.3, a 30% discount to its historic average. The prospective yield is currently 7.2%.”
