Leading analyst Douglas Jack, of Numis, has said the licensed retail prospects remain ‘reasonable’ after yesterday’s budget.
He said: “Favourable Government budgets, improving consumer cash flow and corporate self-help have contributed towards managed sector LFL sales being positive in each of the last 23 months (source: Coffer Peach Tracker). In our view, yesterday’s budget can only help to maintain this recent positive trend, even though macro trends are clearly helping the premium operators more than the discounters.”
He said he expected most operators to respond to the headline duty cuts in the same way as Greene King, whose chief executive Rooney Anand said it would allow the business to create additional jobs and deliver further customer service improvements.
He said: “The budget is also encouraging in relation to disposable income abolishing National Insurance for under 21s and young apprentices from April 2016; as well as increasing the National Minimum Wage and the personal (tax) allowance. Companies should also benefit from the falling corporation tax rate and possibly from the review of business rates system.”
He quoted the latest economic and sector trends showing eating out accelerating and beer volumes growing 1.3% in 2014 (on trade -0.8%; off trade +3.5%). He pointed out that within these trends, premium positioned operators are outperforming the discounters as customers trade up, spending more going out slightly less often.
He said: “On average, EV/EBITDA valuations are c.15% above historical average (14% below average peak valuations). Although the scope for a further re-rating is limited, we are still positive on leading premium operators that generate above-average returns and growth, in particular The Restaurant Group (Buy 860p) and Domino’s Pizza (Buy 850p).”
