Leading sector analyst Douglas Jack expects the full-year trading statement from Greene King to be in line with expectations, saying its strategy of growing its managed estate and reducing its tenanted arm “makes sense”.
Ahead of its results next Monday (23 April), Jack, of Numis, said: “We expect to hold our forecast (PBT £152.0m; consensus £148.2m) of 9% PBT growth in 2012E.
“The strategy of growing the managed estate to 1,100 (from 950) pubs and reducing the tenanted estate to 1,200 (from 1,500 pubs) makes sense. The returns and cash flow impact of this strategy should have greater prominence in this statement/final results. In our opinion, it should result in less reliance on acquisitions and greater emphasis on higher-return new build expansion.
“Monday’s full year trading statement should be in line. Recent share price strength has opened up an 8% EV/EBITDA premium over Marston’s: both companies offer similar PBT growth (of 8-9%) but with Greene King being more reliant on making acquisitions and increasing debt. We prefer Marston’s organic growth, underpinned by higher return new build expansion.”
In the managed estate, Jack predicted no like-for-like growth in Q4 due to “tough conditions and comparatives”, with growth of 7.6% in the previous year. He assumes like-for-like growth of 3.4% in across the full year.
“LFL sales have benefited from the company absorbing cost inflation (as at September, beer prices had risen 4.0% since May 2009 versus an average of 11.6% for the on trade), hence managed margins fell 38bps in H1.”
Managed margins are expected by Greene King to recover to being flat across the full year.
In the tenanted estate, like-for-like EBITDA fell 0.3% in H1 but should ne flat over the full year “but should be flat over the full year (despite tough recent conditions) supported by tail-end disposals (the average number of pubs fell 5.2% in H1) and the roll out of new franchise and lease agreements.”
He added: “Own-brewed beer volumes, up 2.9% in Q1-3, should have remained positive.”
Jack issued a target price of 535p for the company.