Simon French at Panmure Gordon looks ahead to the H1 pre-close update from Spirit Pub Company on Tuesday (18 March), with the analyst “strongly” reiterating his Buy recommendation and 110p Target Price for the group.
French said: ”For the eight weeks to 1 March we forecast 4% LFL sales growth in the Managed pub division (comp: -1.1%) and 2.0% LFL net income growth in the Leaseddivision (comp: -4.2%). We expect no change to FY 2014E consensus forecasts of £57.9m PBT.
“The stock trades on a CY 2014E adjusted EV/EBITDAR of 8.2x and yields 2.7%. The group’s strategy of adding individual pubs to the Managed estate could be accelerated by a small equity raise, capitalising on favourable stock market conditions. We strongly reiterate our Buy recommendation and 110p Target Price, implying c34% potential upside.
Regarding Spirit’s performance to date, he said: ”Spirit announced an in-line trading update reporting 4.3% LFL sales growth for the 20 weeks to 4 January - including 7.0% for the three weeks to 4 January - compared to our forecast of 4.0% and a comparative of 2.3%.
“LFL food sales increased 4.2% over the 20 weeks and LFL drinks sales 3.9%. This implied that over the last 12 weeks LFL sales increased 4.5%. In Leased pubs LFL net income increased 1.2% for the 20 weeks to 4 January compared to our forecast of flat and a comparative of -2.9%. This implied that over the last 12 weeks LFL net income increased 2.2%.”
For its outlook, French said: “We expect Spirit to trade well over the next five months helped by favourable weather comparatives in March and the football World Cup in June and July.
“However much of the group’s future success lies in its own hands and its focus remains on the execution of its strategy in managed pubs, including the addition of pubs to the managed estate. In the Leased estate the focus is on improved quality through investment, innovation and selective disposals.
“For FY 2014E consensus forecasts are for £57.9m PBT. Our forecast of £55.9m PBT is modestly below consensus and assumes 2.5% LFL sales growth and 10bps margin expansion in Managed pubs and c1% LFL net income growth in Leased pubs.”