A leading analyst has said that he expects Spirit Pub Company’s outperformance against the sector to have continued over the last 12 weeks and for it to have enjoyed a good start to the year with managed pub LFL sales up 4.0% and Leased LFL EBITDA stable (-0.3%) over the first eight weeks.
Douglas Jack at Numis said: “Over the last three years, Spirit has: grown average managed pub EBITDA by 37%; rebranded the managed estate; stabilised LFL profit in the leased estate; paid a progressive dividend for the last two years; refinanced the bonds to facilitate expansion; and still managed to pay off 15% of its debt. Despite this, it is the lowest valued stock in the sub-sector. We would buy for the growth and for another potential re-rating.”
The group’s managed pub LFL sales rose 4% during the first eight weeks (to mid-October) against a backdrop of the Peach Tracker rising c.1.2% per month over the same period.
Jack said: “Encouragingly, Spirit’s growth has been largely driven by food sales (less reliant on favourable weather), pointing to ongoing outperformance against the Peach Tracker, which has remained up 1.0-1.5%.”
Leased LFL EBITDA fell 0.3% over the first eight weeks. “Management target slight LFL EBITDA growth in 2014E, driven by better support, investment, new agreements, increasing central food purchasing and minimal rent rebasing,” said Jack.
Management now intends to start acquiring freehold pubs to add to its Fayre & Square and Flaming Grill brands, targeting a 20% cash return. Reinvestment includes repositioning Taylor Walker and Chef & Brewer to being slightly more premium.
Jack said: “Forecasts are likely to be held, in our view. We forecast 2.5% managed LFL sales over the full year, reflecting brand development, improving service standards and easy comps up (Q1 2.3%; Q2 0.5%; Q3 -0.6%) until Q4 (4.1%). We forecast EBIT margins rising 40bps due to better labour scheduling, higher LFL sales and c.2% cost inflation. For leased, we forecast 0.4% LFL EBITDA growth.”
