Two leading sector analysts have given generally positive assessment of Fuller’s, the London-based brewer and pub operator, ahead of its interim results next Friday (23 November).
Douglas Jack at Numis said: “We are forecasting PBT to be up 3% to £17.0m, held back by poor weather. With acquired and refurbished sites trading strongly, we expect to at least hold our forecasts. We believe Fuller’s is making good progress on numerous fronts, which, combined with expansion, should offer attractive medium-term forecast upside.
He issued a Hold recommendation at a target price of 825p.
Jack added: “We expect managed pub LFL sales to have been flat in H1, having been down 1.1% in Q1 (as at mid-July). Q1 trading was undermined by a 51% increase in rainfall; in theory, LFL sales should have improved in Q2, when rainfall was up only 3%. The Olympics should have had a mixed impact, boosting pubs near events and transport hubs as well as hotel room sales, but undermining residential pub trading (due to customers watching the Olympics at home).
“Managed margins should benefit from: better labour scheduling systems; new digital investment increasing the share of direct hotel bookings (up 30%); and less cost pressure (food inflation 2-3%; energy flat after new efficiencies). Partially offsetting this should be: absorbing some of the last excise duty increase; increased refurbishment downtime; and 20% of last year’s 30 acquired pubs being leasehold, versus 10% in the rest of the estate.
“We expect to at least hold our forecasts which assume that managed pub LFL sales are flat, tenanted pub LFL profits rise 1% (in line with Q1) and brewing volumes rise 1% (also in line with Q1) over the full year. We believe last year’s new 13 managed pubs and 17 tenanted pubs should be trading ahead. Also, we believe there is upside to our forecast assumption of just two pubs being acquired pa.
“As usual, the shares trade at a premium to the rest of the licensed retail sector, which is justified by Fullers low leverage, above-average track record and the high quality of its asset base (85% freehold; orientated to London and South-East England). We believe there is upside to our full year forecasts through improving LFL sales and incremental expansion.”
Lindsey Kerrigan at Panmure Gordon forecast a PBT of £16.5m, unchanged on the prior year “reflecting the impact of the wettest summer for 100 years”.
“We would expect an improvement in profitability during H2 to meet our full-year forecasts. The stock trades on a CY 2013E adj EV/EBITDAR of 9.9x and yields 1.9%. We reiterate our Hold recommendation and 735p target price and continue to prefer Young’s (Buy, 804p target price) for those seeking exposure to London and the South East.”
“The 30 pubs acquired last year are reported to be performing well and in line with expectations. Six of the 13 managed pubs acquired have now been refurbished and the rest will receive investment during the remainder of this financial year. We expect the group to have received a small positive impact from the London Olympics and maybe seeing some on-going benefit from tourist arrivals and heightened brand awareness of London Pride.
“For H1 we forecast £16.5m PBT, unchanged on the prior year reflecting the impact of the wettest summer for 100 years. For FY 2012E consensus forecasts are for £32.2m PBT (42.2p EPS) and our forecast is in line with consensus expectations. In FY 2013E we forecast £33.6m PBT (44.6p EPS) which is again in line with consensus. Our three-year forecasts imply a CAGR in EPS of 6.2%.
“The stock trades on a CY 2013E adj EV/EBITDAR of 9.9x and yields 1.9%. We believe this broadly reflects the 6.2% CAGR in EPS we forecast over the next three years and the quality of the group’s asset base.”
