Enterprise Inns is the pub company that will benefit most from the cut in beer duty in terms of the impact on pre-tax profit, according to leading analyst Douglas Jack, who estimated that the beer duty reduction should be worth £30m to pubs based on sales last year.
Jack, of Numis, said: “Yesterday’s Budget was positive for pubs on the numerous counts: the 1p/pint reduction in beer duty; and the termination of the duty escalator on all alcohol, with duty frozen on standard cider and Scottish whisky. Increases in income tax personal allowances and changes to NIC rules/pension access can only help customer cash flow; and increased capital allowances should reward investment.
“Last year, 3.97bn pints of beer were sold in the on trade. Of this, 3bn pints were sold in pubs, on which the 1p/pint duty reduction should be worth £30m. Across the on and off trade, £3.4bn of excise duty was paid last year on 7.8bn pints (50.8% on trade; 49.2% off trade), equivalent to 43p/pint.”
He has produced a table showing the benefits of the beer duty reduction for different pub companies.
It shows that as a percentage of pre-tax profit, Enterprise Inns will save 3% as a result of the duty cut, with Wetherspoons saving 2% and Spirit, Marston’s, Mitchells & Butlers, Fuller’s and Greene King each saving 1%.
Jack said: “Many operators will pass on the cut, albeit against a backdrop of annual price increases that reflect higher costs and wholesale prices from the brewers.”
He added: “Even though all the quoted managed operators are trading ahead, we will not upgrade forecasts to reflect the budget: the changes largely mean that drink prices will not have to increase as much; and forecasts allow for tougher comps for the pubs over the summer.
“Over-taxation and over-regulation are the main causes of pub closures. Fortunately, the Chancellor appears to understand that this, but Labour and the Liberal Democrats still blame the beer tie (a possible post-election risk) even though the free trade’s annualised pub closure rate (6.6%) was twice the tied tenanted sector’s (3.4%) during March-December 2013.
“Trading should be moving further ahead; the UK was under snow this time last year. Although comps will soon become tougher, we believe there is underlying momentum that is driven by operational improvement and customer demand rather than weather. Our key Buys are Domino’s Pizza (Buy 710p) and Spirit Pub Company (Buy 110p), which we believe offer above-average growth and scope to re-rate.”