A leading analyst has forecast that Greene King’s half-year pre-tax profit should have climbed by 7% to £82.6m (consensus £82.3m), driven by strong trading in the managed pub estate, when it updates the market next Tuesday.
Douglas Jack at Numis said: “We expect to hold our full year forecasts even though managed pub trading should be ahead of expectations. Managed (62% of group profit) LFL sales were up 5.1% (food 5.2%; drink 5.0%; accommodation 4.9%) in the 18 weeks to 2 September against a comparative of 2.6%. This was a good performance given that it occurred during a record wet summer. Our full year forecasts assume that managed LFL sales slow to 4% due to tougher comparatives of 4.7%. 3.6% and 4.9% in Q2, 3 and 4, respectively.”
Jack said that he expects managed margins to be up slightly (full year forecasts anticipate a 30bps increase).
He said: “Last year, margins were flat with 3.6% LFL sales growth offsetting £2.6m of net cost inflation (post cost mitigation). This year, net cost inflation is expected to rise to £4m (3% for food, 3-4% for drink and 5-6% for energy).
“Tenanted pub (26% of group profit) EBITDA/pub rose 3.5% in Q1 (our full year forecast is 4.0%), boosted by tail-end disposal activity and the roll out of new agreements. LFL profits were down 0.5% (our full year forecast is for a flat outcome). Own-brewed beer volumes (12% of group profit) fell 0.9% in Q1, slightly behind our flat full year forecast assumption.
Jack said that he expects to hold his forecasts, which should be supported by managed pub trading.
He said: “Forecasts anticipate seven new builds/single sites opening in H1, with a further 18 sites due in H2. Our 650p target price equates to 9.5x EV/EBITDA December 2012, consistent with our 145p target price for Marston’s. Even though consensus expects stronger self-financed PBT growth from Marston’s (8% 3-year CAGR) relative to Greene King (5% 3-year CAGR), we expect their valuations to remain aligned.”
