Two leading sector analysts have reiterated their Hold recommendations for Greene King, the brewer and pub operator, after its interim management statement (IMS). Greene King reported a 5.1% increase in like-for-like sales for the 18 weeks to 2 September across its managed estate (Retail), despite poor weather this summer and a minimal net impact from the Olympics on its overall performance. Douglas Jack at Numis said: “Q1 trading was slightly ahead of our full year assumptions; at this early stage in the year, we are holding our forecasts. Reflecting Greene King’s premium valuation, we recently moved our stance to Hold.” His full-year forecasts “cautiously” assume managed sales will rise 3%. Jack added: “We expect little change in managed margins. 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). Much will depend on pricing, for which weighted average beer price increases slowed to 5.2% in the year to June.” The performance of the tenanted estate, where like-for-like profits fell 0.5%, and EBITDA per pub increased 3.5%, were “slightly behind our full year assumption of flat LFL EBITDA and 4% growth in EBITDA/pub”. “These metrics should be supported by c.110 tail-end pub disposals and the roll out of new agreements.” He added: “Own-brewed beer volumes fell 0.9% in Q1, slightly behind our flat full year forecast assumption. “We are holding our forecasts (PBT £159.5m; consensus £160.3m) against which managed LFL sales offer the greatest potential upside. Otherwise, the company claims to be on track to open seven new builds/single sites in H1 and 25 over the full year. “Our 615p target price (9.2% upside) equates to 9.1x December 2012 EV/EBITDA, consistent with our 130p target price (15.0% upside) for Marston’s. Even though consensus expects stronger self-financed PBT growth from Marston’s (8% three year CAGR) relative to Greene King (5% three year CAGR), we expect their valuations to remain aligned.” Simon French at Panmure Gordon said: “Greene King has reported a solid first 18 weeks to the year with LFL sales +5.1% in managed pubs versus our forecast of +3.5% and implying +3.5% in the last 10 weeks. “Average EBITDA per pub in the tenanted division is up 3.5% against our forecast of 2.5% whilst brewing volumes are marginally negative versus our forecast of broadly flat. Consensus forecasts are for £159.7m PBT (56.1p EPS) for FY 2013E which we expect to be unchanged following this update. The stock trades on a CY 2013E adj EV/EBITDAR of 8.7x and yields 4.8%. This premium sector valuation accurately captures the group’s above-average returns and attractive business mix in our view. As such we reiterate our Hold recommendation and 565p target price. “Greene King has reported a solid first 18 weeks to the year (to 2 September) with LFL sales +5.1% in managed pubs versus our forecast of +3.5% and implying +3.5% in the last 10 weeks. By product line for the 18 weeks, drink LFL sales are up 5.0%, food, 5.2% and accommodation 4.9%. For the 16 weeks to 19 August, average EBITDA per pub in the tenanted division is up 3.5% against our forecast of 2.5% whilst LFL EBITDA with LFL EBITDA in the core estate down 0.5%. Core brand brewing volumes are marginally negative versus our forecast of broadly flat, with total beer volume up 0.4%. “The group believes that underlying trading trends across the business have been maintained throughout the summer and that the group’s Retail growth strategy will continue to deliver earnings and dividend growth. Overall the group’s margins, profit, cashflow and balance sheet remain in line with its expectations.”