A leading analyst has said that like-for-like trading at Fuller’s during its first quarter should have been undermined by dire weather, but still expects its managed pub like-for-like sales to be flattish and trading in acquired sites to be up strongly.
Douglas Jack at Numis said: “Overall, we expect to hold our forecasts. Fuller's is making good progress on numerous fronts, which, combined with expansion, should unlock margin upside.
“We expect managed pub like-for-like sales to have been flattish in Q1, having been down 2.3% after eight weeks. Trading is sensitive to weather and rainfall was up 53% year-on-year in April-June. The Olympics should provide a trading boost over the next few weeks, particularly in the seven pubs Fuller's has in/next to train stations. Central London hotel room sales (75% pre-booked for the Olympics as at May) should be up strongly during a traditionally quieter time of year.”
Jack also said that based on last month's site visit, “we believe many new pubs are generating double-digit sales growth simply as a result of Fuller's adding its badge (to external signage), product range and service standards”.
Jack said that the group’s managed margins should benefit from slightly less refurbishment downtime in 2013E as well as better labour scheduling systems, new digital investment increasing the share of direct hotel bookings and easing cost pressure (food inflation 1-2%; energy flat after new efficiencies).
He said: “Partially offsetting this should be: absorbing some of the last excise duty increase; and 20% of the 30 acquired pubs being leasehold, versus 10% in the rest of the estate.
“We expect to hold our full year forecasts which assume that managed pub like-for-like sales rise 2% (versus 4.2% in 2012), tenanted pub like-for-like profits rise 1% (versus 2% in 2012) and brewing volumes rise 1% (versus 2% in 2012). Even though managed pub like-for-like sales are likely to be behind our full year forecast assumption, we believe last year’s new 13 managed pubs and 17 tenanted pubs should be trading ahead.
“As usual, the shares trade at a premium to the rest of the licensed retail sector, which is justified by Fuller's low leverage (2.3x net debt:EBITDA 2013E), above-average track record and the high quality of its asset base (c.90% freehold; orientated to London and South-East England). Growth should accelerate in 2013E and further expansion should maintain momentum into 2014E.”
