A leading analyst has suggest that due to factors including the quality of its assets, management, strongest balance sheet, a low cost of debt and relatively small corporate scale, Fuller’s is the best-placed licensed retailer to enhance earnings through further expansion. Douglas Jack at Numis said: “Fuller’s offers greater margin upside than its peers partly as a result of its relative lack of corporate scale. Management intends to exploit this opportunity through expansion. Also, as a London-orientated pub and hotel operator, we believe greater digital marketing could generate attractive returns, which the company is trying to capture. “The company continues to command a justifiable premium valuation. Our 775p target anticipates no change in the rating, based on forecasts that assume a considerable slowdown in expansion. We estimate that if Fuller’s acquired £50m of pubs at 10x EBITDA, financed by debt, 2014E earnings would be enhanced by at least 5%. In our view, it is probable expansion will drive additional growth and equity upside over the medium-term.” Jack said that despite the decline in consumer confidence during 2010 and 2011, the pub sector has returned to demand growth (in value terms). He said: “It has coped with officially the wettest summer in 100 years with minimal change to forecasts and can now look forward to lower cost inflation (particularly for Fullers, Marston’s, Spirit Pub Company and Mitchells & Butlers) and easier weather-related comparatives in 2013. “Fuller’s managed pub LFL sales are forecast to be flat in 2013E, which should be realistic for H1, due to dire weather. However, if normal trading patterns resume from September, as weather becomes less relevant, LFL sales should improve, having averaged 3.5% over the last four years. In addition, we believe last year’s new 13 managed pubs and 17 tenanted pubs are trading ahead and we view our tenanted pub and brewing assumptions as being cautious.”