A leading analyst has said that he expects trading at Spirit Pub Company to have slowed following a strong start to Q3 given tougher comparatives and that its Leased pubs are likely to “remain a drag”.
Jamie Rollo at Morgan Stanley said: “We expect Managed pub trading to have slowed somewhat from the strong first four weeks of the period (+8.3%), as comps get tougher and Easter is likely to have been weaker than last year. For H2, we expect revenue of £390m (+6%), EBIT of £66m (+7%), PBT of £35m (+1%) and EPS of 4.1p (+3%).
“We arebroadly in line with consensus for the full year, and Spirit needs only 1% PBT growth in H2 to hit our and consensus forecasts, which looks achievable following +10% in H1, although this was boosted by a net interest saving that unwinds in the second half. We are Underweight the shares as we are concerned about weak PLC cash generation, poor Managed pub sales conversion, and the Leased pubs are likely to remain a drag.
In regards to the group’s managed pubs, Rollo said that comps get tougher from mid-April, with the first six weeks of Q3 2013 seeing LfLs -3.8% and the second 6 weeks +2.6%, and he expects a deterioration in the rest of Q3.
He said: “We expect c.+5% LfLs for the period. Coffer Peach showed April LfLs +4.4% boosted by the Easter shift, although Easter was weaker this year due to the timing (Coffer Peach -3.8%), which we expect to impact the remainder of Q3 for Spirit given it has no calendar effects. M&B reported fairly weak trading in the 5 weeks to 17 May, with LfL sales +1.5%, although it has been underperforming the market on sales growth.
Spirit needs around +2.5% LfL sales in the remainder of the year to hit our full-year estimate of +4.2%, which looks achievable. It is starting to buy pubs in H2, and had acquired two sites by the H1 results to operate under the Flaming Grill brand, expecting three further acquisitions by year-end. We will look for progress here and an update on its Leased to Managed conversions, as well as comments on any acquisition plans.”
LfL net income across Spirit’s leased estate was +2.6% in H1, with a sharp improvement from +1.2% in the first 20 weeks to +6.0% in the remaining eight weeks.
Rollo said: “This was helped by beer sales being brought forward into H1 – LfL net income would have been +4.6% in the 8-week period excluding this. This unwound in the H1 results’ current trading statement, which was weaker, with LfL net income flat in the four weeks to March 29, although this would be +2.6% excluding the shift in sales. Spirit seems to be outperforming its Leased peers (Enterprise H1 LfL net income +1.1%, Punch +1.4%), although the gap appears to be narrowing, and we expect growth to slow a little from recent highs as comps get tougher.
“To reach our full-year estimate of +2.2%, Spirit needs 2% LfL net income in the remainder of the year, in line with the first 32 weeks. At the H1 results, Spirit had 13 pubs in its Leased innovation trial, down from 15 at the full-year results, and said further rollout will be determined by returns, although expansion will likely be constrained by the ability to obtain vacant possession, so we will look for an update here.
“For 2014, we forecast LfL sales in Managed of +4.2%, and +2.2% LfL net income in Leased. We expect FY revenue of £796m (+5%), EBIT of £120m (+6%), PBT of £57m (+5%), and EPS of 6.7p (+7%), leaving us broadly in line with consensus EBIT of £118m, PBT of £57m and EPS of 6.6p.”
