London-based pub operator and brewer Young’s has a “higher appetite for risk” than it’s given credit for and has “transformational potential”, according to leading City analyst Paul Hickman. Issuing a Buy recommendation for the company, Hickman, of Peel Hunt, outlined five main reasons why he sees it as a good investment: 1) Strategy. Young’s has rapidly adapted its strategy to harness its market opportunity. Its 2006 decision to focus on retailing is proving sound, and the 2010 acquisition of Geronimo opens it to complementary markets and exposes the company to cultural change. 2) London geography. Young’s occupies the best market in the country, with clear out performance against the regions, and increasing economic intensity up to and beyond the 2012 Olympics. Disposable income per head in the capital is 20% higher than the rest of the country. 3) London property backing. The company has a unique central London property estate, with 205 freeholds and long leaseholds out of 246 pubs. 4) Balance sheet. The strength of the balance sheet holds out significant further potential, with balance sheet gearing forecast to fall to 61% and debt:ebitda at 3.6x, comparing well with most freehold-backed pubcos, which are between 5x and 8x. 5) Scale growth. Three factors suggest continued share price out performance: (i) continued exploitation of investment opportunities (ii) recovery of London property values (ii) continued strong trading in the capital. Hickman raised his target price for Young’s from 745p to 765p per share. “While the shares in an operation of this quality will never be cheap, we do believe they represent value, both in terms of asset backing and from an earnings perspective.” Hickman said: “Young’s has a higher appetite for risk than the market gives it credit for. Its retailing-based strategy has given it greater focus and positioned it well in an enviably strong market. “The acquisition of Geronimo has enormous potential, and the success of the combination after six months increases our confidence that the move will be transformational.”