Trading remains tough at Greene King. While headline numbers have deteriorated, that's largely a result of the snow earlier in the year, without which the key Pub Company division would have delivered a slight improvement.
The shares rose 7.8% in early trading.
Greene King has a great track record of dividend growth. Since CEO Rooney Anand took the reins in 2005, turnover and dividends per share have doubled. Indeed, strip out the impact of a tax-related rescheduling of dividends in 2008/09 and the payout has grown every year for more than two decades.
However, things are looking a bit tough at the moment. The squeeze on real wages is hitting demand, while the explosion in new casual dining venues means competition for a share of the public's purse has rarely been higher. Add in a whole raft of cost headwinds and a sizeable debt pile, and things aren't looking quite as secure as they once did.
In response, Greene King has upped investment in the estate, cut prices and increased marketing spend. Early signs suggests these efforts are delivering results for the top line, but the impact on margins means profits are falling.
On the positive side, the group has a sterling track record when it comes to taking costs out of the business. Brand consolidation, in a portfolio that stretches from Hungry Horse and Flaming Grill to Loch Fyne and Wacky Warehouse, should help boost returns from underperforming pubs. Those self-help measures could be crucial to weathering the growing storm.
Greene King's track record deserves recognition. However, there are undeniably headwinds ahead, and that makes us more cautious on the stock than we have been in the past.
It's a view that seems to be shared by the wider market, with the shares currently trading on a price to earnings ratio of 7.3, a 30% discount to its historic average. The prospective yield is currently 7.2%.
Like-for-like (LFL) sales in the Pub Company business are down 1.8% in the first 49 weeks of the financial year (compared to 1.4% in the first 37 weeks). However, once the effect of snow earlier in the year is excluded the decline is just 1.2%, with both drink and accommodation sales ahead of last year.
Trading over the Easter period was strong, with LFL sales up 2.8%.
The group will have invested £160m in its estate by the full year. That includes opening nine new pubs so far this year, and investing in 292 others.
The smaller Pub Partners business saw net profit fall 0.3% (compared to a 0.2% rise in the first 36 weeks of the year), while Brewing & Brands own-brewed volumes were down 0.7% (versus a 0.9% decline in the first 36 weeks).
Greene King is on track to deliver full year cost savings of £40-45m and believes disposal proceeds will be around £120m - ahead of previous expectations.
Underlying full year profit before tax is now expected to be in the range of £240-£245m.
Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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