Greene King's managed pubs continue to trade ahead of the market, delivering a very strong Christmas, and record Christmas Day sales.
The group remains on track to meet full year guidance.
The shares rose 3.7% in early trading.
Greene King has an excellent dividend record. Since CEO Rooney Anand took the reins in 2005, turnover and dividends per share have doubled. In fact, strip out the impact of a tax-related rescheduling of dividends in 2008/09 and the payout hasn't been cut in decades, although that's no guarantee it's immune to cuts in the future.
Things are looking a bit tough at the moment though. The squeeze on real wages hit demand last year, and an explosion in new casual dining venues means competition for a share of the public's purse has rarely been higher. Add 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 suggest these efforts are delivering results for the top line, but profits are struggling and the impact on margins remains unclear.
On the positive side, the group has a sterling track record when it comes to taking cost 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. Meanwhile, a substantial disposal programme will help bring debt back under control.
Those self-help measures could be crucial to weathering the growing storm.
Greene King's track record deserves recognition. That makes its current P/E Ratio of 8.8 times, versus a long term average of 10.3, something of a surprise - especially with a 6% yield next year. But there are undeniably headwinds ahead, and with Anand set to step down in April, that makes us more cautious on the stock than we have been in the past.
Christmas Trading Update
After 36 weeks of the year Pub Company like-for-like (LFL) sales, which includes all Greene King's managed pubs, were 3.2% ahead of the year before.
That reflects a strong Christmas period, with LFL sales up 10.9% in the two weeks that include Christmas and New Year. Sales on Christmas Day itself hit £7.7m.
The tenanted estate, Pub Partners, saw LFL net profit fall 1%, while total Brewing & Brands beer volumes rose 1.8% (although own-brewed volumes fell 2.3%).
The group still expects to limit cost inflation to £10m-£20m this year, dispose of 100-110 pubs and open nine new pubs.
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