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Greene King (GNK) Ord 12.5p

Sell:848.80p Buy:849.00p 0 Change: 0.20p (0.02%)
FTSE 250:0.04%
Market closed Prices as at close on 18 October 2019 Prices delayed by at least 15 minutes | Switch to live prices |
Bid situation
Change: 0.20p (0.02%)
Market closed Prices as at close on 18 October 2019 Prices delayed by at least 15 minutes | Switch to live prices |
Bid situation
Change: 0.20p (0.02%)
Market closed Prices as at close on 18 October 2019 Prices delayed by at least 15 minutes | Switch to live prices |
Bid situation
The selling price currently displayed is higher than the buying price. This can occur temporarily for a variety of reasons; shortly before the market opens, after the market closes or because of extraordinary price volatility during the trading day.

HL comment (6 September 2019)

Greene King has released a brief trading update covering the 18 weeks to 1 September 2019. Results in all three divisions have dipped on a like-for-like basis, which the group says reflects a tough comparison following last year's men's World Cup and good weather.

The shares were unmoved on the news.

Our view

In August the Greene King board recommended an all cash offer for the business from Hong Kong listed CKA, however the deal is subject to regulatory and shareholder approval.

The offer price of 850p per share is a 51% premium to the closing price of Greene King shares the day before the deal was announced, and values the business at £4.6bn (including debt).

Given the premium on offer, it's hard to see Greene King shareholders being anything but delighted by CKA's bid for the company. The shares haven't traded at 850p since back in 2016, and a tough competitive environment and deteriorating economic environment means the outlook was hardly rosy.

CKA's willingness to attach a hefty price tag has probably been helped by the fact it's already pretty familiar with the Greene King business. The group founded by Li Ka-shing, Hong Kong's richest man, has leased pubs to Greene King since 2016. In fact we suspect it's the value of the group's real estate assets - valued at some £3.5bn at the end of the last financial year - that attracted the interest.

Prior to the offer the company traded at a price to book value of 0.83 times - implying the core pub business was actually detracting from the value of the underlying assets. Given pulling pints and flogging fry-ups is still reasonably profitable, and paying a sizeable dividend, CKA clearly thought that wasn't a fair reflection of reality.

Greene King has more than tripled its dividend payment since the late 90s, and income seekers will be sorry to see it go. However, we think the deal is a good one for investors, and an intriguing vote of confidence in the UK pub sector ahead of the UK's exit from the EU.

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Trading details

Pub Company like-for-like sales were down 1.8% over the 18 weeks to 1 September. In Brewing & Brands, total beer volumes were down 6.5% and own-brewed volumes were down 7.9%. Pub Partners net income was down 4.2% for the first 16 weeks, driven by softer beer sales against last year's comparatives.

Cost mitigation and pub disposals remain on track, with the group expecting to limit net inflation this financial year to £10m-20m and complete the sale of 85-95 pubs generating disposal proceeds of £45m-55m.

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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Previous Greene King updates

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