The incredibly solid track record of brewer and pubs operator Fuller, Smith & Turner makes its shares an excellent long-term holding in an Isa account, especially as a recent acquisition has quelled concerns about where its growth could come from and prompts us to put Fuller shares back on our buy list.
- Top-class track record
- Acquisition of pubs from Enterprise
- Boost from Olympic Games
- Poor consumer outlook
- Takeover-proof share structure
True, the share rating may be a bit off-putting (see table). But the company has achieved very steady growth over the long term (lumpy property-related items mean that reported profits give a different impression). Take the five years to March 2011, when the credit crunch left many pubs operators on their knees. Fuller grew its underlying EPS by 32 per cent; what's more, EPS only went backwards in one year (2008-09) when it fell by less than 1 per cent. That's remarkable, given the trading backdrop. The dividend, meanwhile, grew 30 per cent over those five years, while most rivals cut or axed their payout.
| FULLER SMITH & TURNER (FSTA) | ||||
|---|---|---|---|---|
| ORD 'A' PRICE: | 730p | MARKET VALUE: | £411m | |
| TOUCH: | 710-730p | 12-MONTH HIGH: | 752p | LOW: 590p |
| DIVIDEND YIELD: | 1.7% | PE RATIO: | 19 | |
| NET ASSET VALUE: | 421p | NET DEBT: | 39% | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 203 | 23.8 | 34.3 | 9.7 |
| 2009 | 210 | 14.4 | 16.0 | 9.9 |
| 2010 | 228 | 26.8 | 34.4 | 11.0 |
| 2011 | 242 | 31.0 | 44.1 | 11.8 |
| 2012* | 240 | 30.0 | 38.9 | 12.5 |
| % change | -1 | – | – | +6 |
Normal market size: 400 Matched bargain trading Beta: -0.1 *Peel Hunt underlying forecasts (profits and earnings are not comparable with historic figures) | ||||
But not everyone is a fan of Fuller's ultra-conservative approach. Admittedly, the company is considered a canny purchaser of pubs, partly because its bosses refuse to pay more for new outlets than they reckon is certain to produce a strong return for shareholders. The trouble is that this stance has seen Fuller lose out on some noteworthy deals. Because quality pubs in Fuller's London heartland have been performing strongly, they have attracted much interest from buyers. So, for example, Fuller's shareholders had to watch the London-based Geronimo estate go to Young's and the listed Capital Pub Company get snapped up by Greene King, which trumped Fuller's offer. It's commendable that Fuller won't pay excess prices, but the acquisition of pubs is an important source of growth.
So it looks significant that last month Fuller bought 15 high-quality tenanted pubs from its embattled rival, Enterprise Inns – especially as the acquired pubs were outside London. This may signal Fuller's willingness to expand further into the affluent areas of southern England. However, this is not completely new territory for Fuller, and that – coupled with its track record – provides comfort about the move. While the price paid for the Enterprise pubs is 13 times cash profits, Fuller's bosses expect the deal to add to earnings in 2012-13 – perhaps by a useful 2 per cent, according to broker Peel Hunt. What's more, given Enterprise's need to sort out its finances, this source could provide further pickings for Fuller.
Meanwhile, Fuller's trading looks resilient thanks to the high quality of its estate and the affluent locations of its pubs. And, as a London-focused group, Fullers can expect the Olympic Games to provide a boost this summer, especially as its beers are often sold in its competitors' pubs.
