Don't despair about a 3 per cent drop in adjusted pre-tax profits to £168.5m at pub group Greene King (GNK). The figure still beat consensus forecasts of £166.5m, and a drop was to be expected given the company's ongoing disposal programme in its tenanted estate. What's more, the trajectory for profit growth this year will be entirely different, following the completion of Greene King's acquisition of rival Spirit Pub Co after the year-end.
This is a moment in time for Greene King. It has completed its five-year growth plan, during which its retail estate increased by 19.4 per cent. Revenues from these pubs surpassed the £1bn mark by the end of the reported period. Last year, it opened another 32 retail sites at a cost of £76m, leaving it with 1,060 trading pubs by the year-end.
The Spirit deal - which was agreed last November - will add hundreds more sites to the Greene King family, bringing with it another 791 retail units, as well as 416 tenanted and leased pubs. But viewed alone, the current retail estate is still in rude health: retail revenues grew 5.9 per cent last year, outperforming the wider market growth of 4.9 per cent. Meanwhile, operating profits grew 1.7 per cent to £191m despite a slight dip in margins.
At first glance, things looked worse for the tenanted and leased estate. Revenues fell 17 per cent to £122m while operating profits crashed 16 per cent to £61.6m. But those figures illustrate an active - and accelerated - disposal programme, rather than poor underlying trading. In May 2014, the group sold 275 pubs to Hawthorne Leisure, which immediately shrunk the size of the estate by more than a quarter. Importantly, despite getting rid of 310 pubs during the last financial year, average cash profits per Greene King pub actually rose 15.5 per cent.
Analysts at Numis expect pre-tax profits of £241m for the year to May 2016, giving EPS of 64p. That’s up from £169m and 61p in 2015.
| GREENE KING (GNK) | ||||
|---|---|---|---|---|
| ORD PRICE: | 857p | MARKET VALUE: | £2.65bn | |
| TOUCH: | 857-858p | 12-MONTH HIGH: | 891p | LOW: 712p |
| DIVIDEND YIELD: | 3.5% | PE RATIO: | 21 | |
| NET ASSET VALUE: | 333p* | NET DEBT: | 133% | |
| Year to 3 May | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 1.04 | 140 | 49.7 | 23.1 |
| 2012 | 1.14 | 125 | 47.6 | 24.8 |
| 2013 | 1.19 | 111 | 44.1 | 26.6 |
| 2014 | 1.30 | 105 | 44.2 | 28.4 |
| 2015 | 1.32 | 118 | 40.9 | 29.8 |
| % change | +1 | +12 | -7 | +5 |
Ex-div: 13 Aug Payment: 14 Sep *Includes intangible assets of £701m, or 227p a share | ||||
