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Greene King makes progress

TIP UPDATE: Greene King's drive towards more managed outlets is beginning to pay-off
July 1, 2010

Decent sales growth helped boost Greene King's earnings and - even after exceptional items - group profits grew 3.8 per cent in the period to £123m. This was an impressive performance, given the squeeze on disposable incomes, unemployment worries and the uncertainties created for consumers ahead of the general election.

IC TIP: Buy at 395p

Most of the group's revenue came from the retail side of its managed sites. Retail like-for-like sales grew by a solid 3.5 per cent, thanks to a successful drive on selling pub food which recorded sales growth of 8.8 per cent and now generates 37 per cent of sales. Management now want to increase the number of managed outlets from the current 888 to 1,100 as part of a strategy to shift the emphasis away from the tenanted estate. The plan is to reduce the number of tenanted outlets from 1,584 to around 1,200.

Greene King has continued to invest in order to improve, expand and upgrade its pub restaurant chain, too - that includes Hungry Horse, Old English Inns, Loch Fyne Restaurants and Hardy's House. And the strategy is paying off as, despite a difficult first half which wasn't helped by a rise in duty and VAT, food sales on a pub-per-pub basis rose by 10 per cent and wine sales by 7 per cent. Meanwhile, the group's Scottish chain, Belhaven, reported robust turnover and an 8.3 per cent rise in operating profit to £32.7m.

The debt pile does remain high, but strong cashflow and last year's £207.2m rights issue have helped cut net debt by £210.5m to £1.35bn. The group was also successful in buying-back and cancelling some of its own debt at a deeply discounted rate.

KBC Peel Hunt has upgraded forecasts for 2011 and expects pre-tax profits of £130m and EPS to 45.4p.

GREENE KING (GNK)
ORD PRICE:395pMARKET VALUE:£ 853m
TOUCH:394-395p12-MONTH HIGH:504pLOW: 372p
DIVIDEND YIELD:5.5%PE RATIO:10
NET ASSET VALUE:423p*NET DEBT:148%

Year to 2 MayTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200681912148.516.2
200791814657.518.3
200896114871.920.9
200995554.323.721.0
201098410237.821.5
% change+3+88+59+2

Ex-div:11 Aug

Payment:13 Sep

*Includes intangible assets of £680m or 315p a share

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