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Greene King manages growth

RESULTS: Strong growth in Greene King's managed pubs business has underpinned a strong first-half performance and a solid dividend increase
December 4, 2012

Pub and beer company Greene King (GNK) is performing well, helped by strong progress in its managed-pub estate.

IC TIP: Buy at 617p

Like-for-like sales of 4.3 per cent, coupled with pub acquisitions and transfers from the tenanted estate, helped lift managed pub first-half profits by 17.4 per cent to £83m. That like-for-like growth, as well as efficiency improvements, pushed managed profit margins 120 basis points higher to 20.4 per cent despite cost inflation. Some 20 pubs were added during the first half, including three new-builds, and broker Numis Securities expects a further 17 to be added in the second half.

While the managed estate has been growing, the tenanted estate continues to shrink with 58 mainly weaker pubs being sold or transferred. Despite a 9.4 per cent reduction in the number of pubs trading to 1,349, operating profits here fell by a relatively modest 6.6 per cent to £34.7m while average cash-profit per pub grew 3.9 per cent. Like-for-like cash profit from the tenanted pubs was down 0.8 per cent. In the beer business, meanwhile, rising costs pushed operating profit down by 13.5 per cent to £16.3m - although sales grew 2.2 per cent to £84.9m.

Numis expects full-year pre-tax profit of £162m, EPS of 56.7p and a dividend of 26p (from £152m, 52.8p and 24.8p for 2012).

GREENE KING (GNK)
ORD PRICE:617pMARKET VALUE:£1.34bn
TOUCH:616-61812-MONTH HIGH:626pLOW: 451p
DIVIDEND YIELD:4.1%PE RATIO:10
NET ASSET VALUE:435p*NET DEBT:154%

Half-year to 14 OctTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201152856.722.46.70
201256684.334.47.15
% change+7+49+54+7

Ex-div: 19 Dec

Payment: 25 Jan

*Includes intangible items of £729m, or 335p a share