Young's managed strategy bears fruit

Young’s (YNGA) delivered a year of strategic progress, with profits surpassing pre-pandemic figures. This was despite the impact of Covid-19 restrictions, which meant that the company’s pubs were only fully open for 36 weeks of the year.

Chief executive Patrick Dardis, who is handing over the reins to his successor in July, told Investors’ Chronicle that the company is now “absolutely focused” on its managed business after the sale of most of its tenanted estate in the year and that Young’s currently has the “strongest balance sheet in our history”.

The company sold 56 tenanted businesses, streamlining its business model, for £53mn over the course of the year. There was £25mn of investment in the existing estate and £37mn spent on nine new pubs and hotels. Management said that this investment buttressed encouraging post-period trading, with managed house revenue up by almost a fifth over the last 13 weeks against 2019.

Costs are, of course, starting to bite. But the good news is that utilities are now hedged until March 2024 and drinks contracts have been renegotiated. Young’s is also helped by trading at the premium end of the market – Dardis said that the average spend on a bottle of wine is up by £2.30, not because of price increases, but perhaps due to the company’s customer base being relatively resilient to wider cost pressures.

Stifel analysts think “Young’s is in a position to either hunker down or capitalise on growth opportunities within the existing estate, and from disciplined expansion of the pub estate”. The broker has the shares trading at 22 times forward 2023 earnings. This looks undemanding given the growth outlook. It’s time for an upgrade. Buy.

Last IC View: Hold, 1,467p, 11 Nov 2021