Fuller's making steady progress

Fuller, Smith & Turner (FSTA) is on the road to recovery. The premium pubs and hotels company made progress with the top line and reinstated the final dividend in a year marred by pandemic-related restrictions and closures.

Chief executive Simon Emeny told Investors’ Chronicle that he is “very happy” with the full-year results given the difficult trading conditions.

Like other pub operators’ recently released results, Fuller’s postings demonstrate progress against a difficult backdrop. The entire estate reopened in July, but was then shuttered again around the crucial Christmas period due to the Omicron variant, meaning that the company's pubs were only really fully trading for around half the year.

In this context, revenue being down by a fifth against the financial year 2020 comparative isn’t a bad result. And in the second half of the year, sales approached 90 per cent against 2020 despite the hit to Christmas trading.  

Positive developments were also seen on the balance sheet side of things. Net debt fell by £86mn while all banking facilities were refinanced after the year-end, giving the company a new four-year £200mn cash pile to call upon.

But like other operators, Fuller is taking a hit from soaring energy bills and rising food and drink costs. Despite hedging gas and electricity pricing, the company flagged that it still expects utility costs to increase by around £4mn over this financial year. While its premium offering may help mitigate some cost pressures (its customers may be more willing to maintain spending as they can afford to) the situation is clearly a difficult one.

Current performance is, nevertheless, encouraging. Trading surpassed pre-pandemic levels by 4 per cent in the first 10 weeks of the 2023 financial year and by more than a fifth (without closed periods) against 2021 on a like-for-like basis. Positive momentum is being seen in Fuller’s central London locations as footfall improves – Emeny said that there is “good geographical balance across the estate but London is very important for us”.

Peel Hunt analysts said that the company “is asset rich, its balance sheet is strong and some of the recent cost pressures (food and energy) could reverse over the long term”. The broker has the shares trading on 17 times forward 2023 earnings and upgraded its recommendation to buy. We aren’t convinced to do that ourselves, but things are certainly moving in the right direction as Fuller starts to bounce back. Hold.

Last IC View: Hold, 659p, 18 Nov 2021