Fuller, Smith & Turner limits price increases

Fuller, Smith & Turner’s (FSTA) sales in the half came in at 3 per cent below pre-pandemic levels, which was in sharp contrast to competitor Young & Co’s Brewery (YNGA) which revealed in its own half-year results on 10 November that sales were 11 per cent ahead of 2019. Part of the story here is that Fuller’s has raised prices well below inflation in the bitter fight to attract custom, which has contributed to a mixed set of results as the premium pubs and hotels company deals with a challenging cost environment.

Chief executive Simon Emeny acknowledged to Investors’ Chronicle that the company’s “careful” pricing approach meant it has had to absorb higher costs. But he said that he was pleased with Fuller’s progress over the half, “with momentum building”.

The return of office workers boosted the top line, with central London sales up 67 per cent against last year. And like-for-like sales in the seven weeks post-period in the key managed pubs and hotels division were 1 per cent above pre-pandemic, with total like-for-like sales up 13 per cent on last year. Encouraging signs.

On the other hand, the managed pubs and hotels cash profit margin fell by 480 basis points to 19.5 per cent in the half as higher utility bills, increased VAT, and other factors had their impact. While utilities hedging, a long-term drinks supply agreement and flexible menus will help in the fight against higher costs, pressures aren’t going away anytime soon. 

Peel Hunt cut its target price from 700p to 600p on the back of these results. The broker’s analysts rate the company at a “high” enterprise value to cash profits multiple of 10 times, and say “energy cost-driven downgrades could eventually reverse, and there is asset backing, which could be helpful if disposal activity increases”. While current trading and a fall in net debt suggest things are moving in the right direction, it isn’t clear that the pricing approach is working well enough. Hold.

Last IC view: Hold, 578p, 10 Jun 2022