Young's estate to grow with City Pubs deal

The big news on Young & Co’s Brewery’s (YNGA) results day was of listed pub consolidation. The company has agreed terms on a £162mn deal to buy the entire share capital of fellow Aim traveller City Pub Group (CPC), which will increase Young’s managed trading estate by more than 20 per cent and should deliver margin benefits. Given the similarities between the two premium operators with their wet-led pub estates and site locations, the deal looks like a good bit of business.

Analysts at Peel Hunt upgraded their EPS forecasts for 2025 and 2026 by 3 per cent and 5 per cent respectively to account for the deal. The broker noted that leverage would rise from around 1 time to 2.5 times because of the acquisition but that this would start to fall as synergies come through.

The interim results themselves were solid. Drink, food, and accommodation sales all posted healthy growth, with like-for-like (LFL) sales coming in at 10.8 per cent ahead of the 2019 pre-pandemic baseline. The adjusted operating margin rose 30 basis points to 15.8 per cent.

As pub peer Fuller, Smith & Turner (FSTA) did this week, the company highlighted improved trading within the M25. Despite train strikes, LFL sales in the City and Central London rose by 8 per cent.

Chief executive Simon Dodd told Investors’ Chronicle that “customers are continuing to premiumise”. This was seen in a 13 per cent increase in cocktail sales, with Aperol Spritz sales enjoying a 23 per cent uplift. Despite cost of living pressures, customers are knocking back pricier products at Young' sites. 

A valuation of 17 times forward consensus earnings, a discount to the 5-year average of 30 times, looks very undemanding given robust trading and smart M&A. Buy.

Last IC view: Buy, 1,175p, 15 Jun 2023