Young's momentum is promising

It’s a tough time for the pub sector. Companies struggling with high pandemic debts and the post-lockdown trickling back of drinkers are now faced with surging energy bills and the cost of living crisis’ impact on demand. JD Wetherspoon (JDW) has been loss-making for three years and has started selling off pubs. But premium operator Young & Co’s Brewery’s (YNGA) looks well positioned despite facing the same headwinds as peers. It managed to raise its dividend and reduce leverage while investing £28.7mn into acquisitions and the existing estate in the half.

A key part of the Young bull case is the control the company has over costs, which helped it post a 15 per cent operating profit margin here (no mean feat in this macro environment) despite a £2mn increase in utility costs. It has hedged energy costs and fixed drink contracts out to March 2024, hedged interest costs, and benefits from the use of an in-house staff agency in a challenging labour market. Panmure Gordon analysts said the company “has proven itself to be best in class when it comes to cost management”.  

As well as strong revenue growth in the half, current trading is encouraging even as the consumer spending outlook worsens. Total sales were up 7 per cent and managed like-for-like sales outstripped pre-pandemic levels by 6 per cent over the last 13 weeks. The company also highlighted promising Christmas booking levels and should benefit from a World Cup bounce. 

Stifel analysts said that Young’s “is a top sector pick” and is well placed to look at “bolt-on M&A, which few competitors are in a position to consider”. The shares trade at 17 times the bank’s 2023 earnings forecast, which isn’t pricey given the company’s sector-leading position. Buy. 

Last IC View: Buy, 1,360p, 19 May 2022