Fuller's gains from busier London offices

• Leverage falls
• LFL sales growth slows post-period

Fuller, Smith & Turner (FSTA) pointed to the continuing return of London office workers as a key tailwind in its interim results, as the premium pub and hotel business bumped up its dividend and said it would buy back 1mn more A-class shares (worth around £6mn based on the current share price). 

Chief executive Simon Emeny told Investors’ Chronicle that “the strongest part of the business has been the City and Central London”.

Given Fuller's has 163 pubs within the M25, this was good news. The company is benefiting from increased hospitality spending at the weekends in the City, as well as from more office working. 

Like-for-like (LFL) sales rose by 12.7 per cent in the first half, with growth driven by higher prices. Food sales led the way, up 15.5 per cent against last year, with drink and accommodation sales up 10.9 per cent and 13.4 per cent respectively.

Trading after the period-end was also encouraging, with Christmas bookings 11 per cent up on last year. While LFL sales growth has slowed in the second half, this was impacted by wet weather.  

Leverage fell from 3 times at the year-end to 2.6 times, well within the company's target range of 2.5-3 times. A strengthening balance sheet is allowing investment, with £9mn of capex deployed in the half to improve the estate.

Analysts at Liberum raised their target price from 610p to 640p but cautioned that "whilst the revenue momentum is impressive, the margin outlook remains less clear". 

While the shares are rated at a noticeable discount of a fifth to book value, we are keen to see further signs of expansion. Hold. 

Last IC view: Hold, 570p, 15 Jun 2023