Fuller’s profits fall as operating costs surge

Fuller, Smith & Turner’s (FSTA) results support the argument that things have started to turn a corner for the pub operators, with the premium pub and hotel company disclosing strong current trading and hiking the full-year dividend by 30 per cent. But margins, unsurprisingly, are still feeling the heat from cost inflation.

Revenues rose sharply against the pandemic-scarred prior year despite a hit of more than £5mn to sales from strike action. Like-for-like sales were also up by 13.9 per cent in the first 10 weeks of FY2024. The return of office workers and tourists to London is helping. 

Statutory profits slipped, however, as operating costs soared by 37 per cent to £326mn due to higher energy, food and wage bills. The adjusted cash profit margin for managed pubs and hotels (which took over 90 per cent of total revenues) fell by 360 basis points to 17.4 per cent.

Chief executive Simon Emeny told Investors’ Chronicle that because of the impact of Brexit on the UK labour market, “we have had to do things ourselves” when finding solutions to employee shortages. Fuller’s is now employing more over-50s, while around a fifth of its workforce is under 20.

Elsewhere, the company said it will book a £17mn profit from the sale of its Mad Hatter site in Southwark when the deal completes next summer. Fuller’s recorded gains of £11.8mn on the sale of nine properties in 2023, up from £6.3mn last year.

Finance costs rose by £1.1mn due to higher interest rates, but the balance sheet remains strong. While Fuller's debts aren't at the low end of the pub sector, they are more manageable than those at Marston's (MARS) and JD Wetherspoon (JDW). 

Analysts at Numis said that the company “offers an attractive combination of income (3 per cent), operational turnaround and value”. While an enterprise value of £578mn is attractive indeed, the company will soon be trading against tougher comparatives. Hold.

Last IC view: Hold, 491p, 17 Nov 2022