Fuller's ready for new growth phase

While separation, restructuring and tax costs will consume a hefty £45m of proceeds, the company still expects to return £55m-£69m to shareholders (equivalent to 100p-125p per 'A' share) while net debt should fall to less than one times cash profits. This leaves plenty of scope to invest in growing its higher-margin pub and hotel estate. As part of the deal, Fuller has entered into a 10-year supply agreement with Asahi, with which it had an existing relationship, which is expected to be on similar terms to those previously used internally.

The move looks particularly smart because, despite Fuller's focus on the quality of its beer and expansion through savvy brewing acquisitions, the beer business was being squeezed. Global consolidation had left it struggling to compete with big international players, while tax incentives for small brewers in the UK have meant an explosion of challenger craft brands.

Indeed, the beer business's underlying operating margin of 4.5 per cent last year compared badly with a far more attractive 12.3 per cent from managed pubs and hotels. The performance of the group's tenanted pubs has also been improving. Last year, managed pubs accounted for 63 per cent of operating profits, tenanted pubs 24 per cent and beer 13 per cent.  

While overexpansion by the eating-and-drinking-out sector has made life tougher for all operators, Fuller has benefited from its focus on high-quality pubs, which are predominately freehold-owned (88 per cent of property by value). And while the industry in general has seen pubs perform better than restaurants, it is impressive that Fuller's managed pubs and hotels recorded a 4.7 per cent like-for-like sales rise in the 42 weeks to 19 January and like-for-like tenanted pub profits were 2 per cent ahead. This underlines the quality of both the company's pub assets and its panache as an operator and landlord.

Source: S&P Capital IQ