Buy Young & Co for a premium pint

The most recent Coffer Peach Tracker, which looks at activity in the pub and restaurant market, showed total sales growth of 6.1 per cent in March, reflecting the favourable comparison with 2018 when trading was hit by the extreme weather brought by "the Beast from the East". What's more, balmy weather over the Easter bank holiday weekend means Young's should have started its new financial year – from the beginning of April – well. Good weather is particularly favourable for Young & Co's trading because its pubs tend to boast ample outside space. This was reflected in the six months to October 2018 when record summer temperatures in England helped like-for-like sales rise 5.2 per cent. But this was no one-off; Young’s like-for-like sales growth during the summer months (start of April to start of October) has averaged 5.6 per cent over the past seven half-year periods. The premium estate has also helped it boost sales of higher-margin products, demonstrating the benefit of owning high-end properties. Sales of rose wine, gin and Pimm’s were up 27 per cent, 41 per cent and 26 per cent, respectively, in the first half.

Young’s has not been immune to the cost headwinds facing the sector, including the impact of rising business rates and the National Living Wage. This resulted in some margin pressure during the first half, with the like-for-like operating margin down 30 basis points to 18.2 per cent, and the overall operating margin recording a 100 basis point slip, including the impact of pub closures for refurbishments. Analysts at JPMorgan expect this to moderate in the new financial year. Duty on beer, cider and spirits was frozen at the most recent Budget, which also provides some relief to embattled publicans.

Keeping a premium estate in tip-top condition is not cheap, though. In the first half, investment in the estate to underpin its industry-leading performance rose from £11.9m to £13.5m. However, comfort can be taken from Young's relatively modest net debt. At the half-year stage (before the Redcomb acquisition), this stood at £125m, equivalent to 1.8 times cash profits. Meanwhile, despite the pick-up in investment, rolling 12-month free cash flow came in at £26.3m, representing a reasonable 79 per cent of reported profit after tax. Free cash generation also provided ample cover for the £9.3m paid out as dividends in the period.