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Wed 24th Sep 2014 - Analyst: GK bid for Spirit runs contrary to diversification strategy
Analyst: GK bid for Spirit runs contrary to diversification strategy: Simon French, leisure analyst at Cenkos Leisure, has argued that Greene King’s bid for Spirit seems to run contrary to the former’s strategy to diversify its retail offer. He said: “Spirit Pub Company confirmed after the market closed that on 15 September Greene King made a highly preliminary and conditional approach to Spirit Pub Company at a value of 100 pence per Spirit share in Greene King shares. This proposal was rejected on 18 September as it undervalued Spirit and it’s attractive prospects. Shareholders are strongly advised to take no action. Press reports suggest Greene King may return with a 110p a share offer. We estimate that values Spirit at 8.5x EV/EBITDA or 8.4x on a lease adjusted basis. We estimate that synergies from a combination of the two could be circa £45m comprising circa £27m in central cost duplication elimination and c£18m in purchasing savings. We note the last disclosed central costs for Spirit appear to be in FY 2011 when they were £41m. We expect all the other major managed pub companies will be running the numbers on Spirit now it has effectively been put in play. We think it would be attractive acquisition target for MAB LN (Buy) and MARS LN (not rated) possibly in combination with RTN LN (Buy). Alternatively privately-owned Stonegate, which was rumoured to be considering an IPO, may consider acquiring it. Whilst we see the industrial logic of a combination between Greene King and Spirit it appears to run contrary to the group’s indication that it would look to diversify its retail offer through improving exposure to daytime trading and developing or acquiring all day trading concepts. We also see potential for some localised competition concerns.”

Shepherd Neame reports strong year: Shepherd Neame, the Kent-based brewer and pub operator, has reported that pre-tax profit rose 8.7% to £7.7m in the 52 weeks ended 28 June 2014. Like-for-like managed pub and hotel sales were up 8.9%, with liquor up 8.0%, food up 10.4% and accommodation up 9.7%. In the ten weeks to 6 September, like-for-like sales in managed pubs are up by 4.1% and like-for-like EBITDAR from tenanted pubs (to 30 August) is up by 2.6%, against a very strong comparable period in 2013. Turnover was up 2.8% to £138.7m in the year (2013: £134.9m). Operating profit before exceptionals up 5.5% at £13.4m (2013: £12.7m) and EBITDA up 4.3% to a record level of £20.5m (2013: £19.6m). Average EBITDAR per managed pub up 13.9% while average EBITDAR per tenanted pub up 5.9%. Its core own and licensed beer brand volumes (excluding contract brewing) rose 6.1%, with strong growth from Bishops Finger, Whitstable Bay and Samuel Adams Boston Lager. The company reported its business and board and share capital reorganisation successfully implemented during the year, including a phased exit from contract brewing and transfer of warehousing and distribution operations. Chief executive Jonathan Neame said: “I am pleased to report strong trading across all parts of the business, which has resulted in record EBITDA for the year. We have the right strategic framework and skills within the business, as well as a good pipeline of product innovation and pub developments to continue this year’s progress and exploit the opportunities of this ever changing market.” Chairman Mile Templeman said: “During the year we have carried out a business and board reorganisation and share capital reorganisation. Both of these significant undertakings provide a strong platform for the business to grow and develop. The year has seen the economy improve and more favourable weather conditions in comparison to the prior year. Our performance also shows the benefit of investing consistently in our pubs and brands over many years, especially during the recession and we are now beginning to see higher returns as a result. The company has incurred an exceptional charge of £1.3m (2013: £1.2m) for the costs associated with the transfer of warehousing and distribution activities to Kuehne and Nagel Drinkflow Logistics (KNDL) in October 2013 and the costs of the Share Capital Reorganisation in June 2014. The last few years have seen the Company take important steps to enhance its business with the acquisition of some excellent pubs and hotels, transformational development of many of our key sites, and the strengthening of our brand portfolio. We have seen some of the benefits of the business reorganisation in the current year, and we believe these actions and our investment strategy will drive higher returns for the company in the future. The beer and pub sector is now arguably as dynamic and innovative as it has ever been with a plethora of new brands and new concepts. The customer will pay for a good experience and high-quality beers. We believe that we have the skills and the platform to exploit these beneficial trends in the marketplace.”


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