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Thu 3rd Aug 2017 - Update: Greene King, Tim Martin
Douglas Jack issues an ‘Add’ recommendation on Greene King shares: Peel Hunt leisure analyst Douglas Jack has issued an ‘Add’ recommendation on Greene King shares. He said: “Greene King’s share price implies investors are taking a downbeat view of its prospects. Despite the tough macro outlook, we see some rock n’ roll in the business plan, including rebranding and reinvestment, which should prove that the thrill is not (entirely) gone. The Spirit acquisition created a distraction for management during the integration, but that process is now complete. It also provided Greene King with greater than originally forecast cost synergies, as well as a pipeline of development opportunities, which should prove more beneficial in 2018E, as Fayre & Square is rebranded, than it was in 2017. Greene King’s rebranding programme should reposition assets towards premium brands. This reflects off-trade/delivery competition encouraging customers to spend at home, and the need to differentiate to encourage customers to go out, which premium brands are more capable of achieving. Greene King does not have a large portfolio of premium pub brands. Instead, most of its premium outlets are badged Greene King, and are heavily-orientated to London and south east England. We believe there are many investment opportunities within this part of its estate that could generate attractive returns, without having to commit capital to (lower return) expansion. The shares have a similar EV/Ebitda rating (8x) to that of 2008, when the economy was in the depth of the financial crisis and the smoking ban impact was at its height. In 2008, managed like-for-like sales fell by 1.0% vs an average of +2.3% pa over the last 17 years (when the EV/Ebitda averaged 9x), during which the weather had more impact on trading than consumer confidence. Since 2008, managed expansion (partially leasehold) has arguably increased the risk-return profile; but the company’s net debt/Ebitda has fallen from 5.7x to 4.0x. For 2018E, management has given clear guidance on cost growth (£60m) and mitigation (£45m); given the increased focus and investment, our 1.2% managed like-for-like sales forecast assumption should be achievable. We are initiating coverage with an ‘Add’ recommendation. Although we forecast minimal growth, we believe the shares are undervalued, with Greene King generating sufficient cash flow to finance an attractive dividend, while simultaneously reducing debt and upgrading the quality of the pub estate.”

Wetherspoon founder’s stake now amounts to 31.01% of the company: JD Wetherspoon has announced that, following a change in the total voting rights as a result of the recent share buyback activity of the company, the total holding of founder Tim Martin and his wife Felicity Martin now represents 31.01% of the total number of voting rights in the company. The company added: “The total number of shares held by Tim Martin and his connected persons remains unchanged at 33,466,934 (comprising 32,241,004 ordinary shares in the company in which Tim Martin is interested, all of which are beneficially owned by him and 1,225,930 ordinary shares in the company in which Felicity Martin is interested, all of which are beneficially owned by her).”

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