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Morning Briefing for pub, restaurant and food wervice operators

Fri 8th Jun 2018 - Fuller’s takes full ownership of The Stable
Fuller’s takes full ownership of The Stable after acquiring remaining 24% stake: Fuller’s has completed the acquisition of the remaining 24% stake of The Stable, the 17-strong pizza, pie and cider brand, to take full ownership of the business, Propel has learned. Chief executive Simon Emeny said: “We’ve completed the process in the past few days and we remain incredibly close to (founders) Richard and Nikki Cooper. We halted the roll-out in 2016 with the downturn in casual dining but we will look carefully and selectively at new site opportunities.” As well as acquiring the remaining stake in The Stable, Fuller’s has also bought Bel & The Dragon for £18.5m from leisure operator Longshott. Fuller’s also previously acquired four We Are Bar sites and Emeny said it would consider further similar deals. He added the Bel & The Dragon name would remain, while the brand could be extended into other parts of the Fuller’s estate in the future. He said: “We have spent a lot of time getting to know Bel & The Dragon and it’s really important we protect the DNA of a business that Joel (Cadbury) and Ollie (Vigors) have worked hard to build. It has got a loyal following in a catchment area where we have a number of rural pubs so there are options – but that’s for the long term. We’ve spent the past couple of years investing in our existing estate, in our IT systems and the brewery. We’ve got two new train station sites to open – at Liverpool Street and Euston – we’re building a pub on the Thames at Royal Wharf and improving the visitor experience at our Chiswick brewery. We want to grow the business but in a way that enhances the quality of the estate.” Emeny said the company’s new tenancy turnover agreement, of which there are now 18 in place, had played a major part in driving the growth in tenanted profits. He said “at least another 15” would be added to the model in the new financial year. Emeny said: “We are seeing huge benefits on both sides, which is giving us the confidence to roll it out further.” Of the company’s full-year results, he said: “We are very pleased with the performance, especially given the very challenging and competitive market place.”

Douglas Jack – Fuller’s expansion has started to accelerate: Peel Hunt leisure analyst Douglas Jack has said Fuller’s expansion has started to accelerate. Issuing an ‘Add’ note on the shares with a target price of 1,150p following the company’s full-year results, Jack said: “Managed like-for-like sales rose 2.9% in 2018 versus 3.4% in quarters one to three, held back by a tougher weather-affected backdrop in the fourth quarter. The company continues to materially outperform the London pubs constituent of the Coffer Peach Business Tracker, which rose 0.9% during the same period. During the past three years, Fuller’s like-for-like sales have averaged 5.0%, versus a 2.3% average for the London pubs constituent of the Coffer Peach Business Tracker. We believe this reflects a strong culture for differentiated product and service and the company investing in its venues and staff. This is consistent with Fuller’s premium positioning, the strongest performing segment in the sector. Managed margins fell by ten basis points. The company previously stated it needed 4% like-for-like sales growth to hold like-for-like profits (partly due to having to absorb a 26% increase in business rates in 2018) but cost savings reduced this requirement to 3%. Due to slowing cost inflation, the company needs 3% like-for-like sales growth to hold like-for-like profits in 2019E. Tenanted like-for-like profits rose 3% in 2018. Like-for-like profit in the more wet-led tenanted pub sector has matched like-for-like sales in the managed pub sector since 2015, but has pulled ahead in profit terms due to wider central purchasing, rising asset quality and the ability of licensees to avoid some cost pressures. Against such a backdrop, 13 of Fuller’s tenants have converted to turnover-based franchise agreements (and 15 should convert in 2019E). Brewing volumes were flat over the full year. The portfolio was boosted by the acquisition of Dark Star brewery late in the year. A net of one managed pub opened and 12 tenanted/leased pubs (for £10.8m proceeds) were sold. In early 2019E, the company has bought four sites from We Are Bar (which should cost £5.3m post refurbishment; opening in 2020E) and six Bel & The Dragon sites (of which five are freehold, for £18.5m). Also opening in 2019E are The Signal Box at Euston station; The Parcel Office at Liverpool Street station; and the Windjammer at Royal Wharf, Docklands. We are holding our 2019E forecasts, which assume 2% like-for-like sales (versus 2.5% in the first nine weeks) in managed and 2% like-for-like profits in tenanted/leased (in line with the first nine weeks), but upgrading 2020E profit before tax by 1% to reflect accelerating expansion. We believe the company’s large valuation discount to Young’s (10.5 times versus 12x EV/Ebitda) is unwarranted.”

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