Growth baked in
Greene King (L:GNK) has developed a reputation as a leading pub company combining a consistent record of successful earnings growth and a meaningful dividend yield. Now 80% larger by market cap than its nearest peer, it continues to lead the consolidation of the sector. Its latest acquisition, of Spirit Group, is integrating well, which significantly underpins earnings and dividend growth over the next two years.
Spirit integration ahead, synergies raised
The interims signal that the integration of Spirit, acquired in June, is ahead of plan, and synergies have been raised from £30m to £35m worth c 15% of annual earnings. Spirit adds 1,207 pubs, boosting the estate by c 60% to 3,069. The synergies mean growth worth c 9p per share is baked in over the next two years, giving good visibility on around 70% of consensus EPS growth to April 2017.
Strong interims
Interims were strong. EPS were up 15% to 34.5p and the dividend was raised 6.3% to 8.45p. PBT grew 46.9% to £121.3m, although this was mainly on Spirit – existing businesses grew 6%. Retail like-for-like sales growth of 2.0% compares well with muted national trends, although operating margin shaded 20bp on investment in service, and operating profit rose 49.8% to £137.4m. The Pub Partners tenanted and franchised business grew like-for-like net income 2.4%, and operating profit 0.4%. Brewing and Brands increased operating profit by 5.1% on own-brewed volume up 3.6%. Net debt of £2,079m was up £710m on the acquisition, although at 4.2x EBITDA it is reasonable given that 83% of the estate is freehold.
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