60 Seconds: Tough summer dents pub profits

September 8 2017

Greene King warns summer has been tough – September could be worse:

Greene King says LfL managed sales in the 18wks to 3 Sep fell by 1.2%
Sales in the first 10wks were flat (0% LfL)
This implies they fell by more than 2.5% LfL in July & August
September comps are very tough; there will be a relative September shortfall

Greene King’s news in context:

Given the weather, the slowing economy & Brexit fears, tough trading is not a surprise
All five listed restaurant companies have warned on profits in recent weeks
Though GNK is only 1/3 of the way through its financial year, forecasts are being reduced
We cut PBT estimates for 2018 & 2019 by c6% to £254m and £260m respectively
This represents EPS of 66p and 68p. Dividends may edge forward to 33.5p and 34.0p

Implications for the sector:

Whilst digesting Spirit has its issues, much of the Greene King comment is market-related
MARS and MAB (and EIG) have September year ends, FY17 will not be finishing strongly
We therefore reduce our MARS and MAB profit estimates by around 4%
GNK and MAB are aided by their London estates but MARS has better margin progression
Marston’s PBT is estimated at £100m for Sep 16 and £111m in FY18 (EPS 13.6p & 14.0p)

Investment outlook:

The economy is slowing & confidence is slipping
Big ticket spending is under pressure; affordable treats are not immune
But operators are (for the most part) well financed and asset backed
They are better positioned to deal with (the currently building) headwinds
Good operators will succeed but the going is tougher than it has been for a number of years