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