Peel Hunt has praised Fuller Smith & Turner PLC’s (LON:FSTA) “transformative” sale of its brewing business to Japanese giant Asahi for £250mln.
The City broker expects the deal will allow Fuller’s to slash its net debts, which in turn should allow it to invest heavily into its remaining Pubs and Hotels division.
READ: City toasts Fuller's as it confirms £250mln sale of brewing business
“The disposal of Fuller’s brewing operations for £250m, or 23.6x EBITDA, is a good transaction. It had to be; the company was not going to undertake it lightly,” read a note to clients.
“We have adjusted our forecasts, expecting this transaction initially to dilute FY profits by c10% from May; however, after returning £55-69mln to shareholders (equivalent to 11-14% of yesterday’s market cap), we forecast net debt/EBITDA falling to below 1x, a position from which the pub estate should be able to grow rapidly.”
As part of the sale, Asahi has agreed to keep supplying Fuller’s pubs with Fuller’s brands such as London Pride and Cornish Orchards for at least the next five years.
Importantly for investors, Peel Hunt reckons the buying terms will remain the same, meaning there is no hike in costs for Fuller’s.
The note concluded: “For Fuller’s, the result is clear: this transformative deal provides the foundation for many years of strong growth, hence we are moving our recommendation from ‘add’ to ‘buy’.”
Fuller’s shares were up 13% to 1,030p, although they had been as high as 1,144p in earlier trading.