Greene King PLC (LON:GNK) saw its shares drop on Tuesday, though the pubs chain revealed that it outperformed the market in a year-end trading update, driven by strong growth in its drinks-led locals, with investors possibly having hoped for more after weak comparatives.
In a trading update for the year ended 28 April, the FTSE 250-listed group said full-year like-for-like (LFL) sales were up 2.9%, ahead of the market, while LFL sales for the last 16 weeks were 2.4% higher.
The company also saw a strong performance over the Easter period, with LFL sales up 4.6%, amid good weather and “particularly strong trading” from its Chef & Brewer pub restaurants, which saw LFL sales growth of 15.3%.
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Greene King said it had seen “good drink volume growth” over the year, particularly in its 1,000 drinks-led own-brand pubs which reported LFL sales growth of 4.6%. LFL net income for the company’s Pub Partners (pubs run independently under the Greene King licence) was up 1.6%, however LFL profit dipped 1.4%.
The company’s brewing & brands division, which includes drinks such as Abbot Ale and Greene King IPA, saw total beer volumes grow 0.9% while own-brewed volumes fell 3.4% against a 4.2% decline in the UK’s ale market.
In light of the sales figures, Greene King said it expected to report an adjusted pre-tax profit for the year of between £244mln-£247mln.
Rooney Anand, on his last day as the group's chief executive, said the company had “traded strongly” over the year and “returned to market outperformance”.
“I believe that, with our strong pub and beer brands, talented and dedicated team and high-quality estate, Greene King is well positioned to make further progress and continue outperforming the market."
Anand’s successor, Nick Mackenzie, will take over the reins on Wednesday, having joined the pub chain from theme park group Merlin Entertainments PLC (LON:MERL).
Not out of the woods yet
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown: said: “By most standards, Greene King’s results this morning would be seen as good news, with strong performances across the key Pub Company and Pub Partners divisions. Perhaps more crucially for investors, the group confirmed troublesome cost inflation headwinds were being kept under control.”
She added: “It seems though that someone, somewhere is disappointed, given the discouraging market reaction following the announcement. Weak numbers last year due to disruption caused by the ‘Beast from the East’ are flattering numbers this quarter, and we suspect the warm weather over Easter had raised hopes this year’s trading would be even better. That probably explains the steady rise in the share price over the last few weeks, followed by today’s drop.
“Given the weather was hampering efforts last year, it’s unfortunate trading hasn’t been spectacular while the elements are in its favour. Investors are making sure it’s known that good isn’t necessarily going to be good enough, Greene King will need to follow up this set of results with a string of more positive numbers if we’re to believe it’s out of the woods.”
But broker ups target price
Meanwhile, in a note to clients, analysts at broker Liberum Capital upped their target price for Greene King to 790p from 690p, saying they expect the firm to pay a full year dividend of 33.2p per share.
“The shares are up 31% [in the year-to-date] and we believe share price momentum can continue driven by improving earnings visibility with scope for upgrades as the balance sheet debt is de-risked and dividend support underscored.”
The analysts also said the expected profit figure gave scope for “a small beat” to their own forecasts of £244mln.
However, the solid performance wasn’t enough to prevent some profit-taking, with the shares down 6.6% to 646.60p in afternoon trading.
-- Adds further analyst comment, updates share price --