ii view: Bid target Greene King sales kicked lower

Pub group Greene King sees sales suffer, but investors have their eye on a bigger prize.

First-quarter trading update for the 18 weeks to 1st September 2019

• Pub Company - like-for-like sales down 1.8%
• Pub Partners - like-for-like net income down 4.2%
• Brewing & Brands - total beer volumes down 6.5% and own-brewed volumes down 7.9%
• Terms of the acquisition offer – 850p cash for each Greene King ordinary share

ii round-up:

Greene King (LSE:GNK), with its estate of over 2,700 pubs, restaurants and hotels, today announced its latest trading update. 

The Suffolk headquartered company which has been going for over 200 years recently announced that it is potentially being bought by Hong Kong multinational CK Noble (UK) Limited.

The property investment and development firm are, subject to shareholder approval, paying cash of 850p per Greene King share, valuing the company at £2.7 billion. The final dividend payment of 24.4p per share is also payable under the offer. 

Recent sales at the pub operator had fallen given the comparison with last year's football World Cup and exceptionally hot summer. 

Like-for-like sales at its managed outlets had retreated by 1.8% while net income for its franchised pubs had fallen by 4.2%.  

Against the back drop of offer, which is recommended by Greene King's management, the share price was little changed in early UK morning trading. 

ii view:

Brexit and a falling UK pound is placing quality UK companies such as Greene King on sale to overseas buyers. 

For investors, Greene King management's backing and a current share price sitting close to the offer price suggests, we believe, that the takeover is likely to be voted through by shareholders.  

Positives: 

• A takeover offer on the table
• Final dividend being paid as part of takeover

Negatives:

• Pub sales at mercy of the weather 
• Operating costs have been rising

The average rating of stock market analysts:

Strong hold