ii view: Greene King gets World Cup boost

Sales rose at the pub chain and brewer's biggest money spinner, but business is being hit by powers outside of its control.

Full-year results to 28 April 2019

• Revenue up 1.8% to £2.22 billion
• Adjusted profit before tax up 1.6% to £246.9 million
• Total dividend per share flat at 33.2 pence  

Chief executive Nick Mackenzie said:

"The business delivered good results last year, regaining trading momentum in Pub Company and returning to market outperformance while fulfilling a strong cost mitigation programme and making further progress refinancing the Spirit debenture."

ii round-up:

Founded in 1799, today Greene King (LSE:GNK) operates or franchises over 2,700 pubs, restaurants and hotels across the UK. Its brands include Greene King, Chef & Brewer and Hungry Horse. It also brews its own ales with brands including Greene King IPA, Old Speckled Hen, Abbot Ale and Belhaven Best. 

Pub Company, Greene King's freehold or long leasehold outlets, is the biggest money-spinner, generating around 80% of total group revenues. Pub (tenanted) Partners and Brewing and Brands make the rest. 

Strong cost control, the 2018 football World Cup and good weather all helped push adjusted full-year profits higher. Like-for-like sales at the core pubs business rose by 2.9%

Reducing debt, the result of its £773 million takeover of rival pub group Spirit in 2015, remains a focus. A debt debenture outstanding from Spirit is now 51% repaid. A key investor debt measure (net debt to EBITDA, or earnings before interest, tax, depreciation and amortisation) reduced to 4.0 times from 4.2 times. The dividend payment was again left unchanged. 

Looking forward, the new chief executive, who joined on 1 May after years spent running the attractions division for Merlin Entertainments (LSE:MERL), reported a drop-in like-for-like sales at the pubs business in the first eight weeks of the new year. He blamed bad weather.  

ii view:

With no negative surprises, initial reaction to these results has been positive, with the shares up over 3%. Initiatives to reduce the number of brands, optimise the estate and reduce costs all appear sensible. Debt reduction is ongoing, while a dividend yield of over 5%, currently well covered by earnings, remains attractive to income seekers. 

Positives:

• Management says Pub Company like-for-like (+2.9%) sales were ahead of the market
• New chief executive will want to make his mark 
• 5% dividend yield is attractive in current ultra-low interest rate environment 

Negatives:

• Total group net debt of £1.94 billion versus stock market value of £1.86 billion 
• Pub sales at mercy of the weather 
• CEO warns "political and consumer uncertainty" weighs on confidence, and costs still rising

The average rating of stock market analysts:

Buy