Peel Hunt has upgraded its forecast for City Pub Group (LON: CPC) following its AGM trading statement and believes further upgrades are possible. Like-for-like sales are 13% ahead through a mixture of price increases and volume gains. This compares with estimated growth of 8% for the pub sector.
Sales are 12% ahead of pre-pandemic levels. Refurbishments have helped to improve revenues and the figure could have been higher without train strikes.
Cost pressures are easing, and management has fixed 35% of energy costs until March 2025. Utilities costs are expected to fall this year. Food costs are still high, but food generates less than one-quarter of revenues.
The purchase of a further 4% of Mosaic for £700,000 will take City Pub Group’s share to 52% and the business will be consolidated. A further £4m is expected to be spent over the coming year to take the stake to 75%.
This increases the pub estate from 43 to 52. Mosaic lost money last year, but it should make a positive contribution when integrated into the group.
Peel Hunt has increased its 2023 pre-tax profit forecast from £5.8m to £6.3m, with a further increase from £7.2m to £7.6m for the 2024 figure. A return to dividends is forecast for this year with an estimate of 1.2p a share, which would be covered 3.8 times by forecast earnings.
The share price rose 2% to 100.5p, which is the highest it has been since the beginning of 2022 but around 50% of the level in early 2020. The shares are trading on 22 times prospective 2023 earnings, falling to less than 20 the following year. Net assets were 93.6p a share at the end of 2022.