Signs to look out for in this week’s Greene King update

City Pub Group

Pubs operator and brewer Greene King (LON:GNK) is reporting a pre-close trading statement for the year to April 2019 on Tuesday.

Analysts are looking for revenues of around £2.2bn and pre-tax profit of more than £240m for the full year. At 704p, the shares are trading on just over 11 times forecast earnings. This looks good value, but some investors will be put off by the high debt levels.

Greene King has already revealed it had an excellent Christmas and New Year. Here are things to look out for in the statement.

Like-for-likes

Greene King is enjoying the benefits of investment in improving service and quality. Managed pubs like-for-like sales rose by 3.2% over the first 36 weeks of the period. These like-for-likes are expected to continue to be strong. The full year figures will show whether the growth continued at the same rate for the rest of the financial year.

The recent sunny weather will have helped to boost sales. Peel Hunt believes that Greene King requires like-for-like growth from managed pubs of 1.5% to offset to offset cost inflation, even after cost savings have been made.

It is estimated that every additional 1% of like-for-like growth will add £4m to pre-tax profit.

Tenanted pubs generate nearly one-quarter of operating profit. There should be like-for-like growth but not as significant as for managed pubs.

Brewing

The brewing business had a strong first half with sales up by 8% and volumes were 1.8% ahead after 36 weeks.

However, forecasts assume flat sales for the brewing operations in the second six months of the financial year.

Brewing generates around 8% of operating profit so it is nowhere near as important as the pubs.

Net debt

Greene King had net debt of more than £2.03bn at the end of April 2018. There has been capital expenditure of around £200m and outflows from dividends. However, helped by the disposal of more than 100 pubs, net debt is expected to fall to £1.98bn at the end of April 2019.

More than 50% of the £770m of bonds have been refinanced and this will reduce cash interest payments by £14m per year. Refinancing the rest of the bonds could provide a further profit boost.

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Andrew Hore
Andrew Hore is the publisher of AIM Journal, which is an online monthly publication covering the Alternative Investment Market.