...as we have had results from Greene King (GNK) the brewer / pub & restaurant chain and from TUI Travel (TT) the package and specialist holiday company. I'm not going to comment on TUI though as it is currently going through a merger with its German partner and a share consolidation is due so I would need to do more work on that one to get my head around it, but there is apparently a web cast today which may shed some more light on it. I see they are saying that the merger "future proofs" their proven business model - hmm I'm not really sure how any business can say that?
Greene King's results however saw:
· Record sales; retained business growth of 5.3%.
· Retail lfl sales +0.8%; Pub Partners like-for-like net income +3.7%; Brewing & Brands own-brewed volume +5.9%.
· Retained business adjusted eps growth of 5.3% with strong cash flow, lower leverage & 4.6% dividend growth.
· Return on capital employed was up 20 basis points on the first half of last year to 9.2%.
On current trading the said that after 30 weeks, Retail LFL sales were +0.8% and +1.5% last 12 weeks, while bookings for Christmas across Retail are +7.2%. They are also in the process of buying Spirit Pub Company which assuming the deal is completed, would add around 800 managed pubs and 430 tenanted and leased sites to their estate. They hope it will complete before the end of this financial year. Aside from this they continue to manage their estate by selling poor performing sites and opening new ones to leave them with 1,040 sites at the period-end. On this combination and their estate they said:
"The combined entity would comprise an estate of over 3,100 pubs, restaurants and hotels including over 1,000 pubs in London and the south east. A combined managed estate of over 1,800 pubs will create the UK's leading managed pub operator and will allow us to extract significant operational synergies including benefiting from enhanced purchasing and distribution scale. Overall, we expect to realise operational efficiencies and cost savings of at least £30m per annum, supplemented by potential further revenue synergies from brand optimisation and sharing best practice."
Summary & Conclusion:
Greene King is a well managed group which continues to deliver reasonable growth against a mixed albeit possibly improving consumer background. The shares, having come back by over 15% from over 900 pence (see chart below) they look quite good value on around 12x with a near 4% yield which is more than 2x covered by earnings. Thus, assuming they can continue to churn out 5%+ dividend growth (the long term trend has been 6 to 7%) then on an unchanged rating total returns could be 9% per annum or so, which would be around 7% real if inflation is assumed to remain around 2% - not too bad and raise a glass to that.
Finally don't forget to open today's Compound Income Advent calendar window which follows on nicely from yesterdays for a possible beneficiary of the Chancellors Autumn Statement - nudge, nudge, wink, wink, not a recommendation just a suggestion as it is quite small, you'll probably hate it and you should of course do your own research.