Greene King’s (GNK) acquisition of rival pub and restaurant group Spirit is starting to reap rewards, with a 46.9% rise in first half pre-tax profit to £121.3 million sending the shares 6.9% higher to 910p.
Greene King, which acquired Flaming Grill owner Spirit in July, has boosted its earnings per share (EPS) by 15.4% to 34.5p, 11% higher than consensus expectations.
It’s a huge turnaround for the £2.6 billion cap after a lacklustre FY2015 in which its pre-tax profit fell by 3% to £168.5 million and like-for-like sales in its managed pubs rose by just 0.4%.
Like-for-like sales growth in the six months to 18 October has improved to 2%, ahead of the sector average of 1.5%, while Spirit’s sales are 1.2% higher.
Greene King’s core business is up on an underlying basis, with pre-tax profit excluding Spirit 5.9% higher compared with 3% growth last year.
The pub and brewer has raised its cost synergy guidance for the Spirit acquisition by £5 million to £35 million and has identified 300 to 400 units which it wants to re-position in the next three years. Its key focus will be on the Hungry Horse, Flaming Grill, Farmhouse Inns, Chef & Brewer and Metropolitan brands.
‘This portfolio of growth brands and formats will cover a wide range of consumer occasions. Hungry Horse and Flaming Grill will cater for different customer occasions within the value segment, Farmhouse Inns is our carvery offer spanning both value and mainstream occasions, Chef & Brewer will be our drive mainstream brand, while we will use Metropolitan to grow our presence in the premium end of the sector,’ says chief executive Rooney Anand.
Greene King has lifted its dividend per share by 6.3% to 8.45p.
N+1 Singer says there is scope to lift its full year EPS guidance by between 3% and 5%. ‘Our three year EPS compound annual growth rate is currently 8% but we see scope for this to rise to 10% post today’s results,’ it says.
The analyst has increased its recommendation from ‘hold’ to ‘buy’.
The stock has risen by 11.4% since we added it as a Shares Play of the Week on 18 June.