Shares in pubs group Fuller, Smith & Turner (FSTA) are up 18.3% to £10.75 on news the company has agreed to sell its beer business to Japan’s Asahi for £250m.

For some the sale of portfolio which includes the flagship beer London Pride, brewed since the 1950s at the Griffin Brewery in Chiswick, will feel like one of the UK’s brewery market’s crown jewels being sold off. But as clear-eyed business decision it seems sensible.

The company derives 87% of its profit from its pubs and hotels business and it is getting a pretty good price for this asset at 23.6-times earnings before interest, tax, depreciation and amortisation.

SHAREHOLDER RETURNS

Fuller’s intends to return between £55m and £69m of the proceeds directly to shareholders but will still have money left over to invest in its estate of pubs and hotels.

An agreement with Asahi means punters will likely notice little difference as they will still be able to buy pints of their favourite Fuller’s brews in its pubs.

AJ Bell investment director Russ Mould says the injection of cash into the business could be important. ‘This investment could help the company stand out in a competitive industry which faces multiple structural challenges.’

‘MADE IN BRITAIN’ TAG STILL VALUABLE

He adds that the deal is ‘a reminder of just how highly prized British beer assets are - with Asahi paying a very generous multiple of the asset’s earnings.

‘In this context, it is no surprise to see other pub operators with brewing operations, such as Greene King (GNK) and Marston’s (MARS), trade higher this morning.’

Greene King is up 1.95% to 596.8p, while Marston’s gains 3% to 97.4p.

On Marston’s specifically Shore Capital analyst Greg Johnson says: ‘Although the valuation (for the Fuller’s deal) will partly reflect the value of its London assets it demonstrates our long-held belief of the inherent value in UK beer and brands assets, a point we have stressed on Marston’s, the UK’s largest premium ale brewer.’

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Issue Date: 25 Jan 2019