Greene King and M&B the pick of analyst’s pubs
28 February, 2011
Pub groups Greene King and Mitchells & Butlers have emerged as the industry's most robust players in a major survey of the sector by Deutsche Bank.
Led by respected sector analyst Geof Collyer, Deutsche’s European leisure and consumer research team rated all of the UK’s major pub groups on various metrics. It returned Greene King as the clear leader on its analysis of investment and cash flow, and retained its ‘Buy’ recommendation on the company as a result.
“The group is performing the best off tough comps in each of the sector’s three business areas—managed retail, tenanted and leased pubs and brewing,” said the research report.
Deutsche upgraded its M&B rating from ‘Hold’ to ‘Buy’ after signs that its refocused, food-led strategy was paying off. “The group has been on a consistently improving operational curve since demerger,” it said, adding that M&B has been the only pub group to increase operating profits on a declining capital base.
Enterprise Inns meanwhile went the other way—from ‘Buy’ to ‘Hold’—though Deutsche said it was still optimistic about its long-term fortunes. “We remain convinced that the group will be able to prove that the PubCo model is cyclically challenged and can return to growth once it has navigated its way through the impact of cost inflation for licencees. Until that happens, however, the bears will continue to claim that the PubCos are over-renting and that the model is structurally flawed.”
Also downgraded—from ‘Hold’ to ‘Sell’—was Punch Taverns, as its future direction is uncertain until chief executive Ian Dyson publishes the results of his strategic review of the business. “Anyone buying into Punch now is going in blind given the bewildering array of options in the forthcoming strategic review.”
Completing Deutsche’s analysis of major players was its ‘Hold’ assessment of both Marston’s and Wetherspoon. “We want to see J D Wetherspoon end its run of seven like for like profit declines in nine years.”
To read Deutsche’s full analysis of the UK pubs sector, click here.