Greene King - That's the Spirit

Greene King: These interims are for the 24 weeks to 19^th October 2014. Since then the company has launched its recommended bid for Spirit Pub Group, which is still on course for completion early next year. In these numbers, revenue is up 3.3%, although retail LFLs were only up 0.8%. PTP were down 3.5% to £82.6m and eps down 1.6% at 29.9p, due mainly to the dilutive effect of the £75.6m disposal of 275 unwanted pubs in the period. The group states that, adjusting for the disposal, eps would have been up 5.3%. This is all part of the drive to reduce the tenanted and leased estate further, from the current 864 to around 750 pubs. The strategic shift is to managed pubs leading on food. In the face of the proposed changes to the law on the beer tie, this is sensible. Much has already been achieved with, at the moment, 76% of group revenue from retail, of which 43% is food. Reflecting the underlying eps growth, the well-covered interim dividend was put up 4.6% to 7.95p. The group adds that after 30 weeks, retail sales were up 0.8%, but the 12 week number was +1.5% and Christmas bookings were up 7.2%, with the South trading better than the North.

Analyst forecasts at present are ex-Spirit and so of reduced use, but at 755p, 63p of FY 2015 eps would mean that the shares are on a PE of about 12x with a yield, on say a 29.5p dividend, of 3.9%. If the Spirit deal goes through, Greene King expects to achieve at least £30m of cost savings and efficiencies (for scale: last year profits were £102.3m). As Spirit is a mainly paper deal there could be a technical overhang post completion, but the soggy Greene King share price is already anticipating some of that selling. Chief Executive Rooney Anand has a good track record, so all the signs are that Spirit should be a good deal and Greene King shares look interesting at these levels. (Neil Cumming^, 5^th December 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower