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Greene King’s empire expands

Greene King’s shareholders have backed plans to acquire Spirit Pub Company for £774 million. The company will reveal its third-quarter sales and revenue figures on Monday 19 January. 

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
A man working behind the bar
Source: Bloomberg

Greene King was in a battle with Dublin-based drinks company C&C Group for Spirit Pub, but the Irish company had its bid rejected in October, and in early January it formally walked away from the deal. News came through yesterday that 99% of shareholders in Greene King backed the acquisition of Spirit Pub Company; the high seal of approval bodes well for the company.

Spirit Pub’s 800 managed pubs and 430 tenanted and leased pubs will be added to Greene King's group, making it the largest operator of managed pubs in the UK. In total there are now over 3000 pubs under the Greene King banner, 1000 of which are in the South East of England.

The company’s southern portfolio has been outperforming its northern counterparts in terms of revenue, and the focus is kept on the Greater London area. The expansion of the Greene King empire will allow for synergies that could lead to cost savings and enhanced purchasing power.

The first-half figures were revealed in December. Revenue came in at a record high and pre-tax profits increased by 3%. Despite the robust revenue stream, the firm is still ‘cautious’ about the consumer climate.

The pub industry is making a concerted effort to capture more of the food market, and food sales account for over 40% of Greene King’s total sales. A more balanced revenue stream of customers drinking and dining will protect the company from changes made to the law in relation to pub tenants being tied to their landlord’s brewery.

The company will reveal its full-year figures in July, and traders are expecting revenue of £1.32 billion and adjusted net income of £135 million. These forecasts represent a 1.5% rise in revenue and adjusted net income. The British brewery's first-half figures were impressive, with revenue coming in at £614 million and adjusted net income at £65.3 million, where the market consensus was for figures of £613 million and £68 million respectively.

Equity analysts are bullish on Greene King, and out of the 14 recommendations, seven are buys, six are holds and one is a sell. The average target price is £8.23, which is 5.7% above the current price.

Investment banks are very bullish on its rival Mitchells & Butlers. From the 19 ratings, 15 are buys, and four are holds. The average target price is 462p, which is 12% above the current price.

The share price has been in a downward trend since last January and the stock is approaching oversold territory on a daily basis. This suggests a pullback, which would make £7 the target. The 200-hour moving average at £8.11 will provide resistance, but a confident move through it would indicate the downtrend is coming to an end.

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CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.