With a disappointing latest trading update and with shares down, is now the time to buy?
Would you be green to invest in Greene King?
The latest update
Like for like sales were down 1.2 per cent year on year in the 18 weeks to September 3rd. This was worse than the sector average, which saw a 0.7 per cent decline. The first ten weeks of the period went pretty much on track – down, but as expected as the year before had seen Euro 2016 boost sales. Then things went wrong. The company blamed the British summer which, well frankly, to many feels more like an excuse.
Its boss, Rooney Anand said: “The types of things customers are saying is that it has cost them more to go on holiday and they had taken out more euros than they thought they would have to, and they are becoming more reluctant to put their spending on the credit card".
Shares fell sharply on the news, down from 664p on September 5th to 539p at the time of writing.
There is a wider issue with the sector relating to the fall in real wages, but this news hardly counts as surprising.
But is it a bargain?
But this company is not without its strengths. For one thing, it has been around since 1799, so it has got a certain amount of track record. Although, its first year was rather dampened by the news that George II had died. Given the 218-year history, you would have thought that the company would have got used to the idea that the British summer is not always that good, by now.
The company boasts of six decades of growth in dividends, which rose 3.6 per cent on last year. And indeed, the dividend payment seems to be the company’s most appealing virtue – at least as far as investors are concerned. Dividends are at 5.1 per cent, thanks to the fall in the share price. It is projected to rise to 5.9 and then 6.1 per cent next year and the year after.
The company appears to have a strong balance sheet, thanks to the fact that 84 per cent of it pubs are either freehold or on long leases. Assets are valued at £4 billion compared to £2.1 billion net debt.
And then there is the 2015 takeover of Sprint, this is expected to yield further costs savings, but also presents an opportunity as it rebrands many of the Sprint pubs inline with the more upmarket Greene King style.
It is one of those ironies, the only obvious growth area seen on the high street in recent years has been eating and drinking out – so that’s cafés, restaurants and coffee shops. It is the one thing that you cannot do online – although maybe with augmented and virtual reality you will be able to soon.
Yet the pub is not like it used to be, even though drinking with your mates is one of the things you can’t do online – maybe you don’t need to when can you talk to them via Facebook.
And if there is one type of drinking establishment that is in, it’s the cocktail bar or the type of place where you can buy pink gin.
Now I am sure you can buy pink gin down the nearest Greene King, but it is not really 2017, is it?
This problem is not unique to the company, of course, tastes change and many of us are choosing a night in, with a drink we bought from the supermarket which is of a higher quality than the one sold at the local pub and a lot cheaper.
And going out to the pub is so expensive these days – it has become a treat. Don’t get me wrong, I like a trip to my local, but once a week is about all I can afford.
I wonder if another issue is that we have become more discerning with our drinking, people no longer ask for white wine, they want the grape type and the country of origin. Maybe going to the pub used to be cheaper because we used to drink any old liquid even if tasted ever so slightly like it has been extracted from the wrong end of a cat.
2018 World Cup
How Greene King does in 2018 seems to depend on the likes of Dele Ali, Harry Kane, and Raheem Sterling. If Jack Wilshere can fulfil his promise of four years ago, then Greene King along with the pub sector in general, will have a good year.
I am talking, of course, about the World Cup – if England can have a good run, then takings at pubs will surge.
But if you really think that that investing in Green King is a good idea for that reason, then you might be better off nipping down to the local bookie and putting a tenner on England winning.
No, for this company it boils down to whether you think the recent share sell-off went too far and whether you find the allure of five per cent plus dividends hard to resist. Just bear in mind that the share price today is no higher than it was five years ago, is less than half of the 2007 peak, and you need to go back to 2003 to find a time when the share price was consistently lower than it is now.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.