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Who knocked over my pint? Greene King has a late summer shocker

By Chris Bailey | Friday 8 September 2017

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Has the weather been bad since the second half of July with you? It seems to have been alright in the locality of Bailey Towers but as I spend my time inside slaving over copy for ShareProphets among other akin matters, rather than sitting in a pub garden, I cannot really tell you if Greene King (GNK) is talking reality or not with its expectations-chopping update today observing: 'since the second half of July, when the weather worsened, trading weakened'.

Experience tells me that blaming the weather is always a bit shabby and some of the other statistics the company provided in its trading update for the first 18 weeks of its financial year throw a bit more light on the current situation for pub companies. Like-for-like sales down 1.2% versus a sector that was itself down 0.7% suggests both a loss of market / sector revenue share and an environment where the average pub goer is not putting their hand in their pocket so readily. I appreciate comparisons with last year's oh-so-glorious English Welsh football team's run at Euro 2016 caused some tough comps but I don't think this fully washes.

Probe a bit further and apparently 'most of the LFL (like-for-like) decline can be attributed to value food'. Maybe it was all those pies the average football supporter eats? Or maybe it is just a tough old environment out there with stretched consumers who would rather watch the game - or sink a drink or three - in the living room at home.

However any share of a company which does make money, throws out a decent yield which it can cover and a bit more with free cash flows, has a well-known brand (been around since 1799!) and a sensible balance sheet interests me - especially if today's share price shocker has pushed the stock down to levels last seen in mid-2012.

Greene King also is continuing to deliver cost savings from integrating the Spirit pubs it recently bought and such self-help (£45 million of cost savings this year) will help 'to reduce the impact of weaker than anticipated sales'. That's not bad darts for a business which pushed out around £350 million of true operating profit last year even if all of these savings will not fall to the bottom line.

In short, I don't like the calling out of the weather but every cloud has a silver lining. Greene King's share price decline has made it far more interesting to me. Between here and next year's football World Cup I see upside. Now all I need to do is find the time to visit one of its establishments...

Chris Bailey is the editor of Financial Orbit

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