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Greene King - beer, fear and not dear

By Chris Bailey | Saturday 2 December 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.


I have not made any money on my Greene King (GNK) purchase of HERE a couple of months or so ago but I have not lost a fortune either and the super summary one-liner is that by the time next autumn rolls around, I think you have made good money on this one. I am relaxed because the interim results were not a shocker despite the 8% odd fall in operating profit and the use of the word 'challenging' in a semi-liberal fashion.

Unlike badboy Mitchells & Butler (MAB) there was no spanking of the dividend and other comments around market share, cost control, ongoing synergies from the Spirit Pubs integration and related were all worthy enough. Meanwhile the earnings multiple - depending on your favoured metric - is either side of double digit.

As I noted in the above link that wonderful combination of easy comps, World Cup football and just maybe more conducive weather potentially awaits over the next nine months or so. In the meantime the decent 5% dividend yield is in a round about way broadly covered by 'normalised free cash flow' projections and the same with the extra costs from labour inflation, higher business rates and the like being broadly countered by cost savings initiatives.

I know, I know, 'broadly' is the sort of slipshod word that rogue-ish companies slip into shabby trading updates. Well it is my use of the word but correctly your interpretation should be that Greene King is not the top widows and orphan stock you could own in the FTSE-350 but the old combination of yield, lowish valuation, sensible long-life brands and an underlying product which is inherently not a big and ugly lumpy spend like a house or a car has some value angles. And I am not mad about the balance sheet as a prudent sort of guy...but then pub businesses have freehold assets and in this case cash flow to maintain the 'strong and flexible' balance sheet as the company puts it.

As I have talked about (and executed) with stocks like Next (NXT) and Kingfisher (KGF), you have to adopt a bit of a trading mentality with these consumer/retail facing names in today's deeply mixed economic backdrop. If my thesis is correct and the share is deep into the 6s or early 7s, I doubt if I am hanging around but today I would still rate the stock a buy. Have a pint of Old Speckled Hen and have a think about it. Investment research is thirsty work, you know.

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