It is sad to see the venerable pub trade in so much difficulty. Its troubles have been brewing for years, but the post-Brexit slowdown in consumer spending has intensified them.
King’s crown slips
Greene King (LSE: GNK) has had a particularly tough time of it with the share price down 20% over the past year and up a meagre 10% over five years. That is small beer for loyal investors. It all came to a head on Friday, when it plunged around 14% after publication of its trading statement for the 18 weeks to 3 September
The group, founded in 1799, reported a drop in like-for-like sales of 1.2%, against a market decline of 0.7%. Management said sales were in line with expectations for the first 10 weeks despite tough comparisons from Euro 2016 but then, like the British summer, it all went haywire. Trading weakened as wet weather from the middle of July washed away its customers.
Greene around the gills
Management is cautious about the trading environment as it battles against weaker consumer confidence, increased costs and rising competition, all of which it expects to persist over the near term. It is relying on £45m of cost savings, a robust balance sheet and strong cash generation to maintain growth rates and deliver sustainable dividends to shareholders.
The good news is that Greene King currently yields a forecast 5.1%, covered 1.7 times by free cash flow. However, this excludes expansionary capital expenditure, which is discretionary, so there is some vulnerability there. Given recent performance, you will not be surprised to discover its valuation is a lowly 9.4 times earnings. Earnings per share (EPS) growth forecasts disappoint. Right now, it isn’t easy being Greene King.
Whatever the Wether
While Greene King looks flat, rival pub chain JD Wetherspoon (LSE: JDW) is frothy. Its share price is up 18% over the past year, and 125% over five years. So much for the decline of the pub trade and challenging market conditions.
However, the Wetherspoons share price has also taken a hit today, falling around 4% in a knock-on effect from Greene King’s gloomy update. Mitchells & Butler, Fullers and Marston’s also lost their fizz. Yet JD Wetherspoon can hold its own, judging by its most recent trading statement.
Thirsty work
This showed like-for-like sales up 5.3% in the 11 weeks to 9 July and total sales up 3.6%. However, reading through from Greene King, drinkers became a lot less thirsty from around that time, as the weather deteriorated. Investors clearly fear that Wetherspoons will report a similar fate when it publishes its latest trading announcement next Friday.
Despite today’s dip it still trades at a highish forecast valuation of 17 times earnings. Earnings per share are expected to grow an impressive 29% in 2017, but stagnate in 2018. What this stock really lacks is a juicy dividend, with the yield currently just 1.1%. Nor can you expect much progression, the payout has been held at 12p a share for the past five years.
Greene King is slipping, but cheap. Wetherspoons is growing, but expensive. While tempted by that Greene King dividend I would raise my glass to the ‘Spoons.