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Broker snap: Greene King tops forecasts
Thu, 02 Sep, 2010
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Broker snap: Greene King tops forecasts
Thu, 2 Jul 2009, 13:30:00
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Related Market Prices
Name
Value
Percent
Change
Greene King
425.00p
+3.08%
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Regional brewer and pub chain owner <b>Greene King</b> may have upset elements of the real ale crowd through its policy of buying up rivals and closing their breweries, but the investment analyst community seems to be raising a glass to the company's strategy. KBC Peel Hunt has upgraded the stock from "hold" to "buy", with a price target of 470p, after the group's final results came in ahead of expectations. "We believe Greene King is good value at 8.7x prospective EBITDA [earnings before interest, tax, depreciation and amortisation]. This is a quality company, strategically focused and now with firepower to take advantage of developing opportunities," said KBC analyst Paul Hickman, who expects to upgrade his earnings forecasts for the current year by around 3% to give profit before tax of £124m and earnings per share (EPS) of 43.2p. "Our forecast assumes an 8x acquisition multiple for pubs and buyback of bonds at an average discount of 33%, repurchased over a two-year period. The money spent so far has confirmed that these are reasonable assumptions, although clearly there is an element of uncertainty," Hickman explained. Charles Stanley is also a buyer, and has rebased its price target to 525.3p to reflect the company's 3 for 5 rights issue of shares at 270p. "The £207.5m planned proceeds being raised from the rights issue will provide the group with the 'fire-power' to make selective pub acquisitions and to facilitate a sensible debt repurchase programme. That said, the group continues to report encouraging trading indications from the managed houses, but the emphasis of now is on improving life amongst the poor quality tenancies," the broker said.
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