Pub operator Greene King (GNK) enjoyed a boost from the heatwave and the World Cup, driving like-for-like sales 2.8% higher in the 18 weeks to 2 September.
Investors are impressed by the strong trading update, marking the shares 9% higher to 517.4p. It is somewhat surprising that these widely-known positive drivers had not already been priced in by the market, potentially a reflection of the prevailing negative sentiment towards the stock.
Greene King smashed market sales growth of 1.2%, unveiling growth for the last two and a half months of 3.2%.
Local pubs were in demand with like-for-like sales rising 5.5%.
Over England’s seven World Cup matches, thirsty fans enjoyed 3.7m pints of beer, while sales on the day of the semi-final soared 61%.
AJ Bell investment director Russ Mould argues the robust trading has been partially helped by its investment to improve value, service and quality.
‘Its real test is to prove that positive trading momentum can be sustained, otherwise we’ll be back to the old days of a limp share prices and investors preferring to park their money in premium-end operators,’ says Mould.
UNDERVALUED GEM
Liberum’s Anna Barnfather believes Greene King is undervalued and only needs 0.8% like-for-like sales growth to meet her forecasts.
However, Barnfather is cautious due to consumer pressures and uncertainty from Brexit.
Greene King trades on a forecast 8.1 times earnings per share in the year to 30 April 2019.
Canaccord Genuity's Nigel Parson has raised his recommendation from ‘hold’ to ‘buy’ as the pub operator is trading well below historic price to earnings valuations with a safe dividend.
‘It’s been a long haul integrating Spirit, but this is now in the past; the company is now focused on growing earnings and the results are starting to show,’ comments Parson.
