Greene King 'deeply' undervalued, say Peel Hunt and Liberum
Greene King
849.20p
17:15 30/10/19
Greene King shares are "deeply undervalued", broker Liberum believes, or "materially undervalued" as Peel Hunt has it.
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First-half results from the Bury St Edmunds pub operator and brewer showed group adjusted profit before tax up 0.2%, while the managed pub estate lifted like-for-like sales 2.7%, ahead of the market's 1.1%.
Peel Hunt said it was holding its full year forecasts even though the company is trading ahead of the numbers, as it "allows for a challenging macro backdrop" in the second half of the year.
The broker sees 688p per share net asset value as being supported by good trading and debt reduction, of which £63m is forecast this year.
With Greene King committed to paying a long term dividend, yielding 6.5%, Peel Hunt said: "We believe the shares are materially undervalued prior to considering upgrade potential. In our view, the biggest upside to our forecasts is managed LFL sales (for which we assume just 1.4%)."
Liberum said the first half performance was "testament to the investment in value, service and quality alongside the brand optimisation programme" and that while cost inflation was "fierce" there was heartening progress to limit the net impact.
With the shares trading at just over eight times full year EPS, Liberum analysts said: "We believe that the company’s strong cash generation can continue to cover schedules debt repayments, core capex and dividends with capital recycled from tail disposals to fund new builds."