11th Nov 2022 19:49
(Alliance News) - Young & Co's Brewery PLC's interim results on Friday were heralded as "solid" and a "steady performance" by investment bank Liberum, which reiterated its 'buy' recommendation.
In the six months to September 26, the Wandsworth, south London-based pub chain said revenue rose 25% to GBP186.5 million from GBP149.6 million. Young & Co notes that revenue on a like-for-like basis is also 6.2% ahead of the pre-pandemic comparative in 2019.
Liberum noted this was due "in equal parts to price increases, volume growth and premiumisation". The 6.2% like-for-like growth also outperformed the wider sector, which saw like-for-like growth of 1.3%, according to the CGA Coffer Peach Tracker for pubs.
Liberum was particularly impressed that sales in Central London and City areas returned to pre-pandemic levels, even though there were several rail strikes and extra bank holidays. The areas make up around 14% of pubs in 2021.
"To put this in context, [CGA Coffer Peach Tracker for pubs] shows like-for-like sales vs 2019 in Jan -Aug 2022 inside the M25 of -0.5%. This makes Young's performance all the more impressive, with 78% of its pubs within the M25.
The firm reported a slight dip in profit for the six months that ended on September 26 as the business returns to normality.
Total profit - which includes trading from the 56 sites which are part of the Ram Pub Co segment sold in August 2021 - fell to GBP19.1 million from GBP20.0 million the year prior. However, the firm's pretax profit from its continuing operations climbed to GBP23.9 million from GBP22.2 million.
Young & Co declared an interim dividend of 10.26 pence, 20% higher than its last interim dividend.
Another attractive proposition in a high-inflation environment is Young & Co's measures to mitigate such pressures.
"Although utility costs ate into operating margin in [the first half of financial 2023 from a year before], GBP1.9 million on a like-for-like basis, the potential impact of further cost increase is limited by energy hedged to the end of March 2024," Liberum noted.
Further, the firm has drink costs contracted until March of 2024 as well, with drinks accounting for 66% of sales.
Food inflation for the firm is around 8%, compared to 15% for the wider industry.
"This is due to the fact that more than 90% of produce is sourced in the UK, and quite often locally sourced by pubs with a more adaptable menu. Wage costs have broadly increased in line with inflation," Liberum noted.
The broker now forecasts and earnings before interest and tax margin for the full year of 15.2%, which would be down from 16.4% in the prior year, and below pre-Covid levels of 16% to 17%.
Liberum is slightly trimming its profit before tax forecast, on account of the rail disruption, which will probably persist into the second half.
It now expects adjusted profit before tax of GBP46.0 million, compared to GBP41.8 million in financial 2022. It had previously expected GBP46.9 million.
Liberum also cut the target price of the stock to 1550 pence from 1590p to reflect higher debt in full year. It holds Young's at 'buy'.
Young & Co closed up 4.3% to 1,118.00p in London on Friday.
By Elizabeth Winter; [email protected]
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