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Fuller, Smith & Turner: better balance sheet puts pub group on firmer ground

British pubs have enough reasons to grumble into their pints. Fuller, Smith & Turner highlighted train strikes. The transport dispute slashed £4mn from sales at the pubs group focused in London and the south-east as travellers stayed put.

Profits for the year ending in March will now be lower. Yet a modest fall in Fuller’s shares on Monday reflects among other things a tidier balance sheet against an overleveraged group of peers.

Whether it’s pandemic lockdowns, changing drinking habits or national train strikes, pubs can moan about fewer customers. True, workers have returned to their offices, but fewer days a week. Pubs fear that a proportion of that trade has disappeared for good. The rational consequence is fewer pubs. Indeed a shake-out of the weakest operators has begun.

Sales at Fuller’s in the 43 weeks to the end of January were 20 per cent higher than the same period last year. Despite this and the fact that the price of a pint has risen by about a tenth since 2019, sales remain marginally lower than the rim level pre-pandemic.

It does not help that 15,000 pubs, restaurants and hotels have called time over three-plus years, according to consultants CGA. Asset disposals in the pub sector should be expected from the sector’s more leveraged operators.

Assuming Fuller’s takes the full £4mn sales hit from the train strikes at an ebitda level, it would push consensus down to £50mn for the year. That would leave net debts excluding leases of about 2.5 times ebitda.

However, its rivals have much more bloated balance sheets. The equivalent leverage at Marston’s and JD Wetherspoon will be 6.7 times and 4.6 times respectively, using the Visible Alpha consensus. That shows why Fuller’s shares, at 27 times March 2023 earnings, trade over half again higher than the sector.

Steeper costs as customer numbers slowly dwindle mean that, unless the economy suddenly picks up, pubs face their toughest year yet. For those anticipating the industry’s consolidation, best to stay with the financially leanest operators.

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