Greene King PLC

Greene King Plc (GNK) is a Bury St Edmunds, the United Kingdom-based and leading pub brewer and retailer company. The group owns and operate 2,900 pubs, hotels and restaurants all across the UK.  The company is known for its rich heritage of over 200 years in providing hospitality services. The company has divided its operations into three reportable segments being Pub Company, Brewing & Brands and Pub Partners.

Financial Highlights (FY2019, £ million)

(Source: Preliminary Results, Company Website)

The company’s total reported revenue increased by 1.8 per cent to £2,216.9 million as compared with the financial year 2018 of £2,176.7 million, due to an increase in pub company and brewing & brands segments. Group’s EBITDA reduced by 0.9 per cent to £482 million against the £486.6 million in FY18. Statutory profit before tax declined by 12.5 per cent to £172.8 million as compared with the previous year data, while adjusted profit before tax rose to £246.9 million. Basic earnings per share stood at 38.9 pence, a decrease of 34.2 per cent against the 59.1 pence in FY18. Adjusted basic EPS stood at 64.5 pence. Dividend per share was 33.2 pence and remained flat against the previous year data. The group continued to be highly cash generative with a free cash flow of £86.1 million, after funding core capital expenditure of £119.1 million and dividend payments of £102.9 million.

Share Price Performance

Daily Chart as at July-11-19, before the market closed (Source: Thomson Reuters)

On 11th July 2019, at the time of writing (before the market close, GMT 2:52 PM), GNK shares were trading at GBX 617.6 and increased by 0.39 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 705.85/GBX 466.68. The company’s stock beta was 0.80, reflecting lower volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
The company had shown an increase in top-line performance, but the bottom-line performance had declined in the current financial year. Pub Company and Brewing & Brands segments of the company had contributed with a marginal increase in the revenue whereas the revenue from Pub Partners segment had declined for the current period.

Due to ongoing uncertainty over Brexit, the company will be affected by supply chain disruption, increase in costs related to the import and struggle in hiring required employees. There would be a surge in the tax rates and customs charges and, will further affect the acquisitions and disposals due to tight regulations in the property markets. The company’s operations can also be hampered due to poor or mismanagement of its resources and lack of proper execution strategy.

Based on the above risk factors, we have given a “WATCH” recommendation on the Greene King PLC stock at the closing price of GBX 615.20 (as on 10th July 2019), with support from few catalysts needs to be evaluated at a later stage.

Majestic Wine PLC

Majestic Wine PLC (WINE) is a United Kingdom-based holding company, which is engaged in the retailing of wines and is a leading wine specialist. The company's operations are differentiated in four separate divisions - Majestic Wine, Naked Wines, Majestic Commercial and Lay & Wheeler - with each targeting different customer segments. Majestic Wine is the UK's largest specialist wine retailer with more than 200 stores around the country. Naked Wines funds independent winemakers through crowdfunding and in exchange, customers get exclusive wines, at preferential prices, which are then passed on to the customers.

Financial Highlights (FY2019, £ million)

(Source: Annual Presentation, Company Website)

As Naked Wines continues to invest in consumer acquisition, the group revenue grew by 6.3 per cent to £506.1 million, while the company reported an increase of 5.8 per cent to £505.1 million on an underlying basis. Driven by lower Retail profitability year on year and lower Naked Wines adjusted EBIT, adjusted profit before tax of £11.3 million reflected a 34 per cent underlying reduction, while a statutory loss before tax of £8.5 million was reported, due to impairment to the Retail store estate. Basic Loss per share stood at 13.3 pence, reflecting a reduction in profitability. Driven by an increase in the weighted average number of shares in issue and decline in the adjusted profit after tax, adjusted earnings per share declined from 23.9 pence in FY18 to 14.7 pence in FY19.

The net debt surged by £7.1 million to £15.5 million as compared with the previous year data, driven by a surge in net working capital and a rise in capex mostly absorbing adjusted EBITDA, with dividend, tax and interest outflows totalling £7.9 million. The working capital increased by £10.6 million against the last year data.

Share Price Performance

Daily Chart as at July-11-19, before the market closed (Source: Thomson Reuters)

On 11th July 2019, at the time of writing (before the market close, GMT 1:34 PM), WINE shares were trading at GBX 254 and increased by 0.40 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 474.50/GBX 214. The company’s stock beta was 0.49, reflecting lower volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
In FY19, the fixed cost base over Naked and the central costs totalled were £23.6 million. The company expect these will show an underlying surge in the order of 10-15 per cent. The company sell plans to eliminate £1-1.5 million per annum of the central cost base, reflecting the desire to refocus the central team entirely onto the significant growth opportunity which the business represents.

To drive growth through increasing its digital capability and investing in customer relationships, the company began on a transformation plan to broaden its sales footprint outside of the UK. The group now has a tight focus on the significant Naked growth opportunity as the division has more than doubled in size since its acquisition, and has substantial growth potential driven, in particular, by the US business.

The near-term company prospects are highly dependent on the potential sale of the Majestic business. Majestic Wine PLC also expect similar levels of new to repeat sales retention and repeat customer sales conversion as prior years.

Based on the above factors and supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 253 (as on 10th July 2019) with single-digit upside potential based on 1.5x NTM Price/Book Value multiple (approx.) on FY20E book value per share (approx.).
 
*All forecasted figures have been taken from Thomson Reuters.
*The Speculative Buy recommendation is also valid for the current price as covered in the report (as on July-11-19).

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