A right Royal Variety Performance
Until relatively recently, pub companies were seen as safe, reliable and ever-so-slightly dull investments.
Aside from steady, cash-generative trading, not a lot happened in the sector, and what corporate activity there was was pretty much small beer. But a series of key M&A deals together with the boom in property prices and the 'eating out revolution' have all helped take the sector by the scruff of the neck, particularly as new players came into the market.
The current market bears witness to a changing landscape and shifting strategies. Companies with hitherto similar profiles have begun forging different paths. Both Enterprise Inns and Punch Taverns historically built their sales and profit growth around acquiring leased and tenanted portfolios. The pair have now diverged on the matter of returning value to shareholders. Punch has re-embraced managed pubs and remains acquisitive, while Enterprise seeks to enhance investors' pockets through share buybacks as well as organic trading.
Wolverhampton & Dudley Breweries (W&DB) and Greene King were long seen as similar businesses; brewing, plus tenanted and managed pub estates. In recent months W&DB has missed out on deals, while Greene King has garnered itself a reputation for successfully acquiring estates, even when not tabling the highest bid. This has had an impact on the respective groups' share performance.
Meanwhile, the all-managed sector has experienced a trading and share price rollercoaster in recent years. Observers once deemed JD Wetherspoon (JDW) pubs fit only for flat-cap wearing, discount-seeking punters, whom a smoking ban would send packing. This holds less true today, with the group trading impressively. Mitchells & Butlers (M&B) has meanwhile sharpened up its act, albeit from a different base point, and is now a highly rated stock.
All of which begs the question; if one had invested in these groups some three years ago, whose star would now be shining brightest?
The graph (see right) which charts share price growth and reinvested dividends, gives some indication. The graph lines do not include the direct consequence of share buybacks, although the bolstering effect that this practice has on a stock does not go unnoticed.
Punch Taverns, supported by its integration of the Spirit Group portfolio and the subsequently profitable churn of those surplus-to-requirements sites, leads the pack, while a revitalised M&B has also seen impressive gains in recent months. Investors in both these groups have seen their original stake treble in the past three years.
Enterprise Inns has ticked over nicely, and Greene King's rate of return has climbed more steeply than that of its Midlands rival, W&DB, whose performance has been steady, if not sparkling in recent months.
The recent rise of JDW marks it out as the best relative performer in recent times, with a rough period two years ago being more than compensated for by sentiment surrounding the stock since the beginning of this year.
