Darlings of the stock market?
As we approach the end of another year (where did 2006 go to!!!) and with the reporting season virtually complete, it is worth considering how well the big pub stocks have fared in 2006, how their relationship is with the city institutions, and what their prospects look like for 2007.
On the face of it even the most sceptical observer would have to answer very well, strong and good. At the time of writing the FTSE 100 is up around 10 per cent over the past 12 months, up 36.5 per cent over the last three years and up 15.7 per cent over the last five years.
With interest rates still relatively low historically at 5 per cent, and even after factoring in another quarter of one per cent rise in early 2007 which most economists are predicting, the cost of borrowing remains cheap.
The other factor worth considering here is the constant increase in house prices. They remained strong in November, rising by a further 1.4% and although the buy to let market has cooled following the recent interest rate hikes, the outlook is far from bleak.
Pub property prices remain at an all time high and there doesn't appear to be much of a slowdown on the horizon.
But back to the stock market, where the pub stocks have had a great year. On a 52 week high-low spread some of the numbers are startling. The current share price is also shown as a comparison.
To my mind, this performance - and their 2006 results - have not only demonstrated what a strong, resolute sector we are privileged to work in, but also how adaptable the industry can be to the challenges and changes thrust upon it.
The performances of these six groups reflect the quality of the management teams behind them and an attention to customer service that would hold them in good stead against any operator in any sector of the British economy.
Two interesting trends appear to be emerging from the results - an increasing switch towards food led pubs and strong like for like sales growth across most estates.
The other interesting issue is how quickly and how well these operators integrate acquisitions. Punch with Spirit, M&B with Whitbread, Greene King with Hardys & Hansons and W&DB with Celtic Inns are all great examples of how to successfully integrate a business and drive out synergies whilst at the same time maintaining a high quality service across the enlarged estate.
So what will Santa Claus bring us in 2007. The City is probably bracing itself for the 1 July 2007 smoking ban and will no doubt be intrigued with the Scottish ban once we have seen trading figures after this winter. We will also get an early indication of Wales' performance before the ban hits England.
Corporately, expect to see more M&A activity and more discussions around Real Estate Investment Trusts - a topic I hope to cover in the New Year.
As we head into 2007 clinging (barely) onto the Ashes, with a Spring Cricket World Cup and, dare I say it, a Rugby World Cup in the Autumn, I feel that the industry is in good cheer and has every right to look forward to a successful 2007.
Geoff Newton is Relationship Director UK Licensed Trade, Barclays Bank
