Greg Johnson, equity analyst, said: “Fullers have delivered, what is becoming a typically strong trading performance in the first six months of the financial year, with PBT increasing by £5.7m to £28.2m, driven by LFL growth of 6.1%, and EPS ahead by 33%. With the H1 outturn above full year assumptions, current trading remaining solid and the benefits from the recently announced small portfolio acquisition and today’s new 1m share buyback announcement yet to be factored in, we anticipate being able to nudge our current year estimates up by c£2-3m, with the real benefit from corporate activity to be felt in FY28, FY29F and beyond.
Like other stocks across the UK hospitality and wider UK domestic consumer Fuller’s stock has performed strongly of late, trading on an FY28F PER of c.14x, an EV/EBITDA of c7.5x and a free cash flow yield of 6% (before any changes to estimates). The first half performance goes a long way in justifying the recent rally in the share price and we continue to believe that there is a lot more to come. We have set out previously how a combination of sustained LFL growth, further margin opportunity and increasing capital deployment could drive EPS comfortably above what is currently factored into medium-term market estimates, supported by an asset base, which continues to grow in value. BUY.”
- Total revenue in the six months to the end of September increased by 6.4% to £220.9m, driven primarily by exceptionally strong LFL sales growth in the period of 6.1%. Following growth of 5.1% in the first 16 weeks of the financial year to 19 July, LFL sales over the final 10 weeks of the period increased by over 7%, continuing the strong momentum. Within the mix, drink LFL sales increased 6.4%, food by 4.6% and accommodation up 8.9%, with volume ahead across all categories.
- Operating profit increased by £5.3m to £33.6m, reflecting the strong revenue growth and a further c.160bps improvement in the operating margin. The increase in first half profitability compares with our full year assumption for growth of c.£3m, which was predicated on LFL sales growth of c.3.5% and a further 20bps improvement in operating margins. The favourable weather in the period is estimated to have contributed c.£2-3m of the first half profit performance.
- After interest of £5.4m (down £0.4m YoY), adjusted Group PBT increased by 25% to £28.2m, with EPS ahead 33%, supported by the ongoing share buyback programme in recent period.
- Net debt increased by £2m to £140m at the year end of the period. During the period, Fullers announced the acquisition of 12 new pubs, along with several freehold purchases, and today an additional 1m share buyback programme. Year-end net debt is now expected to be c£190-195m, which underlying is consistent with our current trends and would equate to a pro-forma ND/EBITDA of just over 2x, leaving further headroom under its current, successful, capital allocation framework.
The strong momentum reported in H1 has continued into the second half, with YTD LFL revenues 5.8% in the 32 weeks to 7 November, with Christmas bookings up 16% (albeit early days), implying c.4% at the beginning of the second half, which would be towards the top-end of our 3-4% medium-term assumptions. Furthermore, on the cost front, the Group is fully hedged on energy for the current year and 83% hedged for FY28F.
