With a number of trading statements now in, it seems the nation's pub companies had a rather merry Christmas. Sales have done well, even in austerity Britain. Some of the better-run businesses in the sector have been suggesting they have an opportunity in the present economic climate.
Although they're suffering from the supermarkets' alcohol promotions – drinkers stay at home with a tinny rather than buy a pint at the pub – they've been banking on Britons trading down from posher restaurants and sitting down for a meal at the local instead. And this appears to be happening. It has translated into some good sales numbers across the sector among those which have reported so far.
But costs, particularly when it comes to utilities and the sector's real bugbear, tax, are on the rise, which investors have to bear in mind. This could be seen in the recent trading statement from JD Wetherspoon, and what you make of it depends on whether your glass is half full or half empty.
When I last looked at the sector in the middle of September the company was riding the crest of the Olympic and Paralympic waves, having won big from screening events from the summer's big sporting hits.But I was concerned this was a one-off and shares had enjoyed an undue uprating. So I said take profits at 476p. Oops. The shares are a shade ahead of that now. But – and it is a big but – the group's recent trading statement was a worry.
Sales were good, very good, 8 per cent higher over the 11 weeks to 13 January. That's from outlets open at least a year.
But there's a catch. Wetherspoon's makes much of its value proposition. It has been known to offer beer and a burger for just over a fiver. When you do that your margins are going to be thin, and they're going to suffer in the event of unexpected costs. The company has complained about the higher-than-expected hikes in what it pays for utilities, staff and supplies. Marketing costs also rose, and so did the tax bill. So margins have been squeezed, which will hit earnings.
I'm increasingly coming to the view that I may have been too bearish on this sector. There could be value to be had, because it does seem people are trading down from posher places in favour of a pie and a pint at the pub. And pubs are increasingly making good money from their food offerings.
That said, if I were to invest in Wetherspoon's – which trades on 12 times forecast earnings for the year ending 31 July while yielding only just above 2 per cent – I'd want a bit more value from the shares. The sort of value you'd get if the stock eased down to 450p.
I've less concern about Greene King, another firm that reported healthy sales. Total sales in Greene King Retail grew 9.5 per cent in the 36 weeks to 6 January, with sales in outlets open at least a year up 3.7 per cent. It's true this fell to 2.8 per cent in the final six weeks of the year, after an 8.8 per cent boom in the comparative period of 2011. But it's still a creditable performance.
The company reassured on beer sales and the performance of tenanted pubs too. The shares trade on 11.6 times earnings for the year ending 30 April, offering a respectable prospective yield of 4 per cent.
When I last looked at the sector I said Greene King would be the one to hold for people looking to invest in it. But, in the interests of full disclosure, I suggested it might be a good time to cash in with the shares at 592p. Now they're above 660p. If you stayed put, you'll be very happy. And having seen these results I'm beginning to think that there could be more to come. Debt is being paid down too, which is sensible. Keep holding Greene King. It's on a roll, offering customers food they can afford to eat out with decent beer (Old Speckled Hen and the rest).
Spirit emerged from Punch Pubs, the biggest casualty of the sector's mad addiction to debt financing. I've had a downer on the company for a long time but things do appear to be looking up. For the first 20 weeks of its financial year, sales at outlets open at least a year increased by 2.3 per cent, with food up 3.3 per cent, although drink scraped ahead by just 0.2 per cent.
The previous year saw a 7 per cent rise, so it was always going to be tough to match that, and Spirit did at least reassure it will meet expectations. It further said leased pubs should break even by the end of the year, with unprofitable outlets sold off.
Time to reassess? I admit to missing the best of this one. The shares have been picking up speed, but still aren't over-priced at 10 times forecast earnings for the year ending 31 July, while offering a prospective yield of 3 per cent. The business looks to be reviving. So, even after a good run, I make the shares (gulp) a speculative buy. I'll update on the rest of the sector after the next batch of trading reports have been released.