Investment View: A recent round of updates suggests pubs are revivng

Pubs have banked on Brits eating at the local instead of a restaurant and this has happened

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.

Life and Style
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
Arts and Entertainment
Up my street: The residents of the elegant Moray Place in Edinburgh's Georgian New Town
tvBBC's The Secret History of Our Streets reveals a fascinating window into Britain's past
Albus Dumbledore, the headmaster of Hogwarts School of Witchcraft and Wizardry has been the teaching profession's favourite teacher
ebookA unique anthology of reporting and analysis of a crucial period of history
Luis Suarez looks towards the crowd during the 2-1 victory over England
Life and Style
Cheesecake frozen yoghurt by Constance and Mathilde Lorenzi
food + drinkThink outside the cool box for this summer’s frozen treats
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Sir Bradley Wiggins removes his silver medal after the podium ceremony for the men’s 4,000m team pursuit in Glasgow yesterday
Commonwealth games Disappointment for Sir Bradley in team pursuit final as England are forced to settle for silver
Alistair Brownlee (right) celebrates with his gold medal after winning the men’s triathlon alongside brother Jonny (left), who got silver
England's Jodie Stimpson won the women’s triathlon in the morning
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Junior Research Analyst - Recruitment Resourcer

£18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...

Senior Analyst - Financial Modelling

competitive: Progressive Recruitment: This really is a fantastic chance to joi...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Business Anaylst

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform