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.

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
PROMOTED VIDEO
Arts and Entertainment
The Apprentice finalists Mark Wright and Bianca Miller
tvBut who should win The Apprentice?
News
news
News
Elton John and David Furnish will marry on 21 December 2014
peopleSinger posts pictures of nuptials throughout the day
Sport
SPORT
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick