Pubcos' ratings upgraded by HSBC

Despite tough conditions, the bank said the outlook for 'four big pubcos' is "not disastrous".

Pubs have been a poor investment over the past three years, with the exception of JW Wetherspoon, an equity report from the bank HSBC states.

Rising costs and slowing sales growth have cut earnings by circa 10-20% since January 2016.

Mixed performance this year has “not been helped by wet weather at the start of the year and very hot weather subsequently,” analysts said.

JD Wetherspoon and Mitchells & Butlers have shown consistent growth while Greene King and Marston's have been in decline, so far this year.

Positive predictions

However, when adjustments are made for the impact of the weather, the bank said “momentum looks better”.

“The operators should be able to meet these targets into their next financial year, or indeed surpass them,” it continued.

JD Wetherspoon has shown a “strong track record of execution and should be able to raise prices further to offset trading weakness”. The pubco retained its 'buy' rating from HSBC.

“Ultimately, we see a group that runs a well-invested estate that we expect to continue to grow operating profits,” HSBC concluded.

Sales growth for Mitchells & Butlers was described as looking “robust”, being helped by an investment programme.

“In common with Marston’s and Greene King, its food sales have been subdued by good summer weather and the football World Cup, while drink sales will have benefited,” the bank said.

Ratings boost

The pubco’s rating was upgraded to 'buy' from 'hold'.

The bank upgraded Greene King’s rating to 'hold' from 'reduce' despite still seeing risks on costs for Greene King because “easy comps means sales growth targets look achievable”.

The pubco’s yearly results recorded an increase of like for like sales of 2.2% for the first eight weeks of the new financial year influenced by warm weather.

Pub disposals benefited the pubco last year, with the company set to open just 10 or so new sites this year.

Marston's rating was maintained at 'hold', with the bank citing cheap shares and reasonable trading, although shares could be held back by cash generation and high debts.

A better drink-led performance has helped the pubco offset the weakness of tough trading.