Punt on pints with the King of pubcos

ARGUMENTS over beer are nothing new, but it was still interesting this week when brewers Greene King and Fuller’s started arguing about whose beer is the capital’s best-seller. Traditionally, Fuller’s London Pride has held the top spot, but its rival claimed this week that its Abbot Ale has overtaken it. It turns out that Pride is still number one – with 81,000 barrels a year drunk – while Abbot is the top premium ale.

The spat might seem meaningless, but it highlighted just how fierce is the competition in the brewing world at the moment. The pub industry is facing an extremely tough 2010. Consumer confidence is still relatively weak, which means that Britons are still watching their spending closely and choosing to drink at home to cut costs. Going to the pub is still seen as a relative luxury, especially compared to buying alcohol at the supermarket.

Brewers such as Fuller, Smith and Turner, Young & Co and Greene King managed to post decent pre-tax profits in the first half of the financial year of £14.1m, £11.46m and £62m respectively.

But all three noted trading conditions would be challenging with Fuller’s chairman Michael Turner saying that many of the factors that boosted the firm’s first-half profits – incremental earnings from acquisitions, record low interest rates, a pay freeze and better weather – may not repeat or even reverse next year.

Spread betters who fancy a punt on the brewers should note that of the three mentioned, analysts have picked Greene King as the best bet. Its long-term investment case remains strong. It has a strong balance sheet – reflected in its 5.1x net debt to core profits – the lowest of the large pub groups.

Hugh-Guy Lorriman at investment bank Seymour Pierce says: “We see Greene King as a quality play in the sector. With its financial and operational strengths as well as its long term diversified business model we see the company as a classic case where investors should look through the cycle.”

It looks like Fuller’s isn’t just facing competition from Greene King at the bar.