Valuation of Green King Plc

Valuation of Green King Plc

  • Submitted By: beelanpeck
  • Date Submitted: 03/05/2009 5:42 PM
  • Category: Business
  • Words: 3017
  • Page: 13
  • Views: 477

Executive summary

Greene King Plc (“GNK”) is one of the biggest pub companies in the United Kingdom (“UK”), owning over 2,500 managed and tenanted pubs . It has been expanding through acquisitions of smaller pub and brewery companies and this strategy has led it to a trend of growing revenue and profits.

Financial ratios show that the company has growth potential and its debt level is kept at an acceptable level through the usage of securitised debts. GNK also has in better financial health compared to its industry peers.

Adoption of securitised debts for long-term financing has allowed the company more flexibility in funds management such as issuing cash dividends and providing financial support to its tenanted pubs in the current economic downturn .

The value of GNK’s share works out to be £6.04, approximately 70% higher than the current market price. However, it is not recommended for investors who intend to make capital gains within the next two years and it is likely that one can find a better investment in the current weak market.

I would advise buying GNK if I have to choose among the pub stocks and if the investment is on a long-term basis. Otherwise, I believe there are better-priced stocks that allow higher returns for investments.

Analysis of GNK’s financial information

Over the past five years, GNK has been growing through acquisitions. During 2005, in one of its biggest acquisitions, it took over Laurel’s 432 pubs in a £654m deal . Other notable acquisitions are Belhaven’s pubs and brewing business for £187m in 2005 and Hardys & Hansons’ 268 pubs for £271m in 2006.
The company stands out from its competitors in terms of profitability.

Punch Taverns (“PTP”) GNK JD Wetherspoon (“JDW”) Enterprise Inns (“EIP”) Mitchell & Butler (“MBP”)
FY ended Aug 08 6 months ended Oct08 FY ended May08 FY ended Jul 08 FY ended Sep 08 FY ended Sep 08
Return on Shareholders Funds (%) -4.1% 17.7% 16.6% 19.9%...

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