City Pub swings to profit amid expansion

City Pub said on Tuesday that it swung back to profit in 2018 as revenue grew amid the pub group's expansion.

In the year to 30 December 2018, the company made a pre-tax profit of £2.6m versus a loss of £0.2m the year before, with revenue up 22% at £45.7m. Like-for-like sales growth was 1.6% and adjusted earnings before interest, tax, depreciation and amortisation were up 28% to £7.9m.

City Pub, which bumped its dividend up 22% to 2.75p a share, opened 11 new pubs in 2018 and said it's on track for an estate of between 65 and 70 pubs by mid-2021, having already earmarked six new pub openings for this year. In addition, it developed and expanded clusters of sites in London, Cardiff, Brighton and Cambridge.

The group said total sales in the first 14 weeks of 2019 were up 36% on the previous year.

Executive chairman Clive Watson said: "Our strategic expansion has continued at pace with the opening of eleven new pubs in 2018 bringing the total to 44. Our performance has been driven by both organic growth and the new pubs coming on stream. Considering the continued strong performance we are delighted to increase our dividend, by 22% for shareholders.

"We believe the combination of further acquisitions, fine tuning the management of our existing estate and the benefits of our new divisional structure will enhance our performance further.

"We are positioned to meet the number of well-trailed headwinds, not least the challenges brought through Brexit, and to take advantage of the softening market for acquisitions with our robust balance sheet and strong cash generation."

At 1020 BST, the shares were up 4.1% at 231.60p.

Liberum said the company enjoyed a "strong" inaugural year. The broker, which rates the stock at 'buy' and lifted its price target to 280p from 265p, upgraded its FY19E/FY20E adjusted EBITDA forecasts by 6.1%/13% to £10.4m/£12m, but reduced its adjusted EPS forecasts by 6.2%/5.9% to 8.6p/9.5p as growth is offset by higher depreciation from acquired leases and the inclusion of options in the share count.

"The valuation is undemanding considering the growth, strength of balance sheet and pipeline development," it said.

Meanwhile, Berenberg lifted its price target on the buy-rated stock to 270p from 260p following the company's "strong" results. It said that with leverage still at only 1.1x net debt to EBITDA and a number of large assets due to open in 2019, the group continues to have significant firepower for further expansion.