Canaccord Genuity bumps up Greene King target price

Accounting adjustments and increased synergies will boost Greene King’s profits in the medium-term, but not the company’s cash-flows, Canaccord Genuity said.

That followed the company’s announcement that it would take a £325.6m provision to replace its “onerous” £50m lease provision for the +100 pubs which resulted from the March 2004 sale and leaseback from Texas Pacific.

Analyst Nigel Parson said that would flatter the company’s profit&loss statement by £9.6m in fiscal year 2016.

The company now also anticipated a £5m hike to synergy benefits.

That led Parson to revise his forecasts for adjusted earnings per share in fiscal years 2016 and 2017 higher by 7.6% an 4.9%, respectively, to reach 69.0p and 75.7p.

He also bumped up his estimate for 2018 adjusted EPS by 3.2% to 80.0p.

However, the lion’s share of the boost to earnings was solely the result of accounting fair value adjustments with no changes to cash-flow, the analyst emphasised.

Nonetheless, “Greene King's fast-start is encouraging enough for us to push ahead our target price to 1100p from 1050p, implying 14% potential upside”, Parson wrote.

He left his ‘buy’ recommendation on the shares unchanged but increased his target price to 1,110p from 1,050p.