Peel Hunt ups Fuller's to 'buy' after beer business sale

Peel Hunt upgraded its recommendation on Fuller, Smith & Turner on Friday and lifted the price target to 1,250p from 1,150p after the company agreed to sell its entire 200-year old brewery business to Japan's Asahi for an enterprise value of £250m.

"For Fuller’s, the result is clear: this transformative deal provides the foundation for many years of strong growth, hence we are moving our recommendation from 'add' to 'buy'."

The broker said the price, which represents 23.6x EBITDA, is a good transaction. "It had to be; the company was not going to undertake it lightly."

Peel said it has adjusted its forecasts, expecting this transaction initially to dilute FY profits by circa 10% from May. However, after returning £55-69m to shareholders, it expects net debt/EBITDA to drop below 1x, a position from which the pub estate should be able to grow rapidly.

"As the company has a small amount of expensive debentures, lower debt could increase the cost of debt in the short term, but this is not a concern. The company is likely to become more acquisitive, but without compromising on its disciplined acquisition criteria," the broker said.

Fuller's said earlier that it would net about £205m in cash from the sale.

At 1435 GMT, the shares were up 15.5% to 1,050p.