It may seem rather unusual to state that pub companies could present buying opportunities just when England exit the World Cup. Indeed, it has been estimated that pub takings will be significantly lower in the short run, with as many as 43% less people watching England’s final group game this week for example.
However, while takings may be lower than expected in the short run, shares in these three pub companies could be strong long-term performers and, in addition, could now be more attractively priced as a result of short-term sales disappointment resulting from England’s exit from the World Cup.
J D Wetherspoon
Shares in J D Wetherspoon (LSE: JDW) were making strong progress in 2014, but over the last week that has been reversed as they have fallen by 9% — at least partly owing to England’s exit from the World Cup. This means that they are now more attractively priced and trade on a price to earnings (P/E) ratio of 16.2. This may not sound hugely impressive, but when you consider that J D Wetherspoon is forecast to increase earnings per share (EPS) by 16% next year, it means that shares in the company trade on a price to earnings growth (PEG) ratio of 1. This is the sweet-spot for the PEG ratio and shows that J D Wetherspoon could be a winning pub play.
As with J D Wetherspoon, shares in Greene King (LSE: GNK) have fallen over the last couple of weeks. Indeed, now that they are 4.5% lower they trade on a P/E of just 13. This is below the FTSE 100 P/E of 14.1 and shows that there is good value in the pub sector — even more so now that shares have pulled back following England’s early exit. In addition, Greene King is expected to deliver a healthy level of bottom-line growth, with EPS expected to increase by 4% in its current year and by 11% next year. Although lower than that of sector peer, J D Wetherspoon, the lower P/E ratio still makes Greene King attractive at current levels.
Trading on a P/E of just 11.7, Marston’s (LSE: MARS) looks good value at current levels. Although it is forecast to deliver a fall in EPS of 3% this year, it is set to bounce back next year with growth of 11% — in-line with its two previously mentioned sector peers. As with those peers, shares in Marston’s have experienced short term weakness as the market expects fewer sales during the World Cup than had previously been priced in. However, for medium to long-term investors, Marston’s could prove to be a strong performer, while its yield of 4.8% easily beats its two peers, which yield 1.7% (J D Wetherspoon) and 3.7% (Greene King).
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Peter does not own any of the above shares.