Fri 18th Nov 2016 - Fuller’s places circa 10% of tenanted estate on market, slams business rates revaluation Fuller’s places circa 10% of tenanted estate on market, slams business rates revaluation: London brewer and retailer Fuller’s is to sell 18 of its 196 tenanted pubs as it places a greater emphasis on high quality fresh food within the division. Fuller’s chief executive Simon Emeny has told Propel that the company is to focus on applying managed division retail standards which will involve areas such as investing in kitchens. A total of 18 sites have been identified as unsuitable and these will be sold on an individual basis in the coming year. In the company’s results this morning, Emeny said: “Over the coming months, we will be looking to help our tenants to open, develop and promote pubs that deliver the distinctive experience customers expect when they see the Fuller’s name. We will achieve this by having the right pubs in the right locations, with engaged and entrepreneurial tenants and a joint investment programme that will include a focus on kitchens. As part of this plan, 18 sites which no longer fit our criteria have been earmarked for sale. We currently have a very wide range of tenanted inns – from high end food houses, to community locals. While we want to protect this diversity, we want to ensure our customers receive a great Fuller’s experience regardless of location or operating style. Our future plans will enable us to do that and create an estate that is good for Fuller’s, is in line with our values and vision, and is profitable for our tenants.” Meanwhile, Emeny criticised the current business rates revaluation which will see a 34% increase for the company over the course of the cycle – there will be a £2m increase in the coming year alone. He argued that the revaluation penalises companies that invest and create jobs. He cited the example of the Admiralty pub in Trafalger Square which Fuller’s bought out of administration, invested £3m and created 50 new jobs. Its business rates are now set to increase from £186,000 on acquisition to £372,000 over the course of the business rates cycle. Fuller’s has increased the size of its Stable pizza and cider brand estate by ten venues in little more than year. Emeny told Propel that sales at sites opened in London are building all the time, thank in part to some great reviews. The company will “draw breath and consolidate” before planning the next stage for the brand’s progress. Fuller’s will open The Half Moon in Herne Hill, ‘another iconic pub, in a prominent location opposite Herne Hill station’ in February 2017. It stated: “This is an area which is new territory for Fuller’s and the pub, which is on a lease from The Dulwich Estate, will provide 12 boutique hotel rooms, a large trading area and will further expand our geographic footprint to a new area of London. A Grade II star listed property, it will be a stunning addition to our portfolio when it opens in February next year following an extensive refurbishment.” Emeny said the company was seeing London changing quickly opening more opportunities to expand into new areas. Analyst Tim Barrett, of Numis, said: “Current trading is as expected, notwithstanding the comparator from the Rugby World Cup, which was a major boost in 2015. For the first 33 weeks like-for-like sales were +2.6%, implying that weeks 27-33 were broadly flat. We remain comfortable with our +2% assumption and our FY17 EPS forecast of 61p is unchanged. Valuation and recommendation Fuller’s trades on a CY17 P/E of 15.7x, EV/Ebitda of 10.6x and stable FCF yield of 6%. While this represents a premium to the wider pub peer group, we believe this is justified by the strong track record and asset backing of a well-invested, well-positioned estate. We also note the 18% discount to its closest peer Young’s on a P/E of 19.1x and we retain an ‘Add’ recommendation.”