Jason Butler of NW Brown: Why have Greene King’s shares been rising so strongly?

Jason Butler of NW Brown. Picture: NW Brown.

Jason Butler of NW Brown. Picture: NW Brown. - Credit: Archant

Greene King saw strong share performance at the end of last week after announcing its pre-close update.

The share price jumped over 10% on Thursday and, at the point of writing, has continued to rise since.

Recent snow and cold weather negatively impacted sales and contributed to an overall fall in sales when compared with last year.

Like-for-like sales were down 1.8% for the first 49 weeks of its financial year. Accommodation and drinks had positive like-for-like sales, indicating that the food-led pubs were the weakest part of Greene King's business.

The results were broadly in line with consensus, but shares rose strongly following the announcement. Sentiment has been low towards the stock and investors reacted positively to a lack of bad news.

Greene King continues to operate in a competitive industry, facing a number of challenges.

Food-led pubs in particular face significant competition, which is putting pressure on margins, and issues with Greene King's Fayre and Square brand have further impacted profits.

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Looking forward, consumer spending remains an on-going question and real wage growth remains flat. However, the shares look cheap on a valuation basis and pay a dividend yield of approximately 5.8%.

Greene King would also point out that the dividend has increased for the last 64 years – an impressive record.

The recent share price movement may be a sign sentiment is changing and goes to show that, for an out-of-favour stock, no bad news can sometimes be good news.

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