Fuller’s shares fly after strong first-half results

“Pubs-to-hotels group Fuller Smith & Turner’s first-half results reveal double-digit percentage growth in revenues from food, drink and accommodation, as well as healthy Christmas bookings,” says AJ Bell Investment Director Russ Mould.

“That all translates into better-than-expected profits for the six months to September, a higher dividend and a second share buyback scheme for the year. The share price is on the verge of setting a new twelve-month high as a result.

“And the shares still look cheap, even after the recent advance, especially as Fuller Smith & Turner’s £358 million market capitalisation compares to net assets on its balance sheet of £443 million as of the end of the first half.

“That means the shares are trading at a one-fifth discount to book value.

“Book value should also grow as profits recover. In addition, only £29 million of those net assets are intangibles and the firm has not revalued the bulk of its pub assets for over two decades, so that £443 million figure is likely to be conservative. The sale of the Mad Hatter pub in Southwark for £20 million, announced in spring, will complete next year and permit the firm to book a £17 million gain, to further reinforce how cheap the shares could be relative to the considerable asset backing on the balance sheet.

Source: Company accounts. Financial year to September.

“Patient investors might therefore view the stock as a value pick, especially as inflation is easing, a settlement for the damaging train strikes could be imminent and interest rates may – may – just be peaking.

“Any upturn in consumer confidence and spending power – and wage growth is now outstripping inflation – could benefit Fuller Smith & Turner’s well-tended estate of pubs and hotels, which lie in prime metropolitan and rural sites in the South East of the UK, notably London.

“An 11% year-on-year increase in Christmas bookings to date hints at better times ahead, and higher food and drink volumes could flow through just as quickly to the bottom line as a drop in customer numbers drained profits in 2020 and 2021, when the pandemic and lockdowns were doing their worst.

Source: Company accounts. Financial year to March.

“The collapse in profits in 2021 forced management to cancel dividend payments just two years after a bumper special distribution of 125p a share.

“The ordinary dividend per share peaked at 20.2p in the year to March 2019. Management has since rebuilt the distribution to 13.68p and the 42% increase in the interim payment for fiscal 2024 to 6.63p should help to underpin consensus forecasts for a total payment this year near 17p, enough for a forward dividend yield of nearly 3%.

Source: Company accounts. Financial year to March.

“Fuller’s has also restarted its share buyback schemes, which makes sense given how the shares trade below net asset value.

“The company had run regular share buyback schemes before the pandemic hit. Between 2011 and 2020 the company returned more than £200 million to shareholders via a mixture of buybacks and dividends.

“The completion of a one-million-share buyback is now to be followed by an identical programme, worth just under £6 million at the current share price. Add that to the consensus forecast dividend for this year of 16.9p a share, or £10 million, and Fuller’s will have returned more than £200 million to its shareholders via buybacks and dividends over a decade by 2024, a big sum relative to the prevailing £358 million market cap.”

Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Financial year to March.

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