Those who monitor hospitality sector newsflow will know it’s been a trying time for pubs of late – with boozers closing at a rate of one a day.
Pubs have had everything thrown at them: Covid restrictions, soaring energy prices, a consumer cost-of-living crisis, national minimum wage hikes, national insurance contribution hikes, and, most recently, rises in alcohol duty.
Miraculously, none of this seems to have troubled shareholders of Fuller’s, one of London’s biggest pub chains. The stock has jumped fifteen per cent over the past month and has now hit a five-year high.
The gains this year dwarf all but one of the UK’s six biggest listed pub chains (All Bar One owner Mitchells and Butlers is narrowly ahead), of which half remain down sharply since 2021.
For those who obsess over US tech mega-caps, you’d have been better off holding Fuller’s this year than you would Microsoft, SpaceX, Tesla, Netflix, Nvidia and Alphabet.
So is Fuller’s overvalued? Is the stock frothier than the head on a London Pride? There are reasons to think not.
A quick glance at the numbers suggests the chain is doing well. Today the pub group said it grew its revenue by six per cent to £221m in the year, while its pre-tax profit jumped more than a third to £28.5m.
Boss Simon Emeny points out that because the firm’s estate is in affluent parts of London and the South East – plenty in the Square Mile, dozens across leafy West London and a good smattering in the Home Counties – its clientele is fairly insulated from wider cost-of-living pressures.
The firm’s pubs are among the nicest in the capital, and its customers are as well-heeled as the fireside armchairs are upholstered (my own favourites, not that you were asking, are the Counting House in Cornhill, the Scarsdale Tavern in Kensington and the Victoria in Paddington, where Emeny once bought me a pint).
“We spend a lot on staff training. Make sure the service is impeccable. I think if you get all of those ingredients right and you’re in the right areas, then customers will pay a little bit more,” Emeny told City AM.
Alongside this, like many in the sector, the company is less exposed to wider market forces, and energy cost pressures, because it doesn’t brew beer. Fuller’s sold off its Chiswick brewery in 2019 – meaning whether you like its classic Extra Special Bitter (ESB) or not, is really not its problem. Some rivals like Shepherd Neame – which last month said it would downsize its brewing operations – have had a rougher ride by keeping things in-house.
Lastly, the business is adapting to rapidly changing drinking habits. Sales of peach-flavoured lager Jubel, rapidly becoming one of the capital’s favourite drinks, soared by 71 per cent in the six months to September, while demand for spritzes soared by 118 per cent.
“Customers are always looking for the next thing. And the next thing at the moment is high quality premium continental lagers, fruit lagers, spritzes, and some of that is coming off Guinness,” Emeny said.
All this being said, the stock’s rally could leave some punters with a headache greater than that after my ESB marathon last Thursday. Investors have been steadily selling off big tech stocks since the start of October, from which London mid-caps such as this one have been a clear beneficiary. But last orders often creeps up on you faster than you think.
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