Broker snap: Brokers retain taste for Greene King

8th Sep 2009 10:11

Greene King is worth holding for the dividend yield but no longer worth buying for short term share price appreciation, reckons broker KBC Peel Hunt, after Britain's largest regional brewer issued a trading update on Tuesday morning.KBC has downgraded the stock from 'buy' to hold' while retaining its price target of 470p; the price target is 'based on a 5% premium to the peer EBITDA [earnings before interest, tax, depreciation and amortisation] multiple of 8.9x.'The broker is trimming its full-year earnings estimates for Greene King by 6% to reflect the one percentage points reduction in managed margin announced by the brewer 'and continued average declines in tenancy combined with caution on the economic climate in H2 and strong comparatives.'Broker Charles Stanley remains a buyer of the stock, however, on the grounds that with £207.5m of rights issue funds about to swell its coffers, the group will have the wherewithal to cherry pick pubs from the estates of distressed competitors while still reducing debt. 'That said, the group continues to report encouraging trading indications from the managed houses, but the emphasis of now is on improving life amongst the poor quality tenancies,' Charles Stanley analyst James Dawson believes.The broker has a price target of 525.3p, adjusted for the bonus element of the rights issue 'and so at present does not incorporate any additional pub buys'.'Greene King has yet to announce any pub deals, but expect considerable interest when new sites are confirmed as this is seen as a truly remarkable opportunity to enhance its existing managed house estate. The other near term catalyst will be the repurchase of the cheap tranches of debt, leading to interest payment reductions,' the broker concludes.