Pub group Fuller froths up after figures

Brewing group Fuller, Smith & Turner is doing well because of its "delightful, well-invested pubs that serve outstanding cask ale and delicious food."

This ringing endorsement comes from company chairman Michael Turner, who presumably checks out his estate on a regular basis to make sure the fishcakes and sausage sandwiches are up to scratch.

Turner's enthusiasm is backed up by the fact that half profits for the company rose 26% to £15.1m, despite the current economic difficulties. And the news has lifted its shares 21p to 510p. But the chairman warns that things may not continue to be quite so bright:

Our first half performance has defied the recession but it has been boosted by factors that may not repeat or may even reverse: incremental earnings from acquisitions, record low interest rates, a pay freeze and better weather. We remain cautious about the outlook for the UK economy and we expect our second half to be significantly tougher that the first. Starting with VAT rising by 2.5% on 1 January 2010, taxes and interest rates must rise and the economic climate is likely to remain challenging for some considerable time.

Despite this warning Panmure Gordon issued a postive note on the company:

We increase our 2010 pretax profit forecast by 3.1% to £24.5m mindful of the likely more difficult trading conditions to come over the remainder of the year. We retain our buy recommendation and increase our price target to 585p (from 575p), offering 20% upside potential.

But Altium Securities sounded a more cautious tone, saying:

Following the acquisitions made over the past 12 months net debt/EBITDA of 2.4x does not seem overly high (especially when compared to its sector peers) but the group has only around £20m of headroom available limiting therefore the potential for further meaningful acquisitions. The group needs to complete its refinancing by November 2010 when it will likely no longer benefit from the current 0.5% margin.

Today's interims do not lead us to change our recommendation as the outlook statement is highly cautious noting the risk of a rise on VAT, the impact that refinancing may have on the group's interest rate and that the second half may prove to be significantly tougher than the first. Hence we remain holders.