Shepherd Neame [AQSE:SHEP], the Aquis-listed, Kent-based brewery hopes that it has put a torrid few years behind itself and with drinkers returning to pubs and clubs that 2024 will see it remain in the black.
Britain’s oldest brewer – established in 1698, but with a history of continuous brewing on the same site that dates back over 100 years earlier – primarily operates in Kent and the South East and has a stable of well-known ales and beers including Spitfire and Bishop’s Finger. However, the brewery also manufactures other beers under licence, including Thailand’s Singha beer and US craft beverage Boston Lager, and operates around 300 pubs and hotels. The company exports its brands to over 40 countries, including India, Brazil and Canada.
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As previously reported the pub industry has had a tough few years. FTSE250 stalwart, J.D. Wetherspoon LON:JDW complained about the impact that Coronavirus lockdowns had on its business, however it was seeing ‘encouraging green shoots’ of recovery returning to the sector.
Shepherd Neame is keeping it in the family
Shepherd Neame is a reasonably big player, producing around 180,000 barrels of its own beers annually, employing 1,600 staff and unlike many UK companies of vintage is still family-run, with barrister, Jonathan Neame the fifth generation of Neames to be involved in the business. This stands it apart from many PLCs in that the company is run for the benefit of its shareholders, which in the main are family and employees of the brewery, so management’s interests are closely aligned with that of its shareholders. The business has a market capitalisation of GBP108m
The company had a good first half to 2023, reporting record revenues of GBP166.3m in September, up 9.7% year-on-year. This saw a 3.8% increase in underlying profits to GBP7.6m and the company tried to invest its way out of the doldrums, increasing its half-year investment to GBP17.2m a significant uptick on GBP5.4m of investment in 1H22.
Investment and renovation in its estate
The brewery has been investing and renovating its estate, most recently the historic Royal Crown riverside pub in Rochester, which Shepherd Neame spent GBP1.2m on renovating the former coach house. The company has also been disciplined in terms of its debt. The company moved quickly to head off the hike in interest rates in 2022, securing long-term financing at what management said was fixed at “favourable rates”. Richard Oldfield, chairman, said: “I am pleased to confirm that in November 2022 we completed the restructuring of our borrowings, foreshadowed in last year’s report. The result is that our debt facilities give us ample headroom when needed; the debt is now longer-term than before, and moreover at a fixed rate which in view of recent developments in the gilt market appears to be on very advantageous terms. […] the ratio of debt to equity and to EBITDA rose slightly during the year, while remaining in what we regard as a reasonable range.”
Total net debt, excluding lease liabilities, was up from GBP75.3m to GBP80.4m in 1H23, following Shepherd Neame’s programme of investment. Statutory net debt increased to GBP135.6m compared to GBP131.2m in 2022 as the brewer’s lease liabilities remained largely level.
The share price followed the fortunes of Shepherd Neame upwards. Underlying basic earning per share for 1H22 was 41.1p/share, up from 39.4p a year previously with the net asset value per share increasing to GBP12.05 from GBP11.94 in 2022.
The company opened the week (8th January) trading at 729.5p up 14.4% over one-year, and up nearly 5% on three years ago, but quite a way behind its pre-Covid price which peaked at 1,240p in March 2020. Shepherd Neame declared a full-year dividend of 20p per share in September 2023, an 8.1% increase year-on-year.
Inflation leads to reduction in alcohol content
Even rural Kent could not avoid global inflationary pressures, and last year Shepherd Neame announced it was to reduce the alcohol content of its beers but maintained the same amount of liquid per unit and same price point. However, its not just Shepherd Neame that is guilty of drinkflation, as other brewers including Greene King and mega-brewer Heineken also cut the kick in their beverages. The cut in alcohol by volume (ABV) per unit of drink will save Shepherd Neame money through being charged less tax, although a company spokesperson was quoted as saying the ABV cut was to help consumers follow healthier lifestyles by offering lower-alcohol drinks. The brewer also warned that it would have to raise its prices in 2024 to deal with the growing cost of raw materials and glass.
Aquis is a smaller market than AIM or the Footsie, but value can still be found on this alternative exchange, and one of its gems has to be Shepherd Neame. Family businesses often come in for criticism, as they are perceived as inefficient and riddled with nepotism and bad management. However, the Neame family has been in the brewing game for over 350 years and the family has run a tight ship never having to rely on City slickers to prosper. In all likelihood the Faversham brewing outfit has many more pints to pull. You can buy shares in Aquis Exchange listed stocks via most well-respected UK brokers.
