Food sales drive growth at Greene King

It's the food not the beer which is apparently driving profits at pubs group Greene King.

The company said like for like sales growth in its retail division - its main pubs business in other words - had grown by 4.6% but food sales were up 9.2%. Overall, half year profits climbed 2.8% to £62.4m. Chief executive Rooney Anand said:

Having detected the warning signs in the autumn of 2007, we acted quickly and decisively to adapt our offer to consumers to reflect their flight to value, to increase our focus and investment in strategically important growth categories such as food, wine and coffee.

It said that since the half year, the current strong trading had continued. It warned more companies were likely to fail during the recession, but Greene King would continue to prosper.

It has bough seven pubs in Scotland for £12.7m from Mitchells & Butlers, and more acquisitions are on the cards, either individual pubs or small packages. In a buy note Oriel Securities said:

This is a sound well managed company which looks undervalued on a PE of 9.2 times and a yield of 5.2%, which is 2.1 times covered by earnings ( based on our forecast of £122m for 2009/10).

Investec kept a hold recommendation on the business, but was still relatively positive:

Interims are in line across every division and current trading remains very robust. The shares have underperformed the All Share by 22% over the last three months, which seems a little unfair given the sector-leading operational performance and secured financing. Greene King is well placed to benefit from the current sector fallout, in our view, and this is illustrated by this solid set of results. We retain our estimates, hold recommendation and 430p target price.

In the market Greene King bubbled up 23.7p to 425p.