The chill wind of recession that wreaked havoc with the pub trade is being dissipated by the hot weather, according to Greene King, operator of the Hungry Horse and Loch Fyne chains.

The group, which also brews Abbot Ale and IPA, said Thursday that, although the economic and political backdrop remained uncertain, there had been a discernible pick-up in trading since December, especially in the past eight weeks.

Its managed pub division reported a 5.2 per cent jump in like-for-like sales in the eight weeks to June 28, up from the 1.7 per cent increase seen in the 12 months to May. Its managed pubs in Scotland were up by a hefty 10.2 per cent amid strong food sales.

For Rooney Anand, Greene King’s chief executive, the warm weather is particularly welcome after the past two summers. The company is better placed than many other operators to cash in, as 95 per cent of its pubs have gardens or outside areas. Mr Rooney said the warm weather was an opportunity to get people who, to save money, had stopped going out back into pubs.

But the Greene King boss said he was “not getting carried away” arguing that rising unemployment and the lowest GDP since 1958 remained a threat to consumer confidence while the lack of political stability in the run-up to the next election was causing anxiety.

He said the threat of a Competition Commission inquiry into the tied-pub business model was also unhelpful, although his company had less to fear than many. While the Suffolk brewer’s relationship with its tenants was not perfect, it had been successfully operating a tie for more than 200 years and had been the first operator to introduce a code of practice in 1998, Mr Rooney said.

Interestingly, it runs 12 of its tenancies free of tie, although these are “wet-led” pubs with limited food that are being let to local entrepreneurs rather than being sold.

The group expects to dispose of 50 pubs this year on top of the 128 sold last year, but predicts more free-of-tie deals.

The group’s financial position has been strengthened by its recent £207.5 million rights issue, which will allow it to make acquisitions while retiring debt at well below face value. The positive response from investors, allied to the mixed reaction to the far more dilutive Marston’s rights issue, has revived speculation that it could engineer a merger with its close rival, although few observers are holding their breath.

While Mr Anand is right to remain cautious, the combination of strong assets, maintained investment levels and good cost controls, not to mention the retention of a dividend, make Greene King a potent brew. At 422½p, up 12¼p, or nine times earnings, and yielding 5 per cent, hold on.

Wellstream

Another day, another half-year trading update from the oil services sector.

But after reassuring noises from the likes of Wood Group and Petrofac, Thursday’s statement from Tyneside’s Wellstream, which makes flexible pipes used in deepwater oil and gasfields, was rather more equivocal. True, the production problems at its Newcastle plant that prompted last month’s profit downgrades appear to have been resolved. But trading is described as “broadly” in line with expectations: the City’s shorthand for slightly below. Meanwhile, Wellstream’s order book continues to shrink: to £220 million, against £330 million at the end of last year. That suggests that, although 90 per cent of this year’s sales are already assured, the company needs to pick up the pace of contract wins in the second half to meet this year’s forecasts, and ensure profit growth in 2010.

Wellstream’s appeal is that it draws 60 per cent of sales from Brazil’s state-run Petrobras, whose massive discoveries in the Santos Basin mean it has one of the biggest energy investment programmes in the world: $174 billion between now and 2013.

The flipside is that the oil price rally that peaked last summer encouraged additional capacity into its sector that is now coming on stream — particularly from rivals Technip of France and NKT of Denmark. That raises concerns over whether Wellstream’s above-average operating margins — 22 per cent in 2008 — can be sustained. At 517½p, or 11 times 2009 earnings, a premium to its peers, avoid.

NCC Group

If corporate technology budgets are under pressure, there is little sign of it at NCC Group.

Five years after floating, the Manchester-based company continues to turn in double-digit growth in sales and profits. Thursday’s full-year figures showed adjusted pre-tax profits up 17 per cent on revenues ahead 31 per cent. Strong cash generation pulled net debt down to less than £6 million, with the dividend raised 32 per cent.

NCC’s advantage is that, although it sits in the software sector, it has an annuity-like income more akin to an insurer. Its biggest niche is source code escrow: serving as a repository for computer programs — whether for databases or billing systems — that its clients deem critical. Should a software developer go bust, or stop supporting one of its products, the user still has access to the code on which it is based. The beauty is that NCC’s annual fees are small in the context of overall IT expenditure — £2,000 or less — meaning that its contracts get renewed in good times and bad: cancellation rates are 11 per cent. NCC is now expanding in IT security — testing the vulnerability of corporate systems to cyber attack — and related assurance services, such as monitoring how websites perform under intensive use: for example, when online retailers hold sales. At 330p, a multiple of 11 times earnings is inexpensive for such growth, and the prospect of more of the same. Buy on weakness.

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