Leading analyst Mark Brumby at Langton Capital says that whilst some observers would say ‘not before time’, others would marvel that Punch Taverns has been able to keep its underlying business to the extent that it has, whilst it has pioneered what must be one of the first un-pickings of a securitisation put in place during the boom years of the mid-noughties.
He says: “Since its financial restructuring last month, Punch has some grounds for hoping that the company can be normalised going forward and that it can attract supportive shareholders to its register over time.
“The restructuring straddles two financial periods meaning that there will be no shortage of exceptional items in FY15’s numbers but, on looking through this at underlying trading, observers should be able to discern value.
“Whilst trading is in line with expectations and the group remains in positive territory, the overall numbers remain in something of a flux. We are of the view that around 24p (1.2p in the old form) should be achievable and, though there will be material exceptional costs in the year that has just commenced, we would expect further clarification at this morning’s 9am meeting.
“We would suggest that there is material upside potential within Punch. We have commented before that profit is the difference between two large numbers, EBITDA and interest paid and it could move markedly higher.
“Similarly, re the balance sheet, shareholders’ funds are the difference between freeholds and debt. A bout of inflation could move this number materially and, whilst that is not particularly likely, the group should be able to de-gear under its own steam.
“The shares will comprise a large part of the small cap index and, as such, the upside represents a risk to those non-holders who are benchmarked against it. We would suggest that the shares are worth a look.”
