Paul Hickman of Peel Hunt looks ahead to Enterprise Inns interim results on 15 May:
“We expect pre-tax profit down 14% at £64m, and earnings per share down 13% at 9.4p. Part of the reduction is a 7% contraction in the average estate. More important, we expect like-for-like net income in the substantive estate to be up 0.5% in the first half, after +1% for the first quarter.
“Either now or shortly, we expect the company will announce a bank refinancing, replacing its current facility which reduces to £419m by December 2013, closer in line with our forecast of £200m of bank debt by September 2012. This will then give way to a further six years of uncertainty, as Enterprise has to fund substantial further payments, in particular (1) annual securitisation repayments that rise to £72m in 2014 (2) a bond repayment of £60m in 2014, and (3) a securitisation repayment of £600m in 2018.
“We think it is entirely possible that the company may be able to cover these obligations (maybe with additional bank finance), if between now and 2018 it disposes of c1200 pubs, around 20% of its estate at enhancing EBITDA multiples of, say 8x. This also assumes that like-for-like net income per pub continues to grow at c2% p.a.
“Can Enterprise do it? Management has played a long game since the credit crunch of 2007. We are now five years into the process of rationalising debt levels and the pub estate. But it is far from over with a further six to go. NAV, which may need further impairments, is 280p, but a sector average EV:EBITDA multiple would imply c30p. Meanwhile, on our forecast, it is a further year before debt:EBITDA falls below 8x.
“With the shares up 148% this year, the bank refinancing, is certainly in the price. However, we are not convinced that the next six years of uncertainty are. Enterprise remains a high risk investment.”
