Leading analyst Anna Barnfather, of Liberum, has said City Pub Group’s management strength and track record as well as its freehold asset base make it an attractive investment.
She said: “The City Pub Group offers earnings growth some 10x greater than its peers, with freehold asset backing a further attraction. With little/no debt and high fixed charge cover, the investment case offers high growth set against a relatively de-risked model. Management strength and track record provide confidence in the deliverability of a premium hyper-local strategy of refurbishing and repositioning wet-led pubs across UK cathedral cities. We initiate with Buy rating and 200p target price (20% upside).
“Growth is centred on a premium, wet-led offer with broad customer appeal, while the cluster approach in affluent cathedral cities provides scale and builds barriers to entry. Its highly differentiated approach combines the flexibility of a managed model with the entrepreneurialism of the tenanted model.
“Revenues are forecast to grow 31% by 2020E as existing sites mature and signed sites open. EBITDA is forecast to rise by 57% driven by an improvement in site margin, leverage of central costs and through the capture of scale benefits. If an additional 8 pubs are added p.a. we see EBITDA 126% higher by FY20E.
“Post IPO, the company has >£50m of headroom available to fund pub acquisitions and accelerate growth. This is equivalent to c25 additional pubs, which combined with privileged access to new sites and disciplined approach, makes our M&A scenarios highly deliverable.
“Our TP of 200p (20% upside) is derived from our DCF valuation and cross checked to peer group multiples. We point to City Pub Group’s asset backing (55% freehold) and sector leading growth with PAT CAGR of 30% 2017E-20E on our base case.”
