Leading analyst Doug Jack at Numis has said that although like-for-like net income rose 0.6% at Enterprise Inns in H1, he expects it to be flat in Q3 due to tough World Cup-related comps.
He said: “With management targeting LFL net income growth over the full year, we expect to hold our forecasts (2015E PBT £121.4m; consensus £122.7m). Overall, we agree with the company’s new strategy and retain our Buy recommendation. Even if the company falls behind in its managed pub conversions, the strategy should undermine the number of Market Rent Only conversions, which should be is primary objective.
“The top 90% (4,675 pubs) of the estate, in terms of income earned, grew LFL net income by 2.7%; the tail, which is likely to be sold, continues to decline quickly. The quarterly performance breaks down as 0.3% vs. 0.5% comp in Q1, 0.9% vs. 1.5% comp in Q2, with comps of 2.1% (boosted by the World Cup) in Q3 and 0.5% in Q4.
“Licensees are benefiting from discounts on WiFi, Sports TV packages, food offerings, training and product marketing (at a H1 cost of £3m to ETI). This helped to reduce the level of business failures by 21% in H1. The estate also benefited from 133 pub disposals for £34m, which financed £33m of capex (42% growth-orientated), achieving an average ROI of 19% in H1.
“Enterprise’s new strategy is ambitious, targeting the development of 750-850 managed pubs, building a commercial property estate of 900-1,000 outlets and selling c.1,000 tail-end leased pubs by September 2020. Here, we believe the greatest challenge rests in making c.200 Bermondsey (mainstream) managed pub conversions. It is too early to expect much progress, but this is an area investors are likely to focus on in future updates.”
