A leading analyst has upgraded his price target for Enterprise Inns from 140p to 200p and said he thought there was a good chance that the group’s like-for-like sales will be positive in H1 2014 and sees its 19 November final results as a key catalyst.
Jamie Rollo at Goldman Sachs, which made Enterprise one of his five conviction stocks for Q4, said: “The UK property sector is seeing a strong performance, and Enterprise’s asset value seems relatively robust to us, suggesting its 50% P/NAV discount is too conservative. Leased and tenanted pub companies are also slowly seeing their LfLs move back into positive territory, with encouraging recent comments from both Enterprise and Punch.
“Enterprise has the benefit of weak H1 comps given the collapse of wholesaler Waverley and poor weather, and the company should benefit from the improving UK economy, RPI-linkage of most of its rental income, and its greater focus on helping failing pubs. We think there is a good chance that LfLs are positive in H1 2014, which should be taken well, and we see the 19th November final results as a key catalyst.
“With 1% on LfL income 3% to EPS and 7% to FCF, returning to positive LfLs is critical, in our view. At the same time, we think the convertible bond eliminates any residual risk over the bank debt and may even allow modest share buybacks.”
