A bid by Fuller’s or another company to buy Capital Pub Company will eventually succeed, at a price of around 220p per share, according to leading City analyst Paul Hickman.
Fuller’s revealed this morning that it has had two bids rejected for Capital, the most recent at 200p per share, which valued the 34-strong pub company at £53.9m.
Capital shares jumped 37p this morning to 192.5p after the announcement.
Hickman, of Peel Hunt, said: “Fuller’s possible offer, which has been rejected by the Capital board, puts the company in play. We think a bid – whether from Fuller’s or another company - will eventually succeed, and we would estimate a price at around 220p.”
Hickman said this offer is “20x the house broker’s forecast earnings for FY March 2011 and 18.3x FY2012”.
“In terms of EV/EBITDA the multiple is reasonably full at 10.8x FY2011 and 9.7x FY2012. We see the FY2012 numbers as being relevant as they include recent acquisitions, such as the New Cross House, acquired in February, and the Rye, Peckham.”
He said Fuller’s approach “puts Capital Pub in play and exposes it to other potential bids by acquisitions-led pub companies”.
“We think a bid will succeed. Our reading is that Capital is likely eventually to fall to a bid. It is mainly a matter of price. We would see the top price as around 10.5x FY12E EBITDA, implying a price of 220p.”
Meanwhile, a note from Barclays Capital said: “It’s easy to see how the London business of Capital Pub Company would fit well with Fullers business.
“The offer implies a forward multiple of 7.6x EBITDA. On trailing F10 EBITDA the multiple is 9.3x [EBITDA].
“The recent acquisition multiple for Greene Kings purchase of the Realpubs business was 8.4x on a forward EBITDA acquisition multiple, although this was pre-overhead whilst the one for this deal is post-overhead. The Young’s acquisition of Geronimo was at 9.8x current pre-overhead EBITDA and 7.3x next year’s pre-overhead EBITDA.
“Given this the offer does not [look] compelling, particularly given the premium attached to high performing London pubs.”
The note said it was “interesting” that Capital’s board has declined to enter talks. “The company has always made a big thing of being an independent company and might hold not-insignificant stakes in the company.”
It added that Mitchells & Butlers had been “universally mentioned” as a possible bid target in the UK press.
The note said Fuller’s bid for Capital “may reignite interest in the sector, which has been pretty unloved in the leisure space for some time”.
