Enterprise Inns’ like-for-like net income growth was significantly higher in London than elsewhere in Q1 2014, with a flat performance in the Midlands despite growth of 1% overall.
Leading analyst Geof Collyer has outlined the geographical spread of the performance, with net income growth of 3.8% in London, 1.7% across the south and 0.9% in the north.
Stripping out the impact of the collapse of the group’s wines and spirits distributor Waverley in Q1 last year, there has been an underlying positive delta of +3.5% in Q1 2014 like-for-like net income performance against the same period in the previous year, said Collyer, of Deutsche Bank.
He issued a Buy recommendation and 205p Target Price and said: “ETI is targeting consistent performance through each quarter this year, with the group target being to deliver positive like-for-like net income growth regardless of the comp – and these get tougher in H2.
“The ETI investment case is all about closing the NAV gap through improving operating performance and moving into absolute EBITDA growth again. Everything in today’s statement and on the conference call suggests that this is categorically still the case.”
Collyer added: “We would expect that if ETI was reporting a positive lfl net income number, then its licensees’ lfl retail sales would also be positive, and almost certainly better than ETI’s figure. This is because the pub lfl sales figure would include food, accommodation, and maybe soft drinks and wines and spirits, which generate between c20% and c60% of pub retail turnover.”
“The valuation, on a -43% discount to NAV and with +25% upside to our target price, remains very attractive.”
Meanwhile, Simon French at Panmure Gordon reiterated his Hold recommendation and 133p Target Price for Enterprise. “Enterprise Inns has announced a broadly in-line trading update reporting 1% like-for-like net income growth over the last 18 weeks compared to our forecast of +2% but against a weak comparative of c-4%.
“The group comments that it is providing the appropriate foundations for delivering sustainable net income growth. It has sold 84 pubs for £31m at a healthy premium to book value. We expect no change to consensus which appears to assume c1% like-for-like net income growth for the full-year.
“The stock trades on a CY 2014E adjusted EV/EBITDAR of 10.5x but regulatory risk remains as well as any potential collateral damage from the possible appointment of administrative receivers at Punch Taverns.”
Douglas Jack at Numis reiterated his Hold recommendation and 170p Target Price.
He said the growth in like-for-like net income was “largely due to easy comps”. “This is slightly disappointing and behind our forecast of 1.5% and consensus of 2%.
“We are holding our forecasts which allow for much tougher comps in H2. Given the regulatory backdrop and expectations that EBITDA reduction should once again match debt reduction this year, we believe the 10.7x EV/EBITDA valuation (vs. 10.5x historic average) is high enough.”
