Sector analysts have given a generally positive response to the pre-close interim management statement (IMS) from Spirit Group, the managed and leased pub operator. Spirit reported like-for-like sales in its managed arm of +4.1% in the 12 weeks to 18 August, against +4.8% across the 52 weeks, with food like-for-likes at +4.5% (52 weeks: +6.4%) and drinks sales at +3.3% (52 weeks: +3.8%). Leased like-for-like income fell 5.4% (52 weeks: -4.9%). Simon French at Panmure Gordon reiterated his Buy recommendation at a target price of 67p, and described the results as “reassuring”. “We expect no change to market expectations of £51.5m PBT (5.7p EPS) for the full-year. LFL sales in managed pubs increased +4.1% versus our forecast of +2.0%, and the rate of decline in leased division net income slowed to -5.4%. The group will take a c28% writedown of its estate valuation (larger than anticipated, in our view) implying NAV <70p per share. “However self-help measures should lead to double-digit earnings growth, which combined with a c4% yield, makes Spirit an attractive investment proposition in our view. The stock trades on a CY 2013E adj EV/EBITDAR of 7.2 and we reiterate our Buy recommendation and 67p target price, implying c18% upside potential.” Douglas Jack at Numis also issued a Buy recommendation at an 80p target price. “We are holding our full year forecasts, which now assume 125bps EBITDAR margin growth. The company has revalued its estate, which has resulted in an estimated NAV of 70p/share. Our 80p target price reflects this and our expectation of 14% earnings growth in 2013E,” he said. “Managed LFL sales rose 4.1% in Q4 despite an adverse impact from the Olympics and a 62% year-on-year increase in rainfall during June and July. We believe un-invested LFL sales are slightly positive and re-brandings are still achieving cash returns in excess of 25%. These have helped food LFL sales to rise 4.5% (6.4% full year) and drink LFL sales to rise 3.3% (3.8% full year) in Q4. “Our consensus-in-line full-year forecast assumes managed EBITDAR margins rise 125bps and EBIT margins rise 100bps, with a diminishing onerous lease credit constraining margin growth. “EBITDAR margins are forecast to grow by c.100bps in 2013E supported by the roll out of new management systems (now over 50%-complete) and growth in LFL sales (45% of incremental LFL sales growth flows through to profits). 2013E LFL sales should benefit from finishing the 80%-complete re-branding programme and post-mitigation cost inflation is expected to remain at 3%. “Leased estate LFL net income fell 4.9% in 2012E, having fallen 5.4% in Q4. LFL profits should start to stabilise in H2 2013E supported by rent-rebasing now being largely complete, the application of performance management, tail-end pub disposals and the roll out of new operating agreements. “We believe the re-branding programme and the initiation of dividends have been financed out of cashflow, with no increase in net debt and the cash at group level being maintained. The shares are undervalued, in our view. The full year results (16 October) should help to rectify this by providing visibility on the company’s self-financed growth, which we expect to continue into 2013E and 2014E.” Nick Batram at Peel Hunt also issued a Buy recommendation, saying: “It is still relatively early days as a stand-alone business, but much has already been accomplished. There are challenges (not least the Leased estate), but we are confident that the investment and new focus will ultimately deliver. “The valuation is undemanding and, with plenty of organic upside, the shares remain attractive.”