Leading sector analyst Geof Collyer has said Enterprise Inns could succeed in removing the issue of its debt among shareholders for “the next decade or so” at its interim results on 15 May. Collyer, of Deutsche Bank, also predicted that the debt reduction plan from the leased and tenanted pub operator could allow it to refinance its bank facility as early as the third or fourth quarter of this year. Collyer issued a Hold recommendation for Enterprise and said: “We believe that management could provide enough comfort at the forthcoming interim results to show that its plans for debt reduction should not just put the prospect of cash trap for its securitisation in 2014 out of shareholders minds, but could potentially remove the issue from the agenda for the next decade or so. “Furthermore, the current plan for the continued reduction in bank debt (from selling high-end assets) should allow the group to refinance its bank facility early – maybe even Q3/Q4 this year – and extend its maturity out towards the later part of the decade, when it should become an irrelevance or will have been completely repaid.” Collyer said the flexibility of Enterprise’s debt structure “should be seen as an asset as opposed to a liability”. Its debt is in three parts, with the cash flow split into two sections and the remaining 47% in the Unique Pub Company securisisation. “We see this as the key difference between Enterprise and Punch Taverns, which has all of its operating cash flow inside two securitisations, which means that equity shareholders can be prevented from gaining access to any cash flows if the securitisations are in cash trap – something that is happening with both of Punch’s structures.” He added: “On the trading front, the key metric will be lfl net income. We look for H1 lfl at -2% vs. -5% in H1’11. This was down by less than 2% in Q1 vs. -4.3% Q1’11.” “We value Enterprise Inns on a forward EV/EBITA multiple of 10x. The stock remains a ‘special situation’ given the volatility in the share price and the gearing of the equity to very small movements in the EV. “The key upside risks are (i) an earlier than expected return to like-for-like profits growth; and (ii) a positive resolution of the financial issues surrounding bank debt and securitisation. Downside risks include (i) an inability to generate enough free cash flow to fund the amortisation programme; (iii) a worse-than-expected impact from the deteriorating economy.”