A leading analyst has maintained his Hold rating for Spirit Pub Company ahead of its year-end interim management statement (IMS), saying there’s little scope for an upgrade in the year despite predicting that full-year expectations will be reached.
Geof Collyer of Deutsche Bank said Spirit’s recent price move - it outperformed its peers by between 5% and 10% - means the market is expecting a continuation of the strong trading in its Retail arm at its results on 4 September.
“We think that full year expectations will be confirmed, but see little scope for upgrades from the Q4 IMS given the wet summer and poor lease estate performance, which still accounts for around 38% of pre-provision group EBITA.”
Collyer said it expects Spirit’s managed division to have benefitted from the Jubilee, Euro 2012 and the Olympics. “It is unlikely to
have benefitted from poor weather, tough comps and a relatively quiet London, which has historically been a stronghold.
“The lfls should still be ahead of the industry data (which was around +0.6% for June & July). In overall terms, we expect trading should have benefitted from relatively few pubs shut for refurbishment as the group nears the end of its catch-up capex programme and estate repositioning.”
He said the like-for-like net income trend in the tenanted and leased estate “is not a good one”, although he said “we do see scope for
some small improvement in the lfl rate if (i) the group has made further progress on the disposal programme – less of a drag on the better performing pubs; and (ii) the reduction in discounts and concessions has not resulted in further erosion of profitability for licensees”.
“On the first point, 27 pubs had been sold by Q3, with another 13-23 expected to have been sold by the year end. On the second point, other pub groups’ experiences in this regard on reduced concessions has been that much of this has become baked in to permanent lower prices, meaning that the impact on the bottom line is not immediate.
“We see the timescale of turning this division around as somewhat protracted, and are awaiting more details of the rescue plan – for which we may have to hold on until the finals in October.”
