A leading analyst has said that although Punch’s strategic review delivered the most sensible structure out an array of options, the pubco still faces a number of risks going forward, across both its managed and tenanted estates.
In a note entitled ‘Pain before gain’, Geof Collyer at Deutsche Bank, said that the results of the review had thrown up a number of upside risks and that the process involving the tenanted estate could take “may months or even years to complete”.
He said: “The strategic review has come out with the most sensible structure out of a bewildering array of options that it faced. However, for the tenanted estates, the process has not even begun, and could take many months or even years to complete. We remain some considerable way away from a clear equity value for that business. The Managed estate will now be exposed to the sharp glare of competitive peer group valuations. At the moment, we feel it will be found wanting. We retain our sell stance.”
Collyer said the de-merger of Spirit was the best option available to Punch and “the best way of delivering the longer term equity value within the tenanted and leased estate”.
He said: “The de-merger will also allow those investors not wanting to remain exposed to the tenanted and leased model to exit though at what price is yet to be determined by the market. We believe that Punch needs to demonstrate that it has completed its negotiations with the bond holders and clearly proved that it is capable of getting out of cash trap, and staying permanently away from default levels within its securitisation before the equity market ascribes much if any value to the shares. But we do believe that there will be eventual upside for those investors who can remain patient.
“For Spirit, its historic and current performance vs. its peers still leaves plenty of room for catch-up, but because of this history, we also believe that it needs to earn its multiple, and with current pub multiples low by historic standards, there is little to excite in the short to medium term.”
“We have retained our price target of 55p (a combination of EBITA multiples for the two parts of the group). Recommendation Sell.”
