Leading sector analyst Geof Collyer has marginally increased his forecasts for Spirit Pub Company and raised his target price for the pub operator from 45p to 53p.
Issuing a Hold recommendation, Collyer, of Deutsche Bank, said: “We have marginally increased both divisions – Retail for better trading and margins; T&L [Tenanted and Leased] for slower disposals and a stalling of the reverse transfer process (more pubs trading in FY’13). Overall, we have put through a marginal increase of 2% in PBT and 3% in EPS, given a lower tax rate.
“We value Spirit Pub Co on an 11x EV / EBITA multiple for the year to August 2013. Following the operational upgrade and lower debt, we raise our target price from 45p to 53p.”
He added: “Spirit‘s conundrum is that its Retail business is performing well, helped by a significant London & South East trading bias. Offsetting this, is an underperforming Tenanted & Leased estate that likely will be down around 9% again this year. The balance sheet is improving under the new management team though fixed charge cover remains very low vs. the peer group at 1.5x.
“In addition, write-offs to the demerger accounts and in its first full year amount to 4 times the current equity value, which undermines the quality of what is being invested in. A Hold for now.”
Collyer said the performance of its managed arm in its results last week were “as expected, benefiting from operational gearing and a marginal increase in provision credits”.
“Within the Tenanted & Leased estate, disposals exacerbated general underperformance in part caused by the process of rent rebasing that is nearing its end. Provision credits dropped from 24% of reported PBT to 17%. We expect this to drop to 13% of reported PBT in FY’13E.”
