Enterprise Inns is likely to return to absolute EBITDA growth in 2015 and its shares have now reached a “tipping point”, according to leading analyst Geof Collyer.
In a note entitled Going Back to the Future, Collyer, of Deutsche Bank, issued a Buy recommendation and 205p Target Price, although he said Enterprise could “easily overshoot” this figure.
Collyer said: “We have consistently argued that the group would be able to prove that the pubco model has been cyclically challenged and can return to growth, and when it does so, the share price will respond accordingly.
“We believe that the group has also now ticked off all of the debt concerns that have plagued the shares in recent years and the group ended FY’13 with Q4 lfl net income in positive territory. With soft comps for FY’14, we expect this positive trend to continue.
“We believe that actions taken by management have now stabilized trading, further evidence of which should drive a significant narrowing of the NAV discount. This process is beginning to get underway.
“The final step for ETI’s rehabilitation should therefore come from the achievement of absolute EBITDA growth. Though we are forecasting lfl EBITDA growth in FY’14, we see absolute EBITDA growth as a probability in FY’15E – just over a year away. We would expect the shares to rise ahead of this event once investors can see a clear road map to its eventuality.
“The shares are currently trading at a material discount to NAV relative to all of the pub and property stocks followed by DB, and our CROCI analysis suggests that the shares could at least double again from here - hence our Buy stance.”
Collyer added: “We believe that there is significant upside in the share price, and we have reached the tipping point after five – six difficult years.
“Enterprise is likely to remain a volatile stock - a 1% move in the EV of the group leads to a 5% move in the equity. In short, it is will remain something of a special situation and the share price could easily overshoot our price target.”
He predicted that average profit per pub would return to near-peak levels in 2018.
