Leading sector analyst Simon French has retained his Hold recommendation for Punch Taverns and Spirit Pub Company ahead of their interim management statements on 16 December.
French, of Panmure Gordon, expects year-to-date trading for Punch to be “slightly ahead of management expectations”, helped by the mild weather against last year’s prolonged snowfall, which should leave the group “well positioned” in the short term.
“However, with net debt to ebitda of c10x and further equity value creation dependent on the outcome of talks with bondholders during 2012, we reiterate our Hold recommendation and 11p TP, which is broadly underpinned by the group’s investment in Matthew Clark and PLC cash.”
He issued a target price of 11p for the firm.
“We forecast 10.6% CAGR in EPS over the next three years, with dividends payable from FY 2012E, growing in line with earnings. For FY 2012E we forecast £53.3m PBT (6.0p EPS), slightly ahead of consensus on £52.7m PBT (6.0p EPS). For FY 2013E we forecast £57.6m PBT (6.5p EPS).”
The stock trades on a CY 2012E adj EV/ebitdar of 7.0x and yields 5.0%, which he described as “fairly compelling” but said “we look for further evidence that the improvement in ebitdar per pub is sustainable”. “If it is, the shares should perform strongly in 2012.”
French issued a target price of 47p for Spirit, the managed operator that demerged from Punch in August.
“The group made a good start to FY 2012E and we expect this to have continued over the rest of Q1, benefiting from easier comparatives over the last two weeks. The stock trades on a CY 2012E adj EV/ebitdar of 7.0x and yields 5.0%.
“This is fairly compelling but we look for further evidence that the improvement in ebitdar per pub is sustainable. If it is, the shares should perform strongly in 2012. For now, we reiterate our Hold recommendation and 47p TP.”
French said Spirit made a “good start” to the new financial year, with managed like-for-like sales up 4.8% in the first eight weeks.
“We expect this to have continued over the rest of Q1 helped by the recent good weather. Over the next two and a half years it will convert around 100 pubs from the leased estate into managed pubs. Further value should be unlocked by the sale of c.450 leased pubs within the securitisation, but this will require bondholder approval.”
He forecast a 10.6% compound annual growth rate in the earnings per share over the next three years, with dividends payable from FY2012E. “For FY 2012E we forecast £53.3m PBT (6.0p EPS), slightly ahead of consensus on £52.7m PBT (6.0p EPS). For FY 2013E we forecast £57.6m PBT (6.5p EPS).”
