Leading analyst Douglas Jack has revised his target prices for Spirit and Punch head of the demerger of Punch Taverns on 1 August, including a more cautious assessment of the valuation of Punch, which he believes has “considerable option value”. He said: “We think it optimistic to ascribe a valuation to Punch’s EBITDA at present and we base our valuation on our estimate of unrestricted cash at September 2011 (£112mE) plus the value of the investment in Matthew Clark (£47mE). This gives a total of £159m or 24 per share. “However, this ignores likely cash requirements to ensure that Spirit is able to implement its strategy of investing in its estate and redeveloping its brands. Thus we believe it is prudent to apply a significant discount. We believe a target price for Punch of 15p per share is appropriate. As such, we consider our valuation approach to be very cautious. If EBITDA is stabilised and management manages to conserve the unrestricted cash then there is very attractive upside.” Jack said that given the recovery potential of Spirit “an 8.5x EV/EBITDA is appropriate, giving a target price of 70p”. He said: “Our target is based on an EV of £1,275m (8.5x 2012E EBITDA of £150m) less net debt of £843.5m, plus £110m of cash less an £83m re onerous leases. It represents a premium to the valuation of M&B (7.0x EV/EBITDA to Sep’12). We believe this is appropriate given Spirit’s substantial turnaround opportunity and the recent decline in the M&B share price due to management uncertainty.”