M&C Report takes a closer look at the year end trading statement for Punch Taverns, the leased and tenanted pub company:
Disposals
Chief executive Roger Whiteside said 398 pub disposals this year followed the established pattern - two-thirds sold as pubs and one-third sold for alternative use. “It’s local people buying a pub and regenerating it, which often gives these pubs a fresh lease of life.” The 398 pubs had sold for around £108m, which is an average of £271,000 for each pub - just a little lower than the average book value of £278,000 per pub for the 2,053 sites in the turnaround division. However, the 238 pubs sold in Punch’s second half raised £68m, an average of £287,000 per pub. Finance director Steve Dando said he expected disposals in the coming year to return to an average value close to the £278,000 average book value. Whiteside added: “We are half-way through our five year plan to restore our core pubs to growth and dispose of turnaround pubs. Overall, we are confident in the quality of our core estate. Our plan is not predicated on a recovery in the economy.” The non-core estate of 2,053 pubs had seen a like-for-like performance of -13%, dragged down by the performance of the non-substantive pubs core. Total estate performance of -5% like-for-likes in the fourth quarter of the financial year reflected “beer numbers coming off a bit because of the World Cup effect”. The core estate of 2,053 pubs had achieved -1% like-for-like in the second half. Whiteside pointed out that the first half had featured a royal wedding and great weather while the second half had seen “lousy weather” and no World Cup.
Capital expenditure
Punch has invested around £40m on investment schemes in pubs this financial year. Individual schemes ranged in value from £30,000 to £400,000 with an average value of £80,000. The company would be looking to maintain £40m of capital expenditure per annum going forward. “We broadly expect to do 500 investment schemes a year,” he said.
Punch Buying Club
Whiteside was asked whether there had been an increase on the last reported figures of 18% of relevant business being transacted through the online Punch Buying Club. He said that “number had grown since’ and more details would be provided at the full results presentation in October.
Matthew Clark
Dando reported that Punch’s 50% stake in wholesaler Matthew Clark had delivered a circa £4m post-tax contribution to the company. He added that the wholesaler had also paid a £8m dividend just before the de-merger of Punch with its managed division. “It’s continuing to perform well and provide a good level of income for Punch.” Dando added that he expected the wholesaler to continue to pay dividends linked to the level of its annual income.
Share price
One questioner asked Whiteside about the low level of Punch Taverns’ current share price. Whiteside said it reflected the market’s view of the equity value in the business. The questioner followed up by asking specifically about the decline from 16p to 9p since de-merger and asked for Whiteside’s view on where the share price would be in six months’ time. Whiteside said that the “market had gone through turmoil (since flotation) and the company had shared in that”. He added that he was not able to provide any guidance on the future share price of Punch.
Analysts
Douglas Jack at Numis Securities said: “In 2011E, LFL net income fell by 5.2%, implying a 5.0% fall in Q4. Overall, trading is in line with market expectations. Cash at PLC is worth 17p/share (post forthcoming £20m cash tax upstream) and Matthew Clark should be worth 5p/share, implying 22p/share, but our price target is set at 15p/share, the amount we estimate could be returned to shareholders in 2013E, if appropriate.”
Simon French at Panmure Gordon said: “The group has reported a satisfactory end to FY 2011E with LFL net income - 2.4% in its core estate in Q4 to close the year at -2.1%; the total estate saw a 5.2% decline in FY 2011E and average net income per pub increased +0.9% reflecting 398 disposals during the year for £108m. The group is on track to meet expectations for the full-year and we make no change to our forecasts and reiterate our Hold recommendation and 11p TP.”
James Ainlery at Citi said: “We see little or no equity value within the two securitisations and therefore value Punch on the basis of its plc resources only - cash (£110-120m) and value of the Matthew Clark joint venture (£40m). This equates to a target price of 25p.”
