A leading analyst has said they he hopes to see some clarity from Enterprise Inns on how much headroom Unique has to make further disposals when the pub group announces its full-year results on 20 November.
Jamie Rollo at Morgan Stanley said: “We forecast revenue of £705m (-1%), EBITDA of
£341m (-7%) and EPS of 19.9p (-15%), slightly below consensus at 20.5p. Having already announced plans to prepay Unique’s fixed rate notes in advance, and refinanced the bank debt, we expect few surprises at these results.
“However, we will be looking out for an update on the value of pubs that Unique can still dispose of, as it is close to its limit and proceeds will effectively be needed to maintain the dividend up to ETI once the FRN amortisation commences. Enterprise is seeing L4L trading slowly improve, and immediate balance sheet risk has reduced, but debt levels remain very high, the leased pub sector remains challenged, and the shares trade in-line with our 75p price target, so we see little to chase them higher.”
Rollo expects the group’s performance to have improved in Q4.
He said: “Like for like trends within the leased pub sector continue to be challenging, with Punch and Spirit’s leased businesses continuing to report negative like-for-likes in the June-September quarter.
Enterprise has seen mixed trading in its substantive estate throughout the year, with L4L net income per pub +1.6% for the year to Q3, slightly ahead of H1’s +1.5%, but behind the final eight weeks of H1 (+2.6%). Trading in the total estate has improved progressively, with L4L net income -0.4% in the year to Q3, compared to -1.6% in H1 and -1.9% in Q1, suggesting that the tail-end pubs have been improving.
“Since the Q3 results we have seen solid trading statements from most pub operators, despite the continued poor weather. For the full year, we forecast L4L net income for the total estate of -1%, which would mean slightly positive growth in Q4. In 2011, just over 90% of Enterprise’s 6,289 pubs were in its substantive estate, and these generated 95% of income. We will be looking for an update on the percentage of pubs on substantive leases, progress of the Project Beacon trials, and any comments on Enterprise’s breach of its code of practice in the first two cases to go through the Pubs Independent Conciliation and Arbitration Service. We will also look out for an update on current trading, which we think is likely to have seen a slowdown on Q4.”
Enterprise had disposed of 203 pubs in the year to Q3 (excluding sale and leasebacks), delivering proceeds of £124m, with Q3 proceeds per pub slightly up on H1 at £611k.
Rollo said: “This suggests that the company continues to dispose of some assets from the top end of the estate. At Q3, the company said it had completed 17 sale and leasebacks in the year so far, for proceeds of £24m at an average rental yield of 6.85%. We estimate that disposal proceeds for the year will be £200m, in line with guidance. Enterprise has not disclosed the number of pubs that can still be sold in Unique so we will be looking out for any comment on this, as when the fixed rate note amortisation commences the company will effectively need Unique’s disposal proceeds to ensure an ongoing dividend up to the PLC.”
At Q3, Enterprise said that net bank borrowings had fallen to £364m, and Rollo forecasts this will have dropped to £300m by the financial year end, in line with company guidance. The company has already announced that it has prepaid £12m of fixed rate notes within the Unique securitisation since the interim results, which brings the total for the full year up to £41m.
Rollo said: “The company has prepaid £10m of floating rate notes and said it is expecting to make advanced payment of the remaining £19m by the end of the year, which should be reflected in these results. This will mean that all Enterprise’s notes will continue to be fully repaid one year ahead of schedule so the DSCR should remain at around 1.7x. The next challenge will be the £600m corporate bond due in 2018.”
