A leading analyst has said that he expects a slowdown in Spirit’s managed estate from the 4.8% increase seen in the first four weeks of the year due to poor weather and tough comps, and continued weak trading in its leased division as rent rebasing works its way through.
Jamie Rollo at Morgan Stanley said: “We expect tough comps and poor weather are likely to dampen trading in both the leased and managed estates (when Spirit reports its Q1 IMS on 15 January). For the full year, we expect managed lfl revenue growth of 3.8% and a leased net income contraction of 2.6%. We are Underweight for the shares as we are concerned about Spirit’s weak FCF generation, debt structure, and expect lfl sales to slow once capex levels normalise.”
Spirit reported full year lfl growth in managed of 4.8% last year, and indicated uninvested lfl growth was c1%.
Rollo said: “Lfl sales for the first four weeks of the financial year were up a healthy 4.8%. Poorer weather and tough comps (managed +6.2% Q1 2012) are likely to cause slower trading in the remaining 16 weeks of the reported period, we think. Spirit has been outperforming by c300bps, so we estimate Spirit could see c4% lfl sales in this period.”
Spirit reported a full year lfl net income contraction of 4.9% across its leased estate, and this had continued for the first four weeks of the new year at -4.8%.
Rollo said: “Punch today reported a 5% lfl income drop as rents continue to rebase, and it said it faces tough comps and expects 2014 to be down a similar amount to 2012 (-3.7%). Spirit Leased shares a similar trading profile to Punch, and was part of the same company, so we think H1 will remain tough. However, for 2013, we forecast -2.6%, implying a sharp improvement in H2 as most remaining rental contracts come up in H1. We expect to hear more about the performance of its alternative operating models.”
As of its full year results, Spirit had refurbished 178 of its managed pubs, and this means 79% of its estate is now invested and branded.
The analyst said: “The company plans to do another 130 refurbishments in 2013, and if this is skewed to H1 it could boost sales more than we expect.”
