Leading City analyst Lindsey Kerrigan estimates that Spirit Pub Company, the managed operator that demerged from Punch Taverns at the start of August, will grow like-for-like sales by 5% for the full year.
Reiterating a Hold recommendation for Spirit at a target price of 48p, Kerrigan, of Panmure Gordon, said: “We estimate 5% LFL sales growth in the managed pub division for the full-year.
“The group is well positioned to capitalise on the structural growth in eating out and offers progressive dividend payments.”
Spirit saw Q3 like-for-like sales increase 7.3%, led by food (+8.4%) and drink (+7.3%), bringing like-for-like sales growth in the year to date to +5.7%. “In the 552 leased pubs, LFL net income was -0.7% in Q3 and -3.9% YTD. Trading was consistently strong over the quarter with April strongest, reflecting the timing of Easter and the royal wedding.”
But she added that Spirit, which is to issue pre-closing trading update on 1 September, “currently generates ebitdar/outlet significantly below its peer group and the group will need bondholder approval to dispose of c450 leased pubs.
“The group trades on a FY 2012E adjusted EV/ebitdar of 7.4x and a P/E of 8.4x. Following its demerger from Punch Taverns (Hold, 11p TP) share price performance has been volatile.”
Kerrigan said: “Management seemed confident it can mostly offset food and energy price increases into FY 2012E. Ultimately, Spirit will become a pure-play managed pub business. Over the next two 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."
She said Spirit should not trade at a premium to its peers - Mitchells & Butlers, the Restaurant Group and JD Wetherspoon - despite the possibility of closing the profit-per-outlet gap relative to its peers representing “an opportunity for value creation”.
“Our 48p per share target price is based on our sum-of-the parts analysis valuing the managed division at 7.0x FY 2012E adjusted EV/ebitdar and the leased division at 8.7x FY 2012E adjusted EV/ebitdar, in line with the respective peer group companies.”
