A leading analyst has forecast that Spirit will report a 14% rise in its full year pre-tax profit to £47m next week (20 October), driven by good recent trading, guest advocacy, above-target investment returns and favourable weather. Douglas Jack at Numis said: “Our Ebitda forecast of £138m (2010: £131m) is in line with consensus, but we expect depreciation to be flat (H1 -£1m; FY consensus +£4m); and interest to be flat (H1 +£1m; FY consensus -£2m). We forecast net debt to be flat in 2011E and estimate management’s target of reducing net debt:Ebitda to c.4.5x should take two years. “Our stance is Buy due to progress improving management quality, the brand portfolio and the execution of strategy. These changes, which should drive a c.50% increase in earnings over the next three years, are not reflected in the lowly valuation (6.8x EV/Ebitda; 6.7x P/E 2012E), in our view.” Jack said that managed pubs generated 5.2% LFL sales (drink 4.0%; food 7.2%) in 2011E, supported by refurbishments and numerous operational initiatives (un-invested pub sales rose 3.6%). He said: “LFL sales are up on H1’s 4.9%, yet our forecasts assume EBITDA margin growth slows from H1’s 130bps increase to 100bps growth over the full year.” Jack estimated that leased estate LFL net income improved from -4.1% in H1 to -1.5% in H2E. He said: “Management initiatives and tail-end disposals (50 sites are on/about to be on the market) should support LFL net income in 2012E.”