Trading in shares of Spirit Pub Company started at 8am today, after the completion of its demerger from Punch Taverns.
Spirit's ordinary shares (ticker "SPRT") were admitted to the premium section of the official list and to trading on the London Stock Exchange's main market for listed securities. There will be 659,655,957 Spirit shares in issue.
The demerger means existing Punch Taverns shareholders receive one share in Spirit Pub Company for each share owned in Punch Taverns.
Last week, leading analyst Douglas Jack revised his target prices for Spirit and Punch ahead of the demerger, which included a more cautious assessment of the valuation of Punch, which he believes has “considerable option value”.
He said: “We think it optimistic to ascribe a valuation to Punch’s EBITDA at present and we base our valuation on our estimate of unrestricted cash at September 2011 (£112mE) plus the value of the investment in Matthew Clark (£47mE). This gives a total of £159m or 24 per share.
“However, this ignores likely cash requirements to ensure that Spirit is able to implement its strategy of investing in its estate and redeveloping its brands. Thus we believe it is prudent to apply a significant discount.
We believe a target price for Punch of 15p per share is appropriate. As such, we consider our valuation approach to be very cautious. If EBITDA is stabilised and management manages to conserve the unrestricted cash then there is very attractive upside.”
Jack said that given the recovery potential of Spirit “an 8.5x EV/EBITDA is appropriate, giving a target price of 70p”.
Paul Hickman, analyst with Peel Hunt, started his coverage of the stock with a Buy rating and an 81p target price. On the basis of Punch Taverns’ share price last week, he said that Spirit is undervalued and predicts double-digit earnings growth on the back of conversions of pubs from the leased model to managed.
However, Geoff Collyer at Deutsche Bank, initiated coverage with a Sell, saying that “it could take more than five years to achieve management’s targets – upon which it seems many brokers are basing their current valuations.”
