The underlying like-for-like sales decline across Enterprise Inns’ estate is now less than 1% and the company is “committed” to achieving a stable income in the “near term”, chief executive Ted Tuppen has said.
Enterprise this morning reported a decline in like-for-like income by 1.2% in the 44 weeks to 4 August and Tuppen was asked about underlying trends at an analysts’ briefing.
“We have managed to continue to improve the overall like-for-likes to less than a 1% fall despite having pretty strong headwinds,” he said.
Tuppen said the Olympics have had a “neutral to slightly negative” effect, Euro 2012 was “not much help” and the Jubilee was “good” but its impact mitigated by being up against the Royal Wedding in the same period last year.
Tuppen said the improving underlying trend was due to the “continuing improvement in quality of the estate and the quality of our pubs”, as disposals continue. “We are still very committed to allow in the near term like-for-like income stability across the whole estate,” he said.
Tuppen said he expected the increase in beer sales in H1 to continue for the full year. He said the Beacon pubs, whereby Enterprise sets some prices and has a greater say over the retail offer, are “continuing to perform well” and the company is “on track” to have 250 by the year end.
Chief operating officer Simon Townsend said average rental income per pub remains “broadly flat”, with no material difference in the quarter.
“Clearly the absence of any kind of summer has not been helpful so working very hard with our publicans to mitigate that. The effects of that business recovery support is running at a similar run rate to that in H1.”
He added: “Broadly speaking the number of business failures we are incurring are being offset by re-lets we are making in return.”
Meanwhile, Tuppen said that “broadly speaking” the 121 unsustainable pubs that Enterprise sold for £26m were sold “either at or below book value on average,” although the 82 exceptional sites sold for £98m are making a “substantial profit”.
Analysts’ reactions
Simon French at Panmure Gordon issued a Buy recommendation and said: “We leave our £135m PBT (20.1p EPS) forecast unchanged and expect no material change to consensus expectations of £139m PBT (20.7p EPS). The stock trades on a CY 2012E adj EV/EBITDAR of 8.8x falling to 8.4x in CY 2013E.
“Given the improving trading trends and falling bank debt we think the stock continues to offer significant upside potential and reiterate our Buy recommendation and 87p Target Price, implying 57% upside potential.”
Geof Collyer at Deutsche Bank issued a Hold recommendation and said the improving net income “should drive shares higher”,
“LFL net income at the 44 wks stage for the total estate is a modest but crucial improvement on the position at the half year stage. We estimate that the Q3 LFL net income for the total estate was down by less than 1%, showing that the group continues to make steady progress towards a ‘flat’ underlying performance – critical for reengaging with the equity story.
“The board expects to “…deliver results for the full year in line with our expectations…”, so no change to our numbers. ETI shares (-20% last 3 months) have underperformed the pub sector by between 25% and 45% over the past quarter. This excludes Punch Taverns (-30%), which only commented on the performance of 60% of its business in its Q3 IMS, and that was somewhat worse than ETI.
“We do not believe that the market expected LFL net income to improve today, given the volatility in trading, and it is this alone that we see as having a positive impact on the shares today.”
