A number of exceptional charges recorded in full-year 2009, which resulted in a reduced net asset value, coupled with no change to the outlook hit Punch Taverns’ shares on Wednesday morning.
By 9.00am, Punch traded down 1.6p or 1.4% at 114.3p on the FTSE 250 index, which took on 85.3 points or 0.9% to 9,474.2.
The pubs operator announced this morning that for the 52 weeks to August 22, pretax profits amounted to £160.4 million, a fall of 38% year-on-year, with earnings per share down 54% to 36.1p. Both these figures were broadly in line with analyst expectations. Punch also revealed it has impaired the value of its pubs assets by £663 million, reducing its net asset value (NAV) to £5.4 billion or 260p per share. Current trading is in line with management expectations but the group remains cautious in the near-term.
The reduction in NAV combined with the poor outlook on trading and debt repurchases led Altium Securities to this morning lower its price target on the stock to 135p per share. Analysts Greg Feehely and Wayne Brown said that today’s news was a “disappointing result” in that during the course of 2009 the group has managed to buy back debt at around an average discount of 33% to face value, which should serve as a reminder of the difficulty posed in the debt market and that the potential value that can be generated from debt repurchase is not a given.
Altium’s forecasts for 2010 and beyond assume Punch can continue to retire debt at around 75% of face value, which the broker now thinks may prove to be too demanding. Feehely and Brown’s Buy recommendation on the stock is based on the premise that Punch can continue to make strategic disposals to the tune of £200 million in 2010, which the company today confirmed is its plan, and that it will use these proceeds to retire debt at a discount, thereby creating greater equity value.
The ongoing regulatory risk in the sector posed by CAMRA’s super-complaint about Pubco power and the breer tie, however, could lead to fundamental changes to the tenanted business model, Altium pointed out.
KBC Peel Hunt analyst Paul Hickman noted that the uncertainty over the beer tie is likely to hold back the shares—as are the group’s reducing bond discounts, declining profits and slowing disposals—while management gets on with the task of rationalizing the estate and reducing debt.
Hickman calculates the Punch shares trade on a par with the peer group and today repeated his Hold stance.
Panmure Gordon is less upbeat about the future value of the shares, however, and analyst Simon French responded to this morning’s preliminary results by sticking with his Sell recommendation and 100p price target ahead of next week’s OFT response to the super-complaint.
French highlighted JD Wetherspoon as his top pub sector pick, which he rates a Buy with a price target of 600p.
