Company in the news: Punch Taverns

Punch Taverns (LSE: PUB) has had a dramatic fall from grace. Its debt-fuelled business model saw it become Britain’s biggest pub landlord during the credit boom. The bust that followed all but destroyed the company. And it is not out of danger.

Its finances are still a complete mess – it owes £2.3bn of debt, but has just £119m of tangible equity, according to its last annual report.

The company is trying to dig its way out of this gigantic hole. Its plans rest on convincing 75% of its bondholders and shareholders to accept a £600m debt-for-equity swap to give the company breathing room.

Punch is still short of the numbers it needs – but it would seem that shareholders have little alternative but to agree, even though it would see them retain only 15% of the shares in the company.

A lot of this dilution is probably already priced in to Punch’s shares. So, the question is: is this a recovery play? My guess is probably not.

Although Punch is profitable, most of its money will still end up in the hands of its lenders, as it will still have a huge debt pile. A more pressing problem – should the company survive – is the lack of investment in its pubs, which is harming its ability to compete for customers.

Over half of Punch’s estate has had nothing more than repairs and maintenance over the last five years. This will take a lot of time and effort to address. For my money, Punch is not a promising turnaround play yet.

Verdict: avoid

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
In the balance

How May 2015 could hit your pocket

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Russell Napier: deflation is coming – hold on to your cash

Financial historian Russell Napier talks to Merryn Somerset Webb about the next deflationary bust – why it's coming, what it means for you, and how you can survive it.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


27 November 1924: Macy's first Thanksgiving Day parade

On this day in 1924, New York department store Macy's held its first Thanksgiving Day parade. It would soon become a city institution, kicking off the run-up to Christmas.