Punch Taverns starts fiscal year trading in line

Pub and bar operator Punch Taverns is trading in-line, despite which analysts warn that the equity value of the company's pubco business is nil.

In its interim management statement covering the first 16 weeks of the fiscal year, up until December 8th, the company stated that average profit per pub was stable and overall profit performance was in line with management expectations.

Thus, although net income in core estate was down 5% on a like-for-like basis, that was as expected and a recovery is currently being forecast.

The group stated that its non-core estate disposal programme remained on track. Since commencing the programme in 2011, it said it had realised proceeds of £193m from 758 pub disposals, slightly ahead of book value.

Approximately 400 non-core pubs were expected to be sold by the group in the current financial year. In the current quarter, Punch disposed of 86 pubs for proceeds of £26m.

The average quality of the group's estate was expected to improve as Punch Taverns sold non-core assets. However, the core estate net income is expected to decline in the current financial year as the group rebalances rents in the short-term, with a return to growth expected in the next financial year.

"Trading comparatives are much more challenging in the first half of this year and given this, net income in the core estate is down 5% on a like-for-like basis, in line with management expectations," the statement read.

Roger Whiteside, Chief Executive Officer of Punch Taverns, commented:"Our performance in the first 16 weeks of the financial year has been in line with management expectations. While the UK consumer environment is likely to remain challenging for at least the near-term, we continue to make good progress with our clear operational plan to return the core estate to growth in the medium-term and extract maximum value from our non-core assets."

Panmure analysts' viewCommenting on the statement, Panmure analysts stated: "Discussions regarding financial restructuring are on-going and on the basis of dialogue with shareholders to date, the board continues to believe that a restructuring can be successfully implemented.

"The key issue for investors is whether they think there is any value left in the pubco business for equity holders. We do not think there is, as there is likely to be a debt for equity swap as well as a change to the amortisation profile of the remaining debt and likely resetting of covenants alongside these steps.

"It will take time for this consensus to be reached, in our view, meaning the only visible value is the group's shareholding in Matthew Clark which is valued at approximately £44m, or 7p per share. This therefore dictates our Target Price; Hold."

Punch Taverns' share price was unchanged at 7.49p at 11:03 on Friday.

MF