Company in the news: Enterprise Inns
This pub group was a classic distressed investment, says Phil Oakley. But now things are looking up, could the shares be worth a punt?
This pub group was a classic distressed investment. The victim of debt-fuelled financial engineering, it was written off by many. True, its £750m market value is still dwarfed by its £2.5bn debts. Yet anyone who bought the shares a year ago did very well. They are up nearly 160%, rallying 40% in July alone.
Dismal winter weather and the absence of the Jubilee and the European football championship battered business this year. But trading looks to have picked up in recent weeks. Profits will still be down on 2012, but the outlook for the next financial year is better.
Enterprise (LSE: ETI)is generating lots of cash: while most of it will go on paying its debts, some is being spent on sprucing up its pubs to woo more customers and it seems to be working. But can the shares keep going up? I first thought they'd risen too much, too quickly. However, looking at the figures, I think there might be more to go for. Debt is falling as more pubs are sold, but there is still lots of risk, especially as £1.2bn has to be repaid in 2018.
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That said, the shares look moderately undervalued. The tangible book value per shareis 208p, compared with a share price of just over 150p. With expected earnings per share of 18.5p in 2013, the return on this book value is nearly 9%. That's respectable and suggests the pubs' balance-sheet value may not be too far off the mark.
A rising property market and improving economy could lead to earnings upgrades. If so, expect the shares to keep rising.
Verdict: a risky punt at 152p
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Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.
After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.
In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.
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