Last week was grim for the quoted owners of tenanted pubs such as Enterprise Inns (LSE: ETI), Punch Taverns (LSE: PUB) and Greene King (LSE: GNK). MPs passed a bill to get rid of the tied pub where tenants are tied into deals to buy beer from their pub group landlords.
The tenants have typically paid preferential rents, but inflated beer prices (compared to negotiating separately with a brewer). The profit margins on beer sales have made up a big chunk of the income pub groups get from their tenanted pubs. So how will they cope?
They may just jack up rents to make up for the shortfall, or close and sell more pubs. But whatever they do, EnterpriseInns and Punch are already struggling with crippling debts and this development is not helpful.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
There are also implications for Greene King. It has been selling parcels of tenanted pubs and focusing on its managed pub restaurants business, which makes up the bulk of its profits. However, it is in the process of buying the Spirit Pub Company, which will bring 430 more tenanted pubs on board, giving it nearly 1,300 in total.
The combined business will have just over £2bn of debt and its finances will be quite tight until the targeted cost savings come through. So it doesn't need the hit to its cash flow that the end of the beer tie might bring. I think Greene King is a decent business but its shares look a little less attractive now.
-
Coventry Building Society bids £780m for Co-operative Bank - what could it mean for customers?Coventry Building Society has put in an offer of £780 million to buy Co-operative Bank. When will the potential deal happen and what could it mean for customers?
-
Review: Three magnificent Beachcomber resorts in MauritiusMoneyWeek Travel Ruth Emery explores the Indian Ocean island from Beachcomber resorts Shandrani, Trou aux Biches and Paradis
-
If you’d invested in: Pepper Food Service and Greene KingFeatures Pepper Food Service operates franchise and directly run steak-restaurant chains throughout Japan. Shares in the firm have risen 924% since January.
-
Shares in focus: Does Greene King have a future?Features Greene King is one of Britain's best pub chains, and the shares are not cheap. Should you still buy in? Phil Oakley investigates.
