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Enterprise Inns shares rise despite flat profits

Discussion in 'Market News' started by Lily, Nov 18, 2015.

  1. Lily

    Lily Forum Member

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    Pub owner on track with new strategy to expand its managed estate

    Pubs group Enterprise Inns has reported flat profits as it restructures its business in the face of changes to the industry.

    The company - the largest pub owner in the UK - plans to sell unwanted assets, expand its managed pub business and develop a commercial property division. As the strategy gets underway, its annual profits edged up from £121m to £122m. Full year like for like income rose 0.8%, which it said was a good performance given that the previous year benefitted from the FIFA World Cup.

    Enterprise Inns is in the early stages of a number of initiatives to exploit the potential of its estate. It is developing its Managed Estate where it currently operates 35 pubs. In addition, it is developing a commercial property business which currently has 213 properties and a rent roll of £12m per annum. There are ambitious plans to expand the scale of the managed estate to 800 by 2020 and the commercial property portfolio to 1000 units.

    The shares have been disappointing performers recently, despite the consistent nature of trading and some positive developments from the recent Government Consultation on the new pubs code. While leverage remains high, the rating of the shares is low both in PE terms and in relation to net asset value. We consider the shares have upside potential on recovery grounds.

    Like for like net income is being supported by: increased growth capex; enhanced operational support (40 versus 55 pubs per regional manager); and a further 18% reduction in the number of business failures (to around 8% of the estate per annum). Licensees are also benefiting from discounts on WiFi, Sports TV packages, food offerings (with menu advice and support), training and marketing (at a 2015 cost of £6m to Enterprise).

    Our recommendation remains Bby, but we prefer Punch Taverns on the grounds of lower enterprise value/EBITDA and net debt/EBITDA ratios and lower execution risk.

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