Collyer: 'Punch must sort out Mill House'

Punch Taverns' acquisition of Mill House Inns has seen "management's eyes completely off the ball" according to analyst Geof Collyer at Deutsche Bank.

Collyer said that the first 24 weeks of trading had been disappointing, adding: "Mill House was expected to 'hit the ground running', yet it looks as if it has just hit the ground.

"At the time of the acquisition, the implied Ebita margin was about 22%. The single-digit margin for the 24 weeks' contribution, from an average weekly growth of more than 5%, would suggest that management's eyes have been completely off the ball while they have been busy transferring the transition estate to lease."

Collyer said that the "paltry" profit contribution had been "bailed out" by highmargin income streams.

"'Other' and 'machine' income convert at 100% into gross profits within the Punch accounting system.

"Within Mill House, 13.1% of revenues came from these two sources, equivalent to £3m of profits versus the £2m reported for the total business at the Ebita level," said Collyer.

"We know that it is usually unfair to look at a 100% gross- margin income-stream without any proportionate othercost allocation, but the stark nature of the contribution here is indicative of the need to get to grips with the costs at this newly-acquired business - and fast.

"There is supposed to be £1m of synergies and savings coming through here in the first full year, but it looks as if Punch will require a lot more to justify the £2m per site paid."