Punch and Greene King 'longterm bets' - analyst

Greene King and Punch Taverns shares should be bought on a long-term basis, according to Panmure Gordon analyst Douglas Jack.

He said: "Overall, larger pub company shares have been static in the first half of 2007 due to a deteriorating property outlook, REITs disappointment and a slowdown in corporate activity. ​

Operational performance is likely to remain in question until Summer 2008, when the full affect of the smoking bans on profits is known ​ Panmure Gordon analyst Douglas Jack

"Private equity attention remains focused on restaurants and hybrid pubs (with turnaround/alternative use potential) rather than large pub companies which would be more hostile.

"As Marston's confirmed last night, recent pub trading has been undermined by poor weather (empty beer gardens) and tough comparatives.

"Prospects in the second half of 2007 are no better due to the English smoking ban, although most operators claim that the impact of the Welsh ban has been benign so far. "Operational performance is likely to remain in question until Summer 2008, when the full affect of the smoking bans on profits is known."

Jack said there had been "over-hype" on property upside and now the over-hype is on the downside, partly due to higher bond yields and poor short-term trading conditions.

He added: "This should be a long-term buying opportunity, particularly for companies that can leverage off substantial asset backing and cash flow to buy back equity. ​

"Yet another reason why integrated property ownership is necessary in such a mature industry.

"As the long-term affect of the smoking ban should be positive and almost all of these companies intend to buy back significant equity, we would use weakness as a long-term buying opportunity in the most undervalued stocks, Punch Taverns and Greene King."

Jack tipped Domino's Pizza, Restaurant Group and Luminar to out-perform in the short-term.