Charity: Thorley hints at Punch's potential

Punch Taverns boss Giles Thorley was giving analysts an overview of current strategy last week at results, stressing how well the company was placed in relation to the entirety of the on-trade universe.

He produced a diagram that showed his Punch tenanted business, the Spirit managed division and the Matthew Clark wholesale business and how they relate to the wider 130,000 strong on-licensed world.

The hint was that Punch had gathered unto itself terrific synergies thanks to supermarket-like buying power and an ability to service the broader market.

The 7,561-strong tenanted business compares to 30,000 leased and tenanted pubs in the broader market place.

Having had 10,500 tenanted and leased at the company's high point, Thorley claimed Punch had "owned most of the pubs we've ever wanted to own"​ in this segment.

Low distress levels​

Later on, he produced figures that indicated very, very low distress levels in Punch's tenanted division and underlying income increases of 2% for licensees (9% overall thanks to Spirit conversions).

Back with his diagram, Thorley said Punch now operated 887 managed pubs through Spirit.

Here, he argued, would come conversion opportunities for the next generation of tenanted and leased pubs. He also foresaw Punch running around 1,000 managed pubs.

The wholesale Matthew Clark business had just 20,000 customers of the circa 90,000 independent bars, freehouses, hotels, restaurants and clubs in the UK, and the broader leased and managed markets.

As Matthew Clark drives into this customer base, it is helped by and contributes to the buying power of its sister managed and leased companies.

Triple synergies benefit​

"The three companies benefit from the synergies of each other,"​ he said. Elsewhere, Thorley was keen to ram home what a good buy Spirit had been at £2.7bn.

Punch had sold 400 pubs for £800m, leaving it with a net outlay of £1.9bn. The remaining Spirit pubs, divided now between leased and managed, are producing a run-rate Ebitda of £220m.

Thorley invited analysts to apply a sensible multiple to work out what these pubs are now worth. "I'm not allowed to do the rest of the mathematics,"​ he told them.

A multiple of 10 times earnings - they were bought for 9.7 times earnings with those sold attracting a price of almost 10 times earnings - applied to the 1,430 pubs left within Punch makes them worth £2.2bn, a handy £300m surplus above what they ended up costing Punch.

Mill House Inns​

Thorley also shed a little more light on the rationale behind last year's acquisition of Mill House Inns.

The deal was unusual in that it required a negligible number of four disposals and the remaining 78 Mill House sites fit neatly into Spirit's four managed segments.

"Normally, we expect to sell up to a third of sites,"​ said Thorley.

In the Spirit estate there's been significant catch-up spend on investment with the London estate out-performing as a result.

It was pretty obvious that the managed estate was now at or around the JD Wetherspoon level - negative by around 1%. (One analyst, Geof Collyer, of Deutsche Bank, has claimed Spirit was the worst performing managed group in the summer with profits down between 15% and 25%).

But Thorley pointed to his Scottish pubs where sales are back in growth after a -1.8% low point.

In wider terms, Thorley reported that Punch had the luxury of watching others explore the world of Real Estate Investment Trusts (Reit). The reason is that Punch is not paying any tax for the next year anyway.

"Because of our very favourable tax position we can take advantage of the opportunity to tread water and watch what happens in the market,"​ he said.

Thorley sticking around​

Nobody asked Thorley about his personal plans, though it wouldn't have been an unreasonable question given that he was signalling his desire to move on a year ago. It does seem fair to assume he's sticking around.

After all, he could have followed the lead of chief operating officer Adrian Fawcett and cashed out when the shares were worth a lot more than current levels - Fawcett sold a million pounds' worth at £12.76 each last December.

Thorley was claiming Reit froth was adding up to £1.50 to Punch's share value at times in the past year, but it's a fair bet to assume he thinks they are worth a good deal more than the 936p they closed at on Friday.