Andrew Meadowcroft: Looking at the fundamentals
Just as I was starting to accept there was little positive in the sector to report, two things happened.
Firstly, I read what I have always believed: that beer might even be good for me (more of that later), but also the share prices of most of the listed companies, and especially of Enterprise Inns and Punch Taverns, were lifted from the doldrums after the former announced it had been given the go ahead by the government to convert to a tax-efficient real estate investment trust (REIT).
Why such a reaction? What does it mean for the industry as a whole?In terms of the share price movement - in the case of Enterprise a rise of 29 per cent - there are two opposing views.
City analysts, having put their slide rule over the numbers, estimate that the tax saving from such a structure could be in excess of £45m per annum - which when converted to present value equates to around 150p per share (hence the share price movement). It also represents a huge over-reaction in a sector short of good news.
It is just too early to tell what the long-term benefits will be. I think there is truth on both sides, but would steer more towards the cautionary end of the spectrum.
So what does it mean for the wider industry? There are certainly potential benefits for a limited number of the pub companies (Enterprise and Punch being the obvious candidates) but it will not be sufficient to assume that just because a company might convert that it will automatically be a better one.
The fundamentals will be as important then as they are now and a more efficient tax structure does not necessarily mean a more successful company. Focusing on the overall offering, maintaining margins and providing good customer service will continue to be the over-riding factors in assessing a company's success.
Big challenges for the sector remain, notably high fixed costs and falling beer sales, and I suspect nobody will be taking their eye off the ball and rushing into conversion anytime soon.
For smaller operators, any financial benefit might soon be outstripped by the actual costs in conversion which will be both complex and time consuming, and it remains to be seen whether the short-term value in converting to a REIT will be outweighed by the long-term problem of not owning or controlling your own properties.
It is too early to think of the benefits this will bring to the industry. Operators might be advised to focus on the job rather than balance sheet restructuring for now.
And finally, I mentioned at the start that studies have concluded that, in moderation, beer is good for you. While I don't need any convincing, studies showed that the malts and hops help reduce the risk of cancer and heart disease, and the choline present protects against liver damage and memory loss. And that must be good news!
I leave you this week with the words of American author Louis L'Amour: "Some say opportunity knocks only once. That is not true. Opportunity knocks all the time, but you have to be ready for it."
Andrew Meadowcroft is head of licensed trade, Barclays Commercial Bank
