Soaring energy costs prompts sector downgrade

The impact of soaring cost of gas and electricity prices on managed pub operators has prompted a leading City analyst to downgrade his profit forecasts for the sector.

Panmure Gordon's Douglas Jack said that Punch Taverns had confirmed its estimated electricity and gas prices for 2009 were likely to be between 30 per cent and 50 per cent higher than this years' figure.

2008 is likely to see utility costs of £25m - £15m electricity and £6m gas. As well as hitting utility costs, distribution costs would also be adversely affected, Jack said.

With Punch having no utility cost hedging in place beyond next year Panmure was cutting its 2009 profits forecast for the operator from £285m to £278m, he added.

In addition to highlighting the problems likely to affect Punch, Jack said high oil prices meant that JD Wetherspoon's utility costs were likely to rise to between £28m and £33m, "if the oil price does not change over the next few months".

Earlier this year, when oil was $100 a barrel, it had been expected that Wetherspoon's energy costs would rise from £23m in 2008 to £28m next year.

While the cost pressure on managed pubs would grow, Jack believed that a further squeeze on consumers' wallets would mean rents at tenanted and leased pubs would slow.

With costs rising, he said he was downgrading his 2009 profit forecast for Marston's from £95m to £93m, and Greene King from £143m to £141m.

Last week London brewer Fuller, Smith & Turner said its gas and electricity prices had risen by £600,000 in the 2008 financial year and it expected these costs to more than double in the 2009 financial year.