Mark Kenyon: Does a pubco's share price matter?

For those of us with young children, a visit to a theme park is a familiar draw over the long summer holidays. On the menu are fast food, fizzy drinks and the obligatory ride on a rollercoaster which leaves you feeling slightly queasy!

Many pub industry watchers might say they've been as good as permanent visitors to theme parks this year, given the ups, downs, twists and loops we've seen pubco share prices go through.

Greene King's trading update on September 2 prompted the market to respond positively to its stock and those of other listed pubco shares. Yet the following day Punch Taverns announced it wouldn't pay a final dividend to shareholders, and while some argued this was prudent, others - notably investors looking for income - were alarmed and lo, share prices dived again.

Pub stocks have had a very challenging 12 months. On a 52-week high-low spread some of the numbers are startling, with some experiencing lows equivalent to a third of their peak value.

So does a pubco's share price matter?

In an ordinary environment the answer is 'yes', particularly if an individual company price is moving in the wrong direction versus its peers. An adverse trend could distract management from running the company. Plus a low share price - one considered 'cheap' or a 'good buy' - is likely to attract bids, both friendly and hostile, which eat into management time and make employees nervous.

But in today's market? I'm not so sure. Yes, a company's share price reflects how investors view the sector, the company and the future. But the fall in pubco prices mirrors that in other sectors and the FTSE100 overall. Certainly we're in for a tricky couple of years and investors could be looking at paper losses at the moment, depending on when they invested. But unless the cash is required, they will want to keep the losses as paper and not transfer them into monetary losses by selling.

There is also the media's reaction to events which impacts on share prices and gives a distorted view of value. Pubcos are seeing the biggest challenges to face the industry in recent history and this is jangling the nerves of investors and analysts alike.

But stock price is not the only way to value a company. It is often the softer elements that are hard(er) to quantify which have the biggest impact, such as the calibre of management experience, talent management and staff retention. Those companies which predict a tough year and its effect on profits and cashflow and which then adapt their strategy to reflect this are far more valuable to investors in the medium to long-term than a yo-yoing share price.

A consequence of the lower share prices may be an increase in the number of pubcos being taken private.

While there's not much evidence of this just yet, I'm sure the advisors are working away to see if deals can be done even in the present financial market, given today's share values.

Companies can't control the stock market, but they can influence it through performance and transparency - both are paramount now and within management's control.

Today the more important issue is around dividend strategy, namely who can pay one and who chooses not to. The communication and acceptance of such a difficult decision will be more important than the share price debate for a considerable period of time.

Mark Kenyon is head of licensed trade at Barclays Commercial Bank​