Analysts' approval for Punch progress
Analysts at KBC Peel Hunt report that Punch finance director Phil Dutton has given them a "remarkably sanguine" account of progress against its trans-formation objectives.
Dutton's presentation has prompted KBC Peel Hunt to conclude that debt could reduce from the figure of £4.5bn in August 2008 to £3.4bn within two years — it has a buy recommendation and a target price of 170p a share.
The broker believes 1,500 pubs could be sold over the next two years. It said: "At an average of £300,000, this is likely to generate £500m further debt reduction, or £625m assuming a 20% debt discount, taking debt to £3.4bn."
On Spirit debt, which was slightly over £1bn in June, KBC Peel Hunt said that there was potential to increase managed division EBITDA from £100m to £150m within one to two years,. "(With) a further £50m being produced by the tenanted component of Spirit, we estimate that Spirit may be out of the cash trap by August 2010."
KBC Peel Hunt said that once debt levels are under control, Punch can resume the dividend and expansion strategy.
Meanwhile, Altium Securities has described Punch Taverns as a high-risk investment, but said further pub disposals, debt reduction and improved margins at its managed pubs mean it should be able to meet debt service payments.
It said: "We see upside from current levels predicated on the company delivering on many fronts: disposals, estate quality improvement, bond debt retirement, turning around the managed pub estate and leveraging central purchasing. A tall order, but possible, hence the high-risk buy."
It recommended a target price value of between 143p and 155p and added: "We await the next update in September to assess the progress made on debt reduction."
