Analyst: Punch could return to paying dividends next year

Punch Taverns could return to paying dividends next year, analyst Douglas Jack, of Numis Securities, has forecast.  

He reported that the disposal of 740 leased pubs this year generated £440,000 per pub at an average of 11.2x EBITDA, with the sale of 60 managed pubs brought in £1,470,000 per pub at an average of 8.0x EBITDA.

He said: "The pace of leased pub like-for-like profits decline remained -11% throughout 2009, but with the main cause of decline switching from beer volume (-7.8% H1; -5.4% H2) to rent reductions (-7.3% H1;-10.3% H2) as the year progressed.

"Supported by this and the majority of disposals occurring at the tail-end of the estate, our 2010E forecast assumes the like-for-like profit decline slows to -7%."

He added: "After a £235m profit on debt retirement, this generated significant equity value and should have increased average EBITDA/leased pub by 5%.

"In early 2010E, £148m convertible and £144.9m securitised bond debt has been retired. Following this, thecompany should have circa £400m of cash, almost all centrally held. "This and over £300m of cash inflow (post disposals) in 2010E should reduce bond debt materially. Outside the convertibles (£44m) and B A8 note (£122m), we believe Punch is still achieving 20%-30% discounts.

"Operational initiatives combined with disposals becoming operationally rather than balance sheet driven, should enable EBITDA to stabilise from late 2010E. With debt continuing to fall, this could result in dividends resuming next year and a narrowing in net asset value discount (262p/share after a £516m asset write down in Half Two of 2009). "We are cutting our target to 145p (equivalent to Enterprise Inns' 9.1x EV/EBITDA) but we agree with management's confident long-term view."