A leading corporate finance adviser believes city analysts have got it wrong in the way they analyse pubco profitability.
Speaking at the Tenanted pubco summit, Peter Hansen of Sapient Corporate Finance, said that the only way to judge the success of a pubco was to analyse tenant profitability.
"The tenant profitability is often left out but the pubco depends on tenant profitability," he said. "The tenant profitability is a much better judge of pubco profit.
"You can't value a pub without the tenant profitability analysis. If you do we are in for a few nasty surprises."
Hansen called for a "rebalancing" of terms to stabilise tenant profitability. He estimated tenant profitability had declined 30% between 2006-2009 but pubco profit had remained stable.
"The model hasn't been balanced for a couple of years and getting that balance is essential."
He said the drop in tenant profitability had led to a drop in pubs let on substantive agreements and it is "almost never the case that the pubco is able to re-let at the same rent the pub was on before".
He said: "The simple conclusion is stick with the tenant and the rebalancing is preferable to seeing rent drop 50%.
"The call to rebalance makes absolute sense."
Hansen also hit out at premiums charged on recent managed to leased conversions. "The premiums have proved to be a disaster as it is taking money out of the tenant's pocket and he has less to invest in the pub."
He warned that investment in the sector would not return until tenant profitability is stabilised. "We see [the tenanted model] surviving but there has to be a rebalancing."