Punch Taverns shares rise after "encouraging" trading update

Shares in Punch Taverns rose more than five per cent this morning after the UK's largest pubco said it was on track to hit its annual trading forecasts.

Despite some City analysts taking a relatively dim view of the group's latest interim management statement, Punch's stock rose as it outlined like-for-like sales growth in recent months.

"Despite poor weather in January recent trading has been good in both the leased and managed pub estates," said Phil Dutton, Punch's finance director. The World Cup had been helpful, he added, but he pointed to certain "management actions" which had brought about greater stability.

"On the leased side we've invested around £45m in more than 800 pubs, we've increased the proportion of our pubs on substantive leases from 82 per cent to 84 per cent, we've absorbed brewer's price rises and the number of pubs being returned to us is about half what it was last year," Dutton said, noting that some 1,000 pubs "would have failed on an annualised basis" last year.

Lettings to new tenants had also outweighed pub failures, he added.

Average outlet earnings before interest, tax, depreciation and amortisation (EBITDA) was down five per cent "benefiting from estate churn", Dutton said.

Across the managed estate Punch will have invested around £50m over the course of the year, with programmes to refurbish two concepts, Fair & Square and Chef & Brewer, expected to be "substantially completed" by the year-end.

Punch continued to tackle its debt, Dutton said, reducing gross debt by £664m - 16 per cent - boosted by pub disposal proceeds of £263m, while net debt stood at £3.2bn. The group would be looking to raise £300m in total over the course of the year, he said.

Dutton said the group would continue to look to reduce debt in line with the decline in profitability of the three securitisation vehicles, Punch A, Punch B and Spirit.

"The cost of the support for these structures might rise but we're confident the action we've taken and will continue to take will give us enough headroom to enable us to meet our financial covenants going forward."

Punch would not be in a position to pay shareholders a dividend for another two to three years due to funds being 'trapped' under the terms of the securitisations.

However Dutton stressed that money could be invested in the group's pubs.

"Leading shareholders are tremendously supportive of what we are trying to do," he said.

Looking ahead Dutton said the economic outlook would demand the group be cautious with its financial plans.

"However, we are encouraged by our current trading momentum and are confident that the business change programmes and continued management actions in both sides of our estate are strengthening the business to deliver solid longer-term operational performance."

But James Dawson, an analyst with City broker Charles Stanley, said: "Today's interim management statement demonstrates that improved trading performance will take time to materialise.

He added that any volume stabilisation "will be offset by the rebasing of the rental levels across the substantive estate, an exercise which is likely to take a further 18 to 24 months".