Exclusive: Status quo not an option at Punch
A senior City analyst has argued that the "status quo" at Punch Taverns is "not an option".
Douglas Jack, of Numis Securities, has claimed that the managed division at Punch should be de-merged.
He points out that Punch's A and B bond leased estates "carry no equity valuation" to be judged.
Jack insists that any "option value" in the leased estate "rests on the possibility of management successfully renegotiating the bond debt down to a realistic level" — he suggests a compromise with bond holders could be to extend the life of existing bonds, thereby stretching out the amortisation profile.
On the argument for de-merging the managed estate, he said: "With the Spirit bond likely to exit cash trap in 2012, when the re-branding programme should be complete, a de-merger should enable some of the PLC cash to be returned to shareholders and dividend payments to resume in 2013."
Jack insists that there are only two options for Punch management — to renegotiate the terms of the A and B bonds with bondholders to prevent the further loss of equity or, more realistically, to "de-merge the A & B bond (leased) estates" to create a "fast-growing, stand-alone managed pub investment vehicle".
The stand-alone managed company could be boosted by some of the 564 Spirit bond leased pubs being transferred back from leased to managed.
City comment by The PMA Team
Punch chief executive Ian Dyson is undertaking a strategy review at Punch, which is due to complete in January.
Douglas Jack's view, in layman's terms, is that he needs to divide the company into managed and tenanted through a de-merger (or, again in layman's terms, amputation of the tenanted division). There's still equity value in the managed site and in the cash held by the company itself.
On the leased side, Jack is suggesting, Dyson will need to get tough with the bondholders. It's got to the stage where there's not much incentive for Punch shareholders in running the leased division since it's a drain on company cash reserves.
Bondholders, Jack implies, need to hear a straight-forward message — you need to re-schedule debt repayments or you can have the keys back.
Jack argues that bondholders are unlikely to voluntarily accept smaller returns. The most likely result, therefore, is to de-merge the A and B bond estate which could then "enter administration and then be sold down/run for cash".
Some observers have described tenanted estates currently owned and run by banks as "zombie" assets — run for cash by the banks as they sell estates piecemeal, stabilise performance in the core estate through very limited but targeted investment prior to a sale.
That would be the future, under Jack's scenario, for Punch leased.
