Analyst: Punch should drop tenanted pubs
A leading City analyst has claimed that Punch Taverns' best option now is to allow the two securitisations — A and B — that cover 5,325 of its tenanted and leased pubs to default.
The option favoured by Peel Hunt analyst Paul Hickman amounts to Punch walking away from the majority of its leased estate to focus on its Spirit division, which includes its managed pubs and 654 high quality leased pubs.
By allowing a default, the pubs revert to bondholders who would have two choices — run the division themselves or sell the estate, either as a block or individually.
Hickman said: "It is quite clear that the bond structure that finances most of the tenancies is unsustainable.
"It is now crucial that a clear solution is imposed. Having considered alternatives, we believe the preferable outcome is to allow the A and B securitisations to default.
"We believe shareholders should use their influence to press for this outcome. Once this issue is resolved, the value in Spirit and group assets, which we put at 91p, will be apparent."
Review
Punch chief executive Ian Dyson is undertaking a review with the objective of exploring options "to create value for our shareholders".
Hickman added: "We believe his task is to reach a conclusion that will remove uncertainty from the perception of the value in the Spirit and group assets, and that is what shareholders will expect.
"Continuation of the present A and B bond structures is not an option. They would need increasing levels of financial support, currently £43m per annum, and equity shareholders would not be well served by the medium-term drain on value.
"We believe the option best able to restore value to the shares is to allow the A and B securitisations to default.
"This has two major advantages: removal of uncertainty associated with highly indebted tenanted pubs, which has been established as an unattractive investment model; and retention of the cash being paid to support the bond structure.
"We have considered the alternative of a reduction of 25-30% in the nominal value of the A and B bonds.
"We believe the difficulties of reaching such an agreement may be great, there would be continuing uncertainty about the financial health of the structure, the equity value is small at PV of 25p, and it takes 13 years to be realised."
