House broker cuts Enterprise share target

The broker for Enterprise Inns has slashed its share price target for the company.

Deutsche Bank, which has been broker for Enterprise for about a decade, has moved its recommendation from "buy" to hold" and dropped its share price target from £2.30 to £1.00.

Deutsche Bank's Geof Collyer has had a consistent "buy" recommendation on the tenanted operator for most of the time since its floatation but believes there will be "downtime" in the share price until the company can return to growth.

He said: "Until like-for-like growth returns, the bears will continue to claim that the pubcos are over-renting and that the model is structurally flawed.

This means that there could be plenty of 'downtime' in the Enterprise Inns share price before the bears are proved wrong later in the year.

"We believe that once the group can show that the rot has stopped (hopefully, financial year 2011 will be the last year of a five-year run of declining EBITA), that the downgrades are over and that the business model can get back to delivering like-for-like growth, then the debt paydown over the next three years - equivalent to 120% of today's market capitlisation - should transfer over to the equity value, resulting a doubling of the share price."

Deutsche Bank also changes its Punch recommendation from hold to sell, drropping its price target from 95 to 55p.

Restructuring​

Collyer said: (Punch) restructuring could take a long time. It is a complicated process and some think it is the most complicated debt restructuring since Eurotunnel, which took many years to resolve.

"It may take several years to determine what New Punch will look like, or if the restructuring will eventually create more value than the current share price suggests.

"It may be a high risk recommendation change, given the proximity to the publication of the strategic review. But from here, it is difficult to see a clear equity story emerging in the near term - which is not to say that one will not emerge.

"We would assume that Ian Dyson has set himself a three year target to sort Punch out. This may therefore involve the share price falling before it goes up."