Punch: Spirit de-merger being considered
Punch Taverns has confirmed that a de-merger of its managed arm is one of the options it is considering as part of its strategic review, the results of which will be announced tomorrow.
In a statement to the City, the company noted the recent speculation regarding the outcome of its strategic review and said, "as part of this review a number of options have been considered by the company including a potential de-merger of Spirit".
Reports over the weekend, suggested the company is studying a plan to spin off its better performing Spirit division, which manages pubs directly, into a separate listed company. Existing investors would be handed shares in the new group, which would probably be given £200m of Punch's cash.
Douglas Jack at Numis said the de-merger of the managed estate would make sense and crystallise value.
Jack said: "Removing any linkage between the A and B bond debt and the managed estate should crystallise the value in the latter, creating a company that offers strong growth, lower debt (4.4x net debt:EBITDA), superior market positioning and less regulatory risk."
Simon French, analyst at Panmure Gordon, said that he saw the following as the most likely options to have been discussed within Punch:
- No change to the current group operations or capital structure but an acceleration of the disposal of non-core pubs to reach the core estate of c4,700 leased pubs, which have a long-term, sustainable future.
- Indication to withdraw financial support to the Punch B securitisation, which is likely to lead it to breach covenants in the medium-term. This can then be used as leverage in negotiations with bondholders to reschedule the amortisation profile in the Punch A securitisation.
- Indication to withdraw financial support to the Punch A and Punch B securitisations, which will likely lead them to breach covenants in the medium-term.
- The demerging/disposal of the Punch A and Punch B securitisations, and subsequent disposal of the 50% shareholding in Matthew Clark to leave an integrated leased and managed pub company.
French concluded: "With cash and bonds at the Plc level, a 50% shareholding in Matthew Clark (the drinks distributor) and a rapidly improving managed pub business, we believe the risk reward balance lies on the upside. As such, we reiterate our Buy recommendation and 105p price target."
Earlier this month, Punch reported a step change in the performance of its managed estate, which reported an 8.6% increase in like-for-like sales for the 12 weeks to 5th March.
The figures for the 12 weeks showed a continued improvement from the group's first quarter like-for-like growth of 2.2% and raised like-for-like sales growth for the first two quarters to 4.9%.
