Punch to cut value of estate by £600m

Published 11th Oct 2009

Punch Taverns, the pubs landlord, is expected to slash the value of its estate by more than £600m when it unveils its annual results this week.

The indebted leisure group, which owns 8,300 pubs, will be forced to write down the value of its portfolio because of a combination of the falling property market and a decline in takings at its outlets.

The estate is listed in Punch’s accounts as worth almost £6.2 billion. In the past 18 months, it has reduced the value of its pubs by £440m. Analysts expect that Punch will this week further reduce the estate’s worth by at least another 10% — or £620m.

Annual profits are also expected to fall sharply. Panmure Gordon, the stockbroker, is forecasting pre-tax profits of £162m, down from £261m a year ago.

The writedowns will reduce the gap between Punch’s net asset value, estimated to be equivalent to 340p a share, and its current price, which stands at of 121p.

Andy Brough, fund manager at Schroders, a Punch shareholder, recently argued that because of this gap, the company should break itself up, using the proceeds to pay off its £3.5 billion debt.

So far, such a strategy has been resisted by Giles Thorley, Punch’s chief executive. He has been working hard to reduce the company’s borrowings, with net debt falling by more than £1 billion during the past year as the company sold pubs and used the proceeds to buy back its bonds.

On Friday, the group revealed that a recent offer to buy back a tranche of outstanding bonds had been oversubscribed and that it would purchase £102m worth.

The bulk of Punch’s business is in owning pubs that are run by tenants who are compelled to buy beer from their landlord, a business model that has come in for much criticism from consumer groups and MPs.

Last week, a protest group launched itself on Facebook, the social networking website, with the aim of reducing the power of landlords such as Punch and Enterprise Inns.

Tenants complain that the prices they are charged for beer are too high, an argument that has been denied by the pub companies, which point out that they provide financial support to struggling tenants.

The industry has been battered by high taxes on alcohol, the smoking ban and the recession — an estimated 50 pubs a week are closing in Britain.

As well as its tenanted arm, Punch also has a division running its own pubs. Mike Tye, who heads Punch Pub Company, is working on plans to introduce new brands and refurbish pubs in a bid to reverse falling profit margins.

The City has tended to favour pub companies that run their own outlets, such as JD Wetherspoon and Mitchells & Butlers, which are coping better with the downturn.

Source: ' Sunday Times '

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