Punch’s shares take roller-coaster ride
Share values are hard to get your head around sometimes. Take Punch Taverns. It floated on 27 May 2002, with its shares worth 230p each. Values climbed to a high point of £13.23 within the past year, before declining to a shade over £2 at one stage on Tuesday morning.
Charity: Why are Punch shares on a downward slope?
Anyone thinking of buying a Punch pub-lease assignment in 2002 for, say, £60,000, would have been much better advised buying Punch shares instead and doing nothing. To do so would have seen the £60,000 grow 5.75 times to £345,000 at the high point — an averaged-out gain of around £57,500 per annum plus dividends for each of the five years from 2002 up to a fortuitous sale at the high water mark.
To hang on to Punch shares beyond the high point would have seen the £345,000 shrink back to less than £60,000. Meanwhile, Punch has almost trebled profit before tax from £93m for the year ended 17 August 2002 to £133m for the six months to 1 March 2008. Punch’s shares are on a price-to-earnings ratio of 2.68 — remember managed leased high street companies trading on a p/e in the high 20s within the past decade?
Buying of shares is driven by a host of rational and irrational factors. Confidence about wider economic prospects is at rock-bottom, and investors are scared away from any company that has property assets and high levels of debt.
Punch has sought to reassure investors and analysts about how secure and stable its lending and cashflows are. Given this, the market is making one mighty assumption about Punch: trading is going to get a lot worse.
One unspoken fear remains, despite best efforts by Punch’s management to dispel it: something nasty is lurking in Punch’s debt structure.
Buyers of Punch shares have a right to be pessimistic, but the unspoken fear is as immune from logic as the over-exuberance that sent Punch shares to silly heights.
M&B’s R20 representatives on board ‘will distract’, says analyst
A lot of people seem a little uncomfortable with Mitchells & Butlers’ (M&B) newest non-executive director appointees. Aaron Brown and Tim Smalley are lieutenants of M&B’s largest shareholder Robert Tchnguiz’s R20. They were drafted onto the board for their property expertise a few months after another managed company of which they were directors, Laurel, went into administration.
Laurel’s accounts for 2007 cited higher rental payments, resulting from freeholds being taken out of the company as a reason for greater losses.
Creating a freehold-lite operating company paying rent to a second M&B firm that owns most of the freeholds is Tchenguiz’s big plan — it’s called a real estate investment trust (Reit).
It leaves Landsbanki analyst Kate Pettem scratching her head. She can find tax savings of £20m in the plan, while implementation costs could be £800m.
As a parting shot in a nine-page note, Pettem says in the sober analyst’s wonderfully understated style: “We are concerned that R20 representatives on the M&B board will be a distraction to the company that will not create value, when it should be entirely focused on taking advantage of a weak market using its high quality assets, its low cost of capital, and its superior margin structure to take share from weakened competitors.”
Globe spinning at alarming rate
For those who missed the Globe results a fortnight ago, one figure looked particularly alarming. A total of 69 of its 429 pubs saw a change of tenant in its most recent three-month period, from March to the end of May. This is a 16% rate of churn in a single quarter compared to an industry average annual churn of circa 25%. Annualised, this would be a scary 64%. This is more than a revolving door situation — the door is spinning so fast, it’s a blur. Repeated across the industry on an annualised basis, the tenanted pub universe with around 32,000 pubs would need to find 19,200 new tenants a year.
Barracuda’s battle
It looks as if Barracuda is heading for a full-blown legal dust-up about the legality of its smoking shelter at a Scunthorpe site. Barracuda bosses insist the veranda-style shelter at the £850,000 bar complies with smoking ban laws and it will remain open until further notice.
But North Lincolnshire Council is taking legal advice on the reopening of the controversial shelter, which closed for a while earlier this year while Barracuda took advice on its legality.
Council planners felt the shelter was more than 50% enclosed when two side shutters were pulled down.
Barracuda fitted them to comply with licensing conditions that stated it must be shuttered off after closing. It doesn’t look like an open and shuttered case.
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