Analyst claims Punch needs more from Mill House
A senior City analyst has claimed Punch Taverns' acquisition of Mill House Inns has been disappointing in its first 24 weeks with "management's eyes completely off the ball".
Punch bought Mill House last September for £164m - £2m a pub.
Geof Collyer, of Deutsche Bank. said: "Mill House was expected to 'hit the ground running' yet it looks like it has just hit the ground.
Mill House was expected to 'hit the ground running' yet it looks like it has just hit the ground. Geof Collyer, of Deutsche Bank.
"At the time of the acquisition, the implied EBITA margin was around 22%.
"The single digit margin for the 24 weeks contribution, from an average weekly growth of over 5% would suggest that management's eyes have been completely off the ball, whilst they have been busy transferring the transition estate to lease.
"The paltry profit contribution has been baled out by high margin income streams.
"'Other' and 'machine' income convert at 100% into gross profits within the Punch accounting system.
"Within Mill House, 13.1% of revenues came from these two sources, equivalent to £3m of profits versus the £2m reported for the total business at the EBITA level.
We know that it is usually unfair to look at a 100% gross margin income stream without any proportionate other cost allocation, but the stark nature of the contribution here is indicative of the need to get to grips with the costs at this newly acquired business - and fast.
"There is supposed to be £1m of synergies and savings coming through here in the first full year, but it looks like Punch will require a lot more to justify the £2m per site it paid."
