City stands by for flood costs

Uncertainty surrounds the precise cost of the floods to the major pub companies as they struggle to assess the level of damage.

One City analyst, Paul Hickman, of KBC Peel Hunt, feels Marston's will be hardest hit with repairs to more than 100 pubs affected costing around £11m. Punch and Greene King both have many pubs affected by the floods. A second City analyst said: "Trading statements in September are unlikely to be particularly good."

The Mitchells & Butlers estate seems to have escaped the floods unscathed because it doesn't have a big presence in Gloucestershire.

Damage at pubs ranges from complete flooding to those where only the cellar is affected. Hickman said Marston's policy is effectively to self-insure both for fabric and for loss of profits.

Hickman said: "We assume that of the total estate of 2,256 pubs, this affects around 5%. On the normal mix, about 30 of those would be tenanted and 90 managed. If we assume that 50% of those affected would require rent relief for three months, the effect would be £300,000.

"On these assumptions, the revenue effect of flood damage would be around £5m, or 5% of pre-tax profit. Fabric repairs would, we assume, be in the range of £25,000 to £120,000. At an average of £90,000 each for 120 pubs, the cash cost would be £11m."

Hickman, who expects re-

pair costs at Marston's to either be capitalised or treated as exceptional, said: "Trading losses are probably not large enough to justify exceptional treatment, so the conclusion could be a 5% earnings effect.

"The effect is clearly temporary and does not affect the validity of Marston's proposition, nor its underlying asset-backed value, which we continue to rate at 500p."