Tenant profits could drop to just £3,000

The profit of the average tenant could drop to as little as £3,000 over the next year, a senior market analyst has warned.

Mark Brumby of Blue Oar Securities believes that rising costs, a slowdown in sales and reduced margins could cut profits from £32,850 to just £3,259.

Brumby believes that the two major pubcos - Punch and Enterprise - may have to spend between £50-60m to help their tenants survive.

"This is a sobering piece of work that has been bounced off a number of trade players," said Brumby.

"We are not bonkers and nor, do we believe, are we being unduly pessimistic.

"If there is a silver lining to falling revenues and margins and rising costs then it has eluded us.

"Helping the tenants through this will cost a lot of money. Rent optimisation may well be proven to have been a better course of action than rent maximisation.

"With this in mind we believe that the regional brewers will be in a better position to weather the coming storm."

He added: "In conclusion, we'd suggest that it's not likely that the economy will turn on a sixpence. If it doesn't, then the forces currently in action will remove a large part, if not all, of the average tenant's profits.

"Clearly, this is a linear assumption and, over time, the tenant will adjust his model and cut what costs he can, essentially labour.

"However, this transition will not be easy, immediate or cheap."

Trading figures: Current year / year one​

Sales income: £360,000 / £289,357

Gross profit: £159,824 / £143,690

Gross margin: 52.2% / 49.6%

Costs: £123,824 / £136,831

Trading profit: £36,000 / £6,859

Interest: £3,150 / £3,600

Net profit: £32,850 / £3,259 ​

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