Tenanted pub profits have further to fall, says City analyst

By Hamish Champ

- Last updated on GMT

Related tags: Tenanted pub sector, Marketing, Goldman sachs, Balance sheet

Profits in the tenanted pub sector have further to fall in the coming months, according to forecasts made today by City broker Goldman Sachs. In a...

Profits in the tenanted pub sector have further to fall in the coming months, according to forecasts made today by City broker Goldman Sachs.

In a piece of newly-published research on the pub sector the firm said it did not believe that current tenanted income "fully reflects the decline in beer sales over the past three years".

"The virtuous cycle of increasing asset prices, greater potential debt capacity and earnings-accretive deals is a long way off in our view," it added.

It also warned that recent asset write-downs "look modest in the context of the decline in estate cash flows since 2007 and commentary from valuers such as Christie + Co whereby average public house values have fallen by 29 per cent since 2007".

The firm added that it expected "further write-downs from those pub companies who wrote up pub values in 2007".

In its research Goldman Sachs said it expected market share gains "to remain almost the only avenue for growth in the sector given the weak balance sheet position of most operators.

"This poses a particular problem for the tenanted pub companies with above sub sector average pricing and weak balance sheets."

The firm said that unemployment would pose the biggest challenge to the eating out market in the next 12 months, and that the next year would see fragile consumer confidence hit by the rise in VAT and what it called "limited growth in consumer spending".

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