That's the way to do it, say analysts
Jun 16 2009 by Iain Laing, The Journal
PUB group Punch Taverns has announced a £350m investor cash call to cut debts as trading remains tough.
The group said the share placing confirmed its “determination to move beyond the current challenging market conditions“ and comes after a series of steps to halt declining sales and reduce a £4.6bn debt mountain.
But Punch offered hope of sales stabilisation and said it was on track to meet market expectations for the full year.
A fall in earnings at its leased estate has not worsened since the half-year stage, down by a similar 11.2% over the 40-week period, while sales in managed pubs rose 1% in the third quarter. Chief executive Giles Thorley said: “Today’s announcements are a clear sign to the market, our partners, our customers and our employees of Punch’s ability and determination to move beyond the current challenging market conditions, to focus on fundamentals and continue to drive operational change through the business to deliver long-term shareholder value.”
Shares dropped nearly 17% as investors digested news of the fundraising. Punch has been whittling down its debts, paying off £404m – 8% of the total – this financial year.
The group has sold non-core pubs to help pay-down debts, only last week announcing the sale of 11 pubs to rival Greene King for £30.4m.
It said it would continue to look at asset sales and ways to cut costs to improve cash flow and ease its debts, but hopes the share placing will avoid the need to offload core pubs at unattractive prices. Punch has been suffering amid a downturn in the wider sector, which has taken a series of blows in recent years, with the smoking ban, rising beer duty, cut-price competition from supermarkets and a fall in consumer spending.
Punch, which has more than 8,000 leased and managed pubs, saw interim profits fall 38% to £82m.
The property market woes have also hit pub values, causing large writedowns in the sector.
Fellow pub group Admiral Taverns was reported over the weekend to have seen the value of its estate plummet below £500m, leaving Lloyds Banking Group with a substantial hit on an original £850m investment to finance acquisitions.
However, Numis Securities analysts said Punch’s trading update revealed improved trading and upped forecasts for full-year profits from £160m to £166m. It also expects the fundraising and disposals to knock off a possible £1bn from net debts this year.
