Punch delivers good cheer as pub sales grow

PUBS group Punch Taverns said its turnaround continues to gather steam despite a tough consumer market, putting it on track to meet full-year expectations.

Britain's biggest pubs group, which has about 700 pubs in Yorkshire, said its investment programme and support for tenants helped it continue a recent trend of improved trading, with like-for-like sales growth of 2.2 per cent in its managed pubs.

Punch, which has 6,770 pubs across the UK, said recent investment at its Chef & Brewer and Fayre & Square brands meant food sales in its managed division rose by 2.6 per cent in the 16 weeks to December 11. Drink sales at the division rose 1.7 per cent.

The relatively upbeat trading statement lifted shares in the debt-laden company 11.7 per cent to close at 74.45 yesterday.

However, heavy snowfall has knocked around one percentage point from its managed sales performance in December.

Punch's managed pubs arm, which comprises 803 pubs across the country, is controlled and managed directly by the group, and has weathered the recession much better than its leased counterpart.

Punch ploughed investment into its managed pubs, of which 47 are in Yorkshire. During the period it refurbished 92 managed pubs, including eight in Yorkshire.

The group's struggling tenanted arm saw "improving trends", but earnings growth remains in negative territory.

It has 5,967 leased pubs, including 639 in Yorkshire, which are owned by Punch but leased to landlords to be run independently. These saw earnings before interest, tax, depreciation and amortisation (EBITDA) fall 8.7 per cent during the period.

Of these, EBITDA fell 7.3 per cent in its core estate, but slid 21.8 per cent in its non-core estate.

Punch said financial support for tenanted outlets had stabilised at around 2m a month. This support includes rent concessions and product discounts.

The update comes as chief executive Ian Dyson, who joined the company in September from Marks & Spencer, prepares to unveil a review of strategy that could see the company call time on many of its pubs.

Reports claim he may hand the tenanted estate to the group's bondholders in a radical move to tackle the company's 3bn debt pile.

The plan would allow Punch to focus on the remaining 800 pubs directly managed by Punch. Mr Dyson is expected to give an update on the review in the first quarter of next year.

He added that actions already taken by the firm in both the leased and managed businesses had resulted in an improved trading performance.

"We are now looking to build on this momentum by focusing on further operational improvement across the business," Mr Dyson said.

Punch has been offloading pubs to reduce its debt and said proceeds so far total 40m. It also holds 274m of cash and bonds, it added.

All resolutions were passed at its annual meeting yesterday.

Evolution Securities analyst Nigel Parson issued a buy recommendation. He expects the group to report annual profits of 132.2m on sales of 1.2bn.

"Investors should view an investment in Punch Taverns as an option on restructuring," he said in a note to clients.

"There's considerable value within the company that new chief executive, Ian Dyson, is determined to unlock. There's 130 per cent upside to our 160p share price target – and that's the attraction."

Brokerage Panmure Gordon issued a buy note.

It said: "Punch Taverns has delivered a reassuring interim management statement, reporting improving trends in both leased and managed pubs.

"The group remains on track to meet full year expectations and we do not expect consensus estimates of 124m pre-tax profit to change. With 274m of cash and bonds held at the group level there appears to be little value in the share price being attributed to either of the operating businesses or indeed its joint venture with Matthew Clark.

"We think Punch remains a compelling special situation and reiterate our buy recommendation and 105p price target."

Winter woes bring chilling forecast for hospitality trade

Insolvency and pub experts predict problems for pubs and hotels will rocket in January after weeks of poor weather.

Insolvency firm Begbies Traynor warns that in parts of the UK where the weather has cost two weeks of Christmas trade, some companies will collapse.

"The hospitality sector has seen falling revenues and rising prices over the past few years, and with business borrowing difficult to secure in the sector, the missing revenues will be the final straw for some hospitality businesses," said Julian Pitts of Begbies Traynor.

"The majority of rural pubs, town centre venues and restaurants have suffered, and some venues have seen takings slashed by 90 per cent, losing tens of thousands of pounds of much-needed revenue.

"It will be January before the real cost is counted."

Distressed pub management firm Winterhill Leisure sees signs 2011 will be the trade's hardest year for decades.

"We are seeing a deluge of CVs and enquiries from candidates who are worried about their jobs and are already looking for more secure positions," said operations director James Waddington.

"For many pubs and restaurants successful trading through the quiet January and February period will be down to careful cash management and a helpful bank manager."