We were sceptical about the prospects for
However, with just over three-quarters of the managed pubs refurbished and £56m spent, returns are actually exceeding management's targets despite the tough consumer backdrop. Meanwhile, like-for-like sales were 5.6 per cent ahead in the first half and the business's underlying cash-profit margin rose by 140 basis points. "You will get winners and losers [in this trading environment]," says chief executive Mike Tye. "It's our job to make sure every one of our pubs is a winner."
The leased estate is a different story, though, with like-for-like net income down 4.5 per cent in the first half, which in part reflects an intense period of mainly downward rent reviews. However, the company has recently got full control of the 530-pub estate and will be trailing new lease agreements and starting to dispose of its worst pubs.
Broker Peel Hunt expects full-year underlying EPS to rise 10 per cent to 5.9p and a dividend of 2p.
|Spirit Pub Company (SPRT)|
|ORD PRICE:||54.5p||MARKET VALUE:||£358m|
|TOUCH:||54-55p||12-MONTH HIGH:||62p||LOW: 33p|
|DIVIDEND YIELD:||1.2%||PE RATIO:||na|
|NET ASSET VALUE:||140p||NET DEBT:||107%|
|Half-year to 3 Mar||Turnover (£m)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Ex-div: 9 May
Payment: 8 Jun
Our scepticism about management's ability to turn around the managed estate has proved wrong. But the high level of underlying net debt, equivalent to seven times cash profits, and the substantial work to be done on the leased estate continue to present risks as well as opportunities. Priced on 10 times expected earnings, the shares rate a hold.
Last IC view: Hold, 60p, 19 Mar 2012