But I want to focus on a development in the pub industry: Enterprise Inns' (ETI) strategic review. This was notable for being the first reaction of substance from a pub company to parliament's unexpected decision last November to unknot the beer tie by giving publicans a "market rent only" (MRO) option on their leases.
At present, just under half of Britain's 50,000 pubs are subject to the beer tie - a 400-year-old operating model whereby tenants pay a lower rent in exchange for the obligation to source beer from their landlords. The last government's Small Business, Enterprise and Employment Bill, which was amended by a defiant House of Commons to reinstate the MRO rule excluded in the draft legislation, will probably come into force next summer. It sets out a new statutory code for all owners of tied pubs, but the MRO applies only to those six companies with estates numbering more than 500: Enterprise Inns, Greene King (GNK), Marston's (MARS), Punch Taverns (PUB), Admiral Taverns (unquoted) and Star Pubs and Bars (part of Heineken).
Of the listed names, Enterprise and Punch Taverns are the two companies overwhelmingly affected, because only they specialise in tied pubs. Most of Greene King's properties are managed directly as retail outlets, while Marston's - seeing the writing on the wall - has since 2009 been ditching leases in favour of franchise agreements, which are exempt from the legislation.
The review launched by Enterprise last week is radical. The company currently has just under 5,200 pubs, of which 5,000 are tied. Over the next five years, it expects to convert about 800 of these into directly managed pubs, and a further 800 or so into free-of-tie leased pubs - in effect retail properties let on normal commercial terms. Roughly 1,000 more pubs will be sold off. Overall, the tied estate is expected to halve.
This process is about returns as well as regulation. Managed or franchised pubs routinely outperform tied pubs, perhaps because they can be better controlled. Marston's posted like-for-like sales growth of 1.4 per cent for the six months to 4 April, while managed pub specialist Mitchells and Butlers (MAB) turned out 1.7 per cent growth. The equivalent figure for Enterprise Inns was 0.6 per cent.
The opportunity for investors in Enterprise's review is that it could - eventually - crystallise the deep value on offer in the shares. These currently trade at less than half the group's net asset value, and just seven times forward earnings. Shares in Punch Taverns - which has yet to give a detailed response to the MRO question - are even cheaper.
One reason for the discounts is that investors don't believe in the pub valuations. This is reasonable enough: both companies have been writing down the holding value of their estates for years. Both also have hugely overstretched balance sheets, with loan-to-value ratios of about 60 per cent (even after Punch's capital restructuring last year), ruling out dividends.
Still, if Enterprise's plan to overhaul its portfolio shows signs of success, the discount could start to look unwarranted. Consider the free-of-tie portfolio: Enterprise said this could eventually be spun out into a separate vehicle with the tax-efficient status of a real-estate investment trust (Reit). Shares in regional property Reits currently trade at a premium to book value. Shorn of the beer tie, Enterprise's leased estate could theoretically see its value in the eyes of equity investors more than double.
A similar back-of-the-beer-mat calculation can be made for the managed estate. This kind of approach gives brokers at Barclays a sum-of-the-parts valuation of 266p for Enterprise Inns, as it sees itself in 2020, compared with 134p now. Of course, such analysis is hugely simplistic, and subject to plenty of unknowns. We have little idea how many tenants will opt for market rents, or whether these will make up for lower beer profits. Above all, such an extensive restructuring involves a lot of execution risk, and does not address the debt question.
Yet the macro-economic backdrop is supportive, the regulation question is finally out of the way, and Enterprise Inns, at least, has a plan. A more sustainable recovery for the tied-pub groups could, finally, be on its way.
