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Enterprise Inns unveils strategic review

The abolition of the beer tie is game-changing for pub group Enterprise Inns
May 13, 2015

Is Enterprise Inns (ETI) going to survive the government's plan to abolish the beer tie by introducing a so-called Market Rent Only option for publicans? The 35 per cent increase in the pub group's share price over the last six weeks suggests many investors believe it will. But the group will look very different in five years' time, as a strategic review unveiled alongside these half-year results makes clear.

IC TIP: Hold at 135p

Traditionally, Enterprise has focused on tenanted pubs, which means it charges its landlords for rent and, crucially, beer while making periodical investments in the property. But over the next few years Enterprise will take more pubs in-house - directly managing them - or else move them to a lease-only model. That latter would effectively transform part of the business into a real estate investment trust (Reit).

The direction of travel in this review comes as no surprise, but analysts at Numis admit "the scale of the conversion programmes to managed pubs or commercial leases is much greater than expected". The group is planning to shrink its estate from just over 5,000 pubs to 4,200 by 2020. In the first half the group raised £34m from property disposals to fund £33m-worth of capital investment.

Broker Numis Securities expects pre-tax profit of £124m this year, giving EPS of 18.3p, up from £121m and 16.9p.

ENTERPRISE INNS (ETI)
ORD PRICE:135pMARKET VALUE:£683m
TOUCH:134-135p12-MONTH HIGH:151pLOW: 97p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:278p*NET DEBT:170%

Half-year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201430847.07.40.0
201530210.00.90.0
% change-2-79-88-

Ex-div: na

Payment: na

*Includes intangible assets of £344m, or 68p a share