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Publicans are drinking up Punch's new operating model

The group's publicans seem to have a positive take on the retail contract option spawned from legislation which undid the beer tie
November 8, 2016

There's a lot going on at the UK's second-largest pub group, with management at Punch Taverns (PUB) hitting a disposal milestone, rolling out a new operating model and developing excess space to generate another income stream. While bosses say its strategic disposal programme, which has generated £324m in the past two years, has finished, it seems that more pubs are set to go. Chief executive Duncan Garrood said another 400 pubs have since been identified for sale and will be sold at roughly 100-a-year for the next four years.

IC TIP: Hold at 115p

Its retail contract option, where Punch retains all revenue and cost of sales and pays the publican a percentage with which to remunerate staff, has proved popular, with 109 pubs trading under this model compared with 32 last November. The move was a response to new legislation which removed the so-called beer tie, which compelled publicans to buy drinks from their owners. Mr Garrood said only 40 pubs had asked for a 'rent-only' quote, with 20 opting to remain tied or leaving and 20 still deciding.

Analysts at Numis expect pre-tax profit of £51.6m in the year to August 2017, leading to EPS of 18.7p, compared with £52.9m and 18.8p in FY2016.

PUNCH TAVERNS (PUB)
ORD PRICE:115pMARKET VALUE:£255m
TOUCH:112-117p12-MONTH HIGH:140pLOW: 84p
DIVIDEND YIELD:nilPE RATIO:4
NET ASSET VALUE:353pNET DEBT:£1.18bn

Year to 20 AugTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201249252.4154nil
201345816.662.0nil
2014448-240-526nil
2015421-105-41.7nil
201640760.129.4nil
% change-3-157-171-