|You may need to register to read the full article, but quite an interesting long piece on Rupert Clevely and Hippo Inns in the Telegraph the other day -
Clevely is the pub entrepreneur who set up Geronimo Inns and sold it to Youngs a few years ago. Hippo is the joint venture he set up with Enterprise Inns to give them the experience they lacked to take their own houses under management.|
|"We are upgrading our recommendation for Enterprise Inns to BUY from Hold and increasing our target price to 150p from 115p. The contested bid for Punch Taverns resulting in an agreed offer 40% above the undisturbed share price is a reminder of the latent value of the asset-intense pubcos in general and Enterprise Inns in particular."
|Perking up a bit here. The key 100p level has been breached. The market must have been impressed with these results.|
|I don't hold the 2018 any more (now hold 2031 having traded through the 2021 and 2025 as they moved from below par to above) but it would have seemed attractive to me. At 111 they're effectively paying you nearly all your interest to redemption (and tax free!) and then paying you nearly the same interest on the new bonds for the same period! Agree with others above it seems an expensive way of extending credit for a net 4 years.
If the new issue is secured as before, that's a pretty attractive bond in today's market. Anyone know if the new issue is available to PI's or is it institutional only?|
|I agree leading the high coupon all very odd. As bond holder I got excited till I saw the minimum of the new bond was 100K. I do not see myself tendering my bonds at 111 as I have more than enough cash at the moment and no idea where to invest it in.
I have always assumed that on maturity there will not be a retail bond offer.|
|On 7.10.14 the company refinanced £249.5 of the £600m of 2018 bonds at a premium of 8.75%. The new terms were 6% repayable in Oct 2023 and the total refinancing cost was £28m (an exceptional item naturally).
Now the company proposes to buy back a further £250m of the 2018 bonds at a premium of 11%. These will be refinanced at a coupon of not less than 6.375% with repayment due (Oct?) 2022.
So the buyback premium is higher, the new coupon is higher and the duration is shorter. Surely the new coupon, should be lower. The business is less indebted and in better shape. This will be one of the highest yielding 2022 bonds in the market e.g. Labrokes 2022 bond yields 3.76%.
Why buy the bonds back at a premium anyway? It might make sense if the company could now borrow on better terms than before, but it seems it can't. The bonds can be redeemed at par in 2018; there is no need to pay a premium.
So here's an alternative. Use the next two years to dispose of £350m of assets and repay the 2018 bonds when due. It will save us shareholders being hit with another £33m "exceptional" cost (£27.5m premium plus say £5.5m costs based on last time).|
Theoretically, maybe, but name me the 'pro' in this case please? ETI have been splashing the cash daily in the market since 1 April when the share price was over 96p. I don't know how much of their "spare" £25m they've spent, but how do you feel you've had 'value' from that? You could have had a 5p divi in your pocket, or ETI's net debt could have been reduced by that amount but you've had neither and you can now sell your shares for 86p. Result! (not). But so long as they can report a modest (and artificial) rise in eps and NAV, that's enough is it? Not for me.|
|If the argument is share buyback versus dividend I'm fairly agnostic. Both have pros/cons. But either is better than doing nothing. I also like leading's suggestion.|
So they keep saying, but what good is that to you or I if we can only get 88p for our shares? If you think that's OK, you send me £1 tomorrow and I'll send you back 33p and call it all square, OK? If they can't get the share price somewhere near NAV or pay a dividend in the meantime, what's the point of their existence?|
|The company claim 92% of the properties are "valued on an annual basis by external, independent valuers"
Our balance sheet remains strong with a total net asset value of £1.35 billion (2014: £1.40 billion). Gross property assets are the most significant assets in the balance sheet and are recorded at £3.7 billion (2014: £3.9 billion) of which 92% (2014: 47%) is valued on an annual basis by external, independent valuers. Group net debt includes the most significant liabilities in the balance sheet and has reduced to £2.3 billion (2014: £2.4 billion) during the year. The share price at 30 September 2015 of £1.08 (2014: £1.24), which equates to an equity value of £541 million, compares to a net asset value per share of £2.70 (2014: £2.80). The differential between net asset value and market value reflects current market sentiment but does not, we believe, reflect the underlying value of the Group.
Also loan to value is 63% which isn't too onerous.|
|Yes, I find it hard to see how the re-structuring will deliver value to the shareholders other than through a long term grind (if at all). They did indicate that there could be 300-350 properties in the Property group by 30/09/16 so perhaps the results next month will contain details of their proposals to sell/float/REIT these assets. Not holding my breath.
Looking at the fixed asset write off last year, this was in two parts. A stonking £120m written off the carrying value of the continuing assets, but also £43m relating to assets that they decided to sell. I interpret the fixed assets note as saying that assets with a book value of £104m were transferred to assets for sale in the balance sheet and that the realisable value was £61m with £43m being written off. That suggests that the assets were overvalued in the balance sheet by 41%.
In the previous year, the total write off was £75m of which £33m related to assets that they decided to sell. In this case, assets with a book value of £75m were transferred to assets for sale in the balance sheet and the realisable value was £42m with £33m being written off (44% overvalued in the balance sheet).
I can understand why the market is sceptical of the claimed fixed asset values. Best way to clear this would be to sell a material package of properties for consideration of at least net book value.
The company appears unconcerned by the performance of its valuers. I can't see them even mentioned in the governance reports, but I may have missed it in the blizzard of remuneration disclosures.|
|Well certainly something needs to be done. The present strategy is not delivering value for shareholders and even on completion of the re-structuring into a 3-strand business (Managed, Tenanted, Property Company) over the next 3 years, it is hard to see how it will. The share price tells you that the market isn't buying the 'story'. In the meantime, cash and shareholder value are being destroyed by the ill-conceived policies of using free cash to buy back shares and 're-investing' the proceeds of disposals in the estate. (On the latter point, last year they realised £75m from disposals and 're-invested' £69m into the estate........before writing off £163m on re-valuation. They plan to 'reinvest' all the proceeds of sales this year too. I wonder what the write-off will be? Pouf! There goes the cash in a puff of smoke.)|
|So here is a suggestion.
The company should announce a disposal programme of say £300m worth of pubs a year for three years. These could be floated off as REITs or sold as blocks on a regional or some other basis. There are plenty of investors out there looking for asset backed companies I think. Assume those pubs are sold at their carrying value in the balance sheet. Assume also that the proceeds are used to pay down debt.
Assume that the company makes trading profits of £80m then 70m, then 60m over the three years, profits falling slightly allowing for the smaller estate. This includes a reasonable level of exceptionals each year. Ignore tax as it is not material for this exercise.
Taking the 31/03/16 figures as the starting point, we get the following:
31/03/2016 Net assets £1,394m Debt £2,414m Gearing 173% Market cap about £440m
31/03/2019 Net assets £1,604m (1,394+80+70+60)
Debt £1,304m (2,414-80-70-60-900)
Gearing 81% (1,304/1,604)
The business is no longer chronically over-geared. Assume the shares will then be valued at a 20% discount to net assets which is (haven't researched) roughly where a property investment trust typically trades. Market cap then would be £1,283m (1,604 x 80%)compared to today's £440m. A three bagger in three years.
The remaining debt could then be refinanced at much lower interest rates and the savings could be used to reinstate a dividend.
The above assumes that you can buy in the debt at par, but that seems to be the case at present for the 2031 tranche at least.|
|What a boring company this is. I wonder how the management get up in the morning. Then I observe that Mr Smith and Mr Townsend received aggregate remuneration of £3m in the 2015 financial year, in a business that made a pre-tax loss of £71m and has a market cap of something around £450m. So that must help.
Add to that an utterly misconceived share buyback as comprehensively demolished by Jeffian above. I am with him. No-one is going to look at this company until the horrendous debt and interest charges have been worked through. Unfortunately, at the current rate of progress this will not be in my lifetime.
Must admit, I thought that some activist investor would come along at some point and encourage the management to liquidate the company. Several years later and no luck so far. The institutions who are invested here such as Standard Life and the Pru seem happy to let things drag along. It all looks awfully cosy. The question is, what can the small shareholder do about it?|
|If you didn't know any better you may be thinking this buyback is a waste of time and money! I hoped we'd have zoomed over 100p by now.|
|If they're no mugs, they're certainly taking their shareholders for one. Where is this getting us? £25m up the swannee and nothing to show for it. Share price lower than when we started and no dividend. "...a clear path to maximising shareholder value......a returns-based approach to the allocation of available capital"? My @rse!|
|Interesting. They seem to be buying less shares back now. Only 25,000 bought yesterday and price below 90p. Is this a cunning plan to let the price drop so they can swoop in unnoticed on the blind side and hoover up the shares at an even cheaper price? These guys are obviously no mugs.|
|Thing is I bought this just after BREXIT so my view is a bit different to a long term holder like yourself. This has been a great stock so far. Then again I'll probably sound like you in a decade or so when the shares are still at 95p!|
|You sound like management, HP! The NAV has been over 280p for years and where has that got us?! Shareholders can't access "NAV", they can only receive a divi or sell their shares (currently 94p vs 96p when this ill-fated buyback started). If management are relying on "NAV", but can't deliver it in terms of the share price then, as I pointed out at the last AGM, the obvious solution is to liquidate the company and return cash to shareholders.|
|Well I reckon after buyback complete NAV should have risen by about 4% buying at this level. That's not to be sniffed at surely?|
|Exactly. £25m cash p*ssed up the wall.|
|Punch Taverns released a trading update today. The sector seems to be trading as expected. Shares up 2.5%. Property revalued upwards 2%.
Meanwhile the effect of the share buybacks seems to have hit a brick wall here.|
|OK trading update today but -
"we are confident in our strategy and the actions we are taking to grow value for shareholders" -
well, I'm not feeling it yet!|
|Yes, I hold a shedload in my SIPP to provide a 'base income' with equities for growth. I traded through the 2018, 2025 and now 2031 bonds, buying years ago when they were at a pretty steep discount, taking profits on each and moving into the longer-dated bonds as the earlier ones got up to or above par. As you say, the 2031 is still good value compared to any other corporate bond I know of.|
|At least their 2031 6.375 bonds look like good value, if you're into bonds that is :-)|