Enterprise Inns Share Discussion Threads

[jeffian] 29/6/2011 17:16

What "slim profit margin" is that, doc? Gross Profit margin reported at the recent Interims was 57%. Operating Profit covered interest 1.74x. Interest rates are largely fixed. It would take a 43% decline in OP ("it would only take a small decline in business") before they struggled to pay the interest bill. I don't get it.

[cerrito] 29/6/2011 17:12

Thanks for spotting the typo Jeffian which I have corrected.
Still debating whether to buy the ordinaries but decision easier tonight than last night following today's fall.
I need to say that I would not be looking for a speedy payment of dividends, except for a very small token one.
Look at the cash flows for the last three semesters; deduct from net cash flows from operating activities the gross capex and net interest paid and you get £36m for the semester ending March 11, £57m for the period to Sept 10 and £37 for the period to March 10. ie not all that great especially if you feel they need to do more to reduce debt and I suspect tart up their pubs.

[the_doctor] 29/6/2011 11:33

I've considered going long here, but with fundamentals getting worse and worse, I'm not sure it's cheap.

Maybe ETI is better value than PUB, but if both are heading for bust, that doesnt make a lot of difference.

With such a slim profit margin, it would only take a small decline in business/rise in costs to put this loss making. At that point, the debt pile would become a huge issue IMO.

[jeffian] 29/6/2011 10:13

Hi glenowen. Not "keen", just 'involved'!

I think JDW is a very well-run company but so do lots of other people and consequently its share price is pretty well up with events IMHO. Earnings are going backwards at the moment and it looks to be on a PER around 14x this year's earnings.

[glenowen] 28/6/2011 23:21

Just dipped into this board for the first time in ages. I see you are still keen, Jeffian. If the ETI share price continues on the present rate of decline, I might be inclined to have a dabble, since at 30p or so (as it reached a couple of years back)it becomes a simple bet on whether the company (or, more to the point, the value of the company's equity) will survive intact.

I used to read and post regularly on the JDW board but have been put off by the idiotic ramblings of that smoker, Isis. What's your view on JDW at the moment, Jeff? (on the assumption that Isis won't hijack this board too!)

[jeffian] 28/6/2011 18:44

Also, I have some difficulty understanding why these trade at a discount to PUB. With underlying eps around 22p vs, PUB's 14p and a far more flexible financing arrangement, why do the shares stand at 66-odd vs PUB's 72? Summat not right there.

[jeffian] 28/6/2011 17:29

I think you have a typo in there, Cerrito ("the £158m Tranche A maturity in Dec 12") and actually mean Tranche B. The relevance is that it is only Tranche B which included a restriction on dividend payments and the intention to repay it early ("we will apply all cash available for repayment of bank borrowings to tranche B until it is fully repaid and cancelled, which we expect to be well in advance of its expiry date") is a clear signal that they intend to reinstate a dividend at the earliest opportunity.

Whilst you are right to point out that debt reduction has largely been a result of a 'negative cycle' of pub sales (selling pubs reduces debt but also reduces income), it does look as if they can stabilise eps around 21/22p and they can then return to a 'virtuous cycle' of reducing debt gradually through cash generation. In fact, there may not need to be much further bank debt reduction; they envisage having around £450m of bank debt at the end of the current year and they think that is sustainable. If not, they can either reduce it further or increase the amount of fixed-rate borrowing (bonds). (Source for that: the Interim results presentation to analysts). The bonds mature or amortise over a long period and they expect to be able to replace these as they do. Frankly, the whole 'crisis' has arisen because of fears about bank liquidity (and their ability/willingness to renew loans) rather than any fears about the underlying business which has certainly taken a knock but never to the point of being terminal as the market seemed to fear.

There's still not much incentive to buy the shares at the moment with the uncertainties that prevail, but once they can prove that earnings are stabilised and if they can reinstate some sort of divi, these are going to look cheap at some point.

[cerrito] 28/6/2011 16:46

Just caught up with the interim statements as a regular part of my kicking the tyres as a holder of the 2018 bonds and the shares look pretty attractive now despite all the headwinds the company will face in the next two years; at March 31st tangible net worth was £1081m and the current marcap is £355m; eps for the six months on a diluted basis excluding the profitable extraordinary items was 10.8 ie on an annualized basis of 3.5x and at current cash flow generation the repayment of the £60m 2014 bonds and the £158m Tranche B maturity in Dec 12 of bank borrowing will be done and they should be able to make a big dent in the Tranche A bank borrowing of £419m due in Dec 13 and they should be able to roll over the balance then outstanding. Also note no covenant problems though of course their ability to reduce bank debt will decline as they wind down their disposal programme.
Interesting to read of the different changes of pub income per geography and good that 45% of the income comes from the South and of course as they note the Central London market has been robust.

[the_doctor] 17/5/2011 12:06

As posted, I struggle to see a brighter outlook for pubs.

The west as a whole is going to have to accept having less to spend.
Pubs are easy to cut out and drinking at home more attractive given the past DIY craze, large TVs etc.

[pilkington] 17/5/2011 12:00

VK74

This won't have helped!

From today's Times

"Pubs lurched after UBS said that conditions faced by the industry were still very challenging, with consumer spending under pressure, costs rising and beer drinking in long term decline. The Swiss broker urged clients to sell Enterprise Inns and told them that JD Wetherspoon was no longer worth buying."

[the_doctor] 17/5/2011 10:11

well, in short, it doesnt make very much money and it has a monster debt pile.

while the company is gradually paying off its debt, the world is quite possibly on the brink of a further recession and cash flows may deteriorate further?
In that environment, debt refinancing costs could rise when due?
Assets would be written down. etc.

Just my 2c.
I'm interested in ETI, since to me, it's a pure UK economy play.
Unfortunately, it's hard to see how pubs wont continue to be impacted by drinking at home/spending cuts.

It all depends on quality pubs IMO
Decent boozers in more affluent areas are still packed
Others can be dead.
I would imagine that ETI is focusing on the quality ones?

[vk74] 17/5/2011 09:20

what is going on with this one? any views?

[the_doctor] 28/4/2011 12:18

I dont think a couple of recent posts constitutes 'every time' now jeffian, does it?

[jeffian] 28/4/2011 12:16

"in reality, I wont post idiotic remarks here every time you comment about ETI's outlook, since I dont operate that way."

A quick glimpse back at recent posts rather suggests you do.

[the_doctor] 28/4/2011 11:23

'done your nuts on every other share I've seen you post about, I imagine you haven't much money left to part with anyway'

jeffian, I could easily say the same about you if as you're doing, I ignored the stocks you made money on!

in reality, I wont post idiotic remarks here every time you comment about ETI's outlook, since I dont operate that way. It would be as pointless as your remarks on PRM.
If someone speculates, that doesnt mean they're ignoring risk
if someone refers to the scientific aspects, it doesnt mean they're pretending commercial aspects arent important too
ok?

[jeffian] 28/4/2011 11:11

Up to you, doc. As you seem to have done your nuts on every other share I've seen you post about, I imagine you haven't much money left to part with anyway.

[the_doctor] 28/4/2011 10:56

'Let's hope it reads across into ETI's business when they report on 17 May.'

well, I'd rather wait and see before parting with my money if that's ok jeffian?
the bottom line is that if the business deteriorates, pressured by austerity measures, then this is down the pan. I also suspect we'll see asset values downgraded if the UK slips back into recession next year.
There'll be plenty of opportunity to buy back into this if/when the business is fixed - why bother before? Just look at the drop from 700p

{gets boring hey jeffian?!}

[jeffian] 27/4/2011 10:42

Encouraging update from GNK today. They say this about their tenanted estate -

"Pub Partners remains in growth after 48 weeks, despite the challenges faced by the overall tenanted and leased sector. LFL EBITDA is now +0.8% and average EBITDA per pub is +1.9%. We continue to invest some of our growth into providing long-term support for our licensees to help improve both their customer offer and the overall trading environment in our tenanted and leased pubs."

Let's hope it reads across into ETI's business when they report on 17 May.

[nellie1973] 26/4/2011 16:35

Broker note out-BUY

[the_doctor] 01/4/2011 13:29

'a scheme to give communities a 'right of first refusal' if their local is put up for sale'

seems a good idea to me
Not good for ETI, but a good idea for communities

[jeffian] 01/4/2011 12:07

No, I don't think it will. The proposals only relate to office and industrial property (that excludes shops and pubs, for example) -

"Conversion of commercial premises to residential

The government has announced that it:
Wants to identify more opportunities to exempt development from the planning system and will consult on a proposal to allow changes of use, without the need to apply for planning permission, to class C3 (residential) of the Town and Country Planning (Use Classes) Order 1987 (SI 1987/764) (UCO 1987) from:

class B1 (business);

class B2 (general industrial); or

class B8 (storage/distribution)."

If anything, the Coalition's proposals, if implemented, are likely to hinder disposals. Many planning authorities already resist change of use on grounds of 'loss of amenity' (particularly in village or rural locations) and the Govt has been considering a scheme to give communities a 'right of first refusal' if their local is put up for sale which would introduce delay and uncertainty into the process. Hopefully that scatty idea will be kicked into the long grass but all politicians are so divorced from the realities of business life these days, you just can't tell.

[the_doctor] 31/3/2011 09:43

This company is on a downhill slope.

Pubs are going out of fashion. The asset values will be written down.

Investing here is all opportunity cost.

The recent pub sales to Hermes were above book cost, but they were cherry picked. Other pubs will be below book cost.

770p to below 100p in less than 4 years. I sold out at a profit here. Can surely only be fools and tracker funds that are left.

As the UK economy weakens further, earnings here will deteriorate. Asset values will deteriorate. New debt will be higher cost.
The dynamics are terrible.

IMO, this'll be bust within 3 years.

[timbo003] 19/3/2011 14:39

I wonder if this will include pubs?