Enterprise Inns Share Discussion Threads

[jeffian] 10/2/2012 21:59

I must admit that, on reflection of the IMS and discussions at the AGM, I tend to agree with The Times' assessment that we are simply into managing a reduction in size here and that's not exactly a strong argument to invest. But whilst I wouldn't buy 'em, I have to think about what to do with the ones I've got.

At a previous AGM, I made the point that if they couldn't pay a dividend or manage the share price closer to NAV, they may as well sell the lot and return surplus cash to shareholders. If, as the FT article suggests, the idea is to sell anything - core pubs included - to get down to manageable debt, why not go all the way? Back-of-envelope calculations suggest that wiping out all debt would reduce the estate from 6361 pubs to 2213, and those debt-free pubs would be worth around 320p/share and produce PBT of around £127m (25.5p/share). It would obviously take a while to achieve but the resultant 'clean' company would certainly be worth more than 49p/share and give a reasonable base to go forward.

[cerrito] 10/2/2012 21:23

Pretty balanced comment in the FT Today as per below
Meanwhile the price the 18 bonds continues to recover

[liambilson] 10/2/2012 07:42

Enterprise Inns: Panmure Gordon raises target from 80p to 87p, buy rating unchanged

[jeffian] 09/2/2012 17:23

C,
They do have a lot of food pubs (one of the original famous gastro-pubs, the Anglesey Arms, is my local and an ETI pub) but they don't get a direct profit share from the food, it just forms a basis for calculating the rent. Also, although the Anglesey is still quite ale-oriented, many become quasi-restaurants with the emphasis on wine (which is unlikely to be 'tied' to ETI for supply) at the expense of beer (which is), so what they gain on the one hand (rent) they lose on the other (wholesale profit on beer). Having said that, food has been a prime factor in transforming unviable 'boozers' into valuable assets and revenue-earners for ETI, so they certainly support it in the right situation but they won't have a 'corporate view' on it as the offering is at the entire discretion of the tenant rather than some centrally imposed format such as 'Hungry Horse', 'Harvester' and the like.

[cerrito] 09/2/2012 17:09

Thanks for your comments Jeffian and their comments about banks sad but true.
I take your point on food and I guess I was wrong to expect any info on food but am keen to to get a measure of how vibrant their pubs are.
Will follow your suggestion and listen to the broadcast.

[jeffian] 09/2/2012 17:06

Indeed. That is true of all companies -

- even biotechs!

8-)

[the_doctor] 09/2/2012 16:52

I'll try to take a listen to it jeffian
hope you had an informative day

at present, I agree, the debt servicing outlook is manageable, just as long as earnings don't crumble

[jeffian] 09/2/2012 16:43

Well done, doc. If you're interested, the analysts' conference call is worth listening to (details at the bottom of the RNS). They spend some time outlining the ways they intend to deal with debt repayment. Talking to them at Solihull, they are much more concerned about the banks, not because they think the banks want to stuff them, but because, with the potential for further banking crises still around (Euro default, QE etc etc), they don't feel confident that the banks will necessarily be in a position themselves to deliver in 2013, whatever they promise them now! They currently have £420m bank debt left and I think they want to bring this right down to next-to-nothing. The bonds and loan notes, with their transparent repayment/amortisation schedule, will look after themselves.

[scburbs] 09/2/2012 16:34

Jeffian,

Fair point, the fact that I have been buying in the 40's and below is clearly going to impact on my idea of what is excellent!

No intention of selling for the moment as when sentiment turns in high risk shares they can multi-bag in no time at all.

[the_doctor] 09/2/2012 16:23

Well, that's me out for a profit
I'd placed stepped stops between 45 and 48p

Had planned to set them at 50p, but after what's been a fairly hairy ride, decided to take the profit while it was there.

If other circumstances had been different, I'd consider holding this for a bigger recovery.
IMO the market liked the RNS because if extrapolated out, it suggests ETI CAN survive - and if it can survive, it'll be worth a lot closer to its NAV
Wouldnt surprise me to see this head up to 60p without any more news

Miffed I never topped up at 28p like I'd planned. Literally missed it by a day!

[jeffian] 09/2/2012 16:22

Yes, relative, scburbs. Remember this time last year (when the trading and debt position was worse) the shares were nearly 110p and they still sit on a claimed NAV of 280p/share so, whilst the uplift is welcome, I doubt many long-term holders are breaking out the champagne yet!

[scburbs] 09/2/2012 16:04

The market seems to view it as excellent (unless there was something extra in the AGM, Jeffian?). Whether it was excellent or good is naturally relative to the valuation of the company in question!

[skinny] 09/2/2012 15:55

Back in auction +18.9% - good volume.

[skinny] 09/2/2012 15:24

Excellent chart and trying 50p.

[jeffian] 09/2/2012 15:03

"would have preferred more info especially on food sales, as we were given by MARS and GNK"

Chalk and cheese, Cerrito. ETI don't 'do' food. Their tenants do, but there is no direct benefit to ETI other than in the rent they can charge to a successful pub. MARS and GNK both have large directly-Managed estates which focus on food-led pubs (GNK even has outright restaurant businesses, such as Loch Fyne) so it is a significant profit driver for them, unlike ETI.

Just back from the AGM. I saw the RNS/IMS before I went and, like you, read it as encouraging rather than great. The good points are that they are on track to stabilise the business and are in control of their debt. It does indeed look as if dividends are not on the immediate agenda, not because 'every penny has to go to paying down debt', but because they do not trust the banks to be supportive when they need them and are focusing on getting rid of bank debt asap, but also because they won't consider it until EBITDA has stabilised and, for all the talk in the IMS of improving "net profit per pub", with less pubs the overall revenue position remains one of slight decline.

I think Hubert Reid has been an excellent Chairman. I met the new man, Walker, and am encouraged by his track record at Travis Perkins (which I also hold). Besides TPK he holds other serious Chairman/Director positions and I don't think he'd have signed up to ETI if it was going to blot his copybook.

Steady progress but no fireworks IMHO.

[cerrito] 09/2/2012 10:14

Without wishing to be a party pooper would describe the IMS as good rather than excellent and would have preferred more info especially on food sales, as we were given by MARS and GNK.
Hope the new chairman can keep a tighter rein on Tuppen than the previous one did.
As scburbs says good that they are being more hard nosed on their property portfolio
Look forward to any of Jeffian's comments but need to say I am not banking on any dividends in the next couple of years.

[scburbs] 09/2/2012 08:06

Excellent statement. Income stabilising and hopefully starting to grow. The net income stats supporting the idea that it is underperforming pubs that have been sold.

Significant disposals programme to continue for a couple of years and indications that this is expected to be above book value. Finally an indication that they have woken up to the fact that buying back debt might be a good idea, although I suspect the bonds have moved up recently.

"Like-for-like income per pub in the substantive estate (which represents 95% of total pub income) was 1% ahead of the same period last year, with the entire estate less than 2% down.

...

Average net income per pub, which benefits not only from improvements in operating performance but also the disposal of underperforming pubs, was almost 5% ahead during the 18 week period, compared to a 1% improvement for the whole of the last financial year.

...

However, following our recent property reorganisation and review, our property team has identified for sale a number of exceptional properties which can realise substantial cash proceeds above book value and we expect to complete a number of such sales during the next two years. During the current financial year, we now estimate that total proceeds from all asset disposals, including normal churn of underperforming assets, will be between £150 and £200 million, with a broadly similar programme planned for the following year.

...

As part of this review, we are considering a number of options to avoid the risk of excess cash being trapped in the Unique securitisation, including the purchase of Class A Notes in the market and their cancellation."

[scburbs] 06/2/2012 17:37

IMS due for Thursday's AGM. Sell, sell, sell .... pubs that is, not the shares!

[the_doctor] 06/2/2012 15:01

'lol', yes jeffian, and anyone can see that my views are exactly in-line with what ETI said!

You suggested they'd have extra cash for dividends etc
I showed that far from it, as things stand, they need to generate even more cash just to cover the debt repayment schedule.
ETI's slide agrees with me jeffian
I honestly dont know why you bother arguing

anyway, regardless, I look forward to your AGM report...

[jeffian] 06/2/2012 14:49

Whatever you say, doc (but anyone else can go back and look at #625 et seq to avoid going over the whole thing again).

Anyway, I'll report back from the AGM on Thursday if there's any news.

[the_doctor] 06/2/2012 14:36

'I'm not going to enter into an extended argument with you because we've covered this point before and are going round in circles'

says the guy that started it off again with silly snide remarks


'The fact that you've only recently noticed the amortisation schedule doesn't mean that it hasn't been in the public domain'

get real jeffian!
I was the one that highlighted it to you!
You seemed to think it didn't matter - as if the payments could just be created by magic without affecting ETI's cash flows


'the presentation to analysts of the 2011 results simply showed in graphic form what had been discussed for years and was not a dramatic revelation.'

What they showed was EXACTLY what I'd been saying and what YOU had pretended wasnt the case.

they did so because it matters, which is the direct opposite of what you tried to make out
you were confused jeffian
over and over I tried to explain to you the importance of the mandatory debt repayment schedule
your recent comments suggest you still miss it!

but I guess if you say that finances beyond 2013 are too far away to matter, then you must be right jeffian - and I guess I just imagined the share price drop from pounds to low pence!?

[jeffian] 06/2/2012 14:31

doc,

I'm not going to enter into an extended argument with you because we've covered this point before and are going round in circles. The fact that you've only recently noticed the amortisation schedule doesn't mean that it hasn't been in the public domain - it has been discussed in every Annual Report for as long as I can remember and the 2010 report specifically stated that once repayment of the fixed-rate notes started in 2013, dividend payments from Unique to the parent company would "cease as profits within Unique will be used to repay these notes". The presentation to analysts of the 2011 results simply showed in graphic form what had been discussed for years and was not a dramatic revelation.

You answer your own concern. "It has to be paid with CASH jeffian. I dont care about net profit per se, I caree about CASH!" Indeed. It has been and will presumably continue to be. They have reduced their net liabilities by £1bn over the past 5 year, 2007-2011, of which £625m was from property disposals with the rest from cash generation. Of course, the whole thing depends on them at least stabilising, and eventually growing earnings and the indication from all other pub company results recently is that that is beginning to happen. No doubt we'll learn more from the IMS due on 9/2.

[jonc] 06/2/2012 12:42

SPRT have had a good run up recently.

Better placed than ETI imo.

[the_doctor] 06/2/2012 09:33

'lthough you will note from the ETI RNS that this is specifically bank debt and corporate bonds rather than the securitised debt which is currently worrying the_doctor'

it's all the same pot jeffian!
yes, they pay off the bank debt first, because that has the tougher conditions attached
that doesnt mean the securitised debt isnt an issue!

I dont get your problem - you/others went on dismissing my debt repayment concerns, and didnt appear to understand what I was referring to
then late last year, ETI clearly explains in a presentation what I was referring to, yet you still seem to make sarcastic remarks as if I'm talking nonsense!

Moreover, you're back talking about dividends, which is daft and shows you're back to missing the mandatory debt repayment issue that myself AND ETI have highlighted.


'Where the_doctor and I part company is that he cannot get his mind round the idea that the scheduled amortisation doesn't have to be repaid from net profit;'

It has to be paid with CASH jeffian. I dont care about net profit per se, I caree about CASH!


'they are already well covered for 2012 and 2013....so the issue potentially doesn't even arise until 2015'

SURE, that's just it jeffian! The market can think ahead, even if you want to stick you head in the sand
With some simple calculations, you'd be able to see that beyond 2014/15, ETI may not be generating enough cash each year to cover its debt servicing.
That is COMPLETELY the issue

They need more cash from somewhere. Either:
1. growing earnings
2. selling off assets

1. looks to be a struggle against the slow/deteriorating economy, but not impossible
2. impacts 1 of course, but does benefit from the net assets being valued at way over the market cap. I suspect they may have sold off a few higher quality assets to try to show the market what assets they have.

Where we disagree jeffian, is that like the market, I'm looking ahead beyond the 2012-13 period, where I agree there are no issues!
I agree that the shortfall isnt huge - that's why I've held on/was going to buy more sub-30p
BUT
a) the £15m annual shortfall becomes a bigger issue when you consider it is recurring each year! by 2018, who would want to refinance the bonds if the company isnt generating enough cash to cover debt servicing?
b) any worsening of trading conditions could make it much tougher

THAT is ths issue. IMO the market has continued to fear what happens if things dont go to plan. You only really seem to be considering the 'on plan' scenario, and even then, only until a couple of years ahead.

[jeffian] 03/2/2012 19:39

Cerrito,
Yes, I'll be going to the AGM.
The continued disposal of pubs is part of the publicly-stated strategy of paying down debt (although you will note from the ETI RNS that this is specifically bank debt and corporate bonds rather than the securitised debt which is currently worrying the_doctor - "This sale is in line with Enterprise Inns' objective to use disposal proceeds and other surplus cash to reduce debts through repayment of bank debt or to purchase notes or corporate bonds".) However, what surprised me is that when the point of 'appropriate' debt is reached (although Gawd knows what the market thinks that is), I'd imagined that ETI would be left with a much smaller estate comprised of top-quality tenanted pubs - exactly the sort of thing they've just sold to Fullers! So what's going on?

Where the_doctor and I part company is that he cannot get his mind round the idea that the scheduled amortisation doesn't have to be repaid from net profit; it just has to be paid in accordance with the repayment schedule and the funds could come from anywhere - profits, property sales or even by drawing on undrawn facilities elsewhere. He says "they wont have enough cash for the debt repayments from 2013 onwards" (presumably referring to the Unique amortisation payments which begin in 2013) but, as was shown in the results presentation

they are already well covered for 2012 and 2013 (when the first payment is only £12m) and they are already a year ahead of schedule with repayments, so the issue potentially doesn't even arise until 2015 and who knows what may have happened by then? Even then, when repayments move into the +/-£75m p.a. range, they show that the shortfall within Unique is very small (£15/16m p.a.) and they have plans to deal with it.

I may be deluded about dividends but, if so, I have been encouraged in that by Mr. Tuppen and I just don't see how they can support an investment case for the shares unless shareholders start to see a return either in the form of dividends or by releasing the 'true' underlying NAV.