Enterprise Inns Share Discussion Threads

[jeffian] 09/8/2012 13:47

If net debt had been £364m, Jon, I don't think that the share price would be floundering around at not much over 2x earnings! The focus has been on reducing/eradicating bank debt because it is those pesky bankers which cause all the trouble. Of the remaining corporate bonds, part are amortised over an extended period and the remainder will be refinanced as they mature. You have to take a view on whether the market will refuse to stump up for a new bond issue but at the moment, with interest rates hovering close to zero and no foreseeable change, there seems to be a reasonable appetite for them.

[jonc] 09/8/2012 13:35

Whoops!!

Bank borrowings net of cash reduced to GBP364 million (GBP446 million at 30 September 2011).

I have read that and for some reason thought that was the total net debt hence my comment earlier.

My mistake and a big one!

[jeffian] 09/8/2012 12:19

Ah, spob, see you've popped by for a flying visit! Still avoiding the question? (#652, if it helps).

Net Debt at the half year stage was around £2.9bn, so we'll be around £100m down on that now and maybe £200m down at the year-end. In the meantime, NET ASSETS at the half-year stood at £1.457bn (£2.91/share).

I agree with tiltonboy that debt will continue to be an "issue" in the market generally whilst the threat of a Eurozone crash/liquidity crisis persists, but ETI are doing what they can to extend their (banking) debt profile to overcome that fear and clearly the business is on track to stabilise earnings which puts some sort of floor under it.

In the Analysts' presentation, the FD confirmed that the remaining £21m of 'Tranche B' debt will be repaid before the year-end "leaving all options open to us" (Tranche B is the only loan with a covenant against paying dividends). Whether this is a genuine hint or just pr1ck-teasing remains to be seen!

[cerrito] 09/8/2012 12:09

Agree a good update and to me following this and what MARS said the other week and GNK some time back there is some solidity to the sector we have not seen for some time.
At the moment do not hold the ordinaries as I have all my exposure in the 18 bonds; as and when they have on the website the conference call will listen to q and a

[spob] 09/8/2012 11:27

So what's the total NET DEBT now ?

[tiltonboy] 09/8/2012 10:42

JonC,

I think debt is still an issue, but the market is getting more relaxed. I sold the 2014 Bond above par last week, and switched into the longer dated issue at 81.7p.

[jonc] 09/8/2012 10:40

The way in which debt has been reduced makes debt a non issue now.

Encouraging update.

[crosswire] 14/6/2012 18:45

Enterprise shares have climbed 4p to 69.25p, and analyst Simon French at Panmure Gordon issued a buy note:

Whilst this [agreement] results in some very modest short-term increases in interest costs, the earlier than anticipated agreement of the facility will be well received by the market. In addition we note there will be no restrictions on the group's ability to pay dividends once Tranche B of the existing facility is fully repaid, raising the likelihood of a return to the dividend list in the short term. We reiterate our buy recommendation and 87p target price.
Jeffrey Harwood at Oriel Securities was also positive:

While the shares have shown a strong recovery from depressed levels the valuation of the equity remains low. There is further upside although overall debt levels remain high.

[crosswire] 03/6/2012 10:09

Need a 5 year chart above!

[jeffian] 01/6/2012 11:10

Anyone who has followed my posts over the years will know I've consistently reported (from discussions with the company) that the focus is on reducing bank debt rather than the financially more attractive discounted bonds, simply because the Bondholders are committed long-term and don't represent an unexpected threat, whereas the banks have potential liquidity problems and may be forced to call in loans at short notice. Thus the agreement to enter into a Forward Start Facility exactly fits the pattern of the last few years by a) proving to the market that the banks currently continue to support ETI and b), by spelling out the amortisation schedule, signalling that they are committed to reducing bank debt beyond previous targets and maybe even to nothing. If the whatsit hits the fan, they are determined that the banking tail should not wag the corporate dog.

The banks' margins are eye-watering, aren't they? In my day (yes, I know!), blue chips could borrow at 1% over base and even as a spivvy property developer, I 'only' paid 2-2.5% over. Now they've been stopped selling dodgy insurance policies and stuffing their private customers into 'structured products' and the like, it's becoming clear they're having to find other sheep to fleece. A plague on all their houses!

[cerrito] 01/6/2012 09:49

sburbs, my reading is the same as yours that the new facilities have no dividend restrictions.
Given the very healthy margins the banks will be receiving on this refinancing one is almost tempted to buy bank shares.

[tiltonboy] 01/6/2012 09:12

Paid 77 for the 2018 debt this morning, to give an 11% GRY.

[scburbs] 01/6/2012 09:02

Good to see bank facilities extended. Pricing looks expensive (from a margin perspective), but is still cheaper than the fixed debt and will represent only a slither of the debt.

The new facilities do not appear to contain dividend restrctions. However, with the last reported bank debt being £381m this means they have an amortisation schedule of £161m for the next 18 months and the extension is only for 2 years for £70m and 3 years for £150m. They do have c.£100m cash to start with, but this means a material proportion of operating cashflow and disposal proceeds will go to paying down bank debt at par rather than discounted debt buybacks or dividends.

However, in the current climate any refinancing deal is very good news. Given the bank debt is being managed down to relatively low levels that means provided they can manage the covenant issues there are no real pinch points until 2018 when the £600m falls due.

If they are on top of the covenant as they are impying then the situation looks almost stable (based on the disposal plans coming to fruition) and they could possibly restart dividends in 2013. As I said I would prefer discounted debt buybacks, but a token dividend (e.g. 1p per share - c.£5m) that they intend to increase year on year by a decent percentage could be good for confidence.

[jeffian] 21/5/2012 15:37

As the papers are full of speculation about Punch handing its pubs back to the bondholders, I wonder if this idea might come back into play........

[jazza] 16/5/2012 11:24

Personally, I don't think it's a case of "what level of debt is right?".

I think a TIME will come where debt is no longer a dirty word, where deleverage is not the only game in town.

When might that time be? Keep your eyes on the Eurozone methinks. ETI paying a dividend with cash that could otherwise be used for debt-repurchase below par won't float while the PIIGS are giving investors the willies..

[jeffian] 16/5/2012 11:20

That's exactly how I feel, scburbs. To divert all cash resources to achieve some undefined ("whatever is required") reduction in gearing does not fairly balance the interests of all 'stakeholders' here - lenders, management/employees, publican tenants and shareholders. Of that group, the only ones to have taken a real hit are the shareholders (as I pointed out at the AGM in discussion of the Remuneration Committee report!). The issue, to which epicmush alludes ("to ensure that you can refinance") is not affordability but worries about liquidity in the credit markets and if the latter dries up then we're all going to be in bigger trouble than worrying about ETI. In the meantime, if the plan is to plod along reducing debt by a couple of £100m per year, then a 5p divi costing £25m is neither here nor there in the great scheme of things.

"Once the company has got it's long term finance in place.....". With an amortisation/repayment schedule stretching through to 2032, I would have thought ETI's finances were rather more "long term" than most! I assume the worry is the £600m bond maturing in 2018 but ETI themselves don't see it as a problem and in the current nearly-nil interest rate environment many companies with less than investment-grade ratings have succeeded in tapping the Corporate Bond market (an area I have been investing myself for income). Regardless of ETI's woes, I'm sure there are plenty of income-hungry funds which would lend against this ring-fenced group of pubs. Anyway, that's 6 years down the road and whatever is going to happen in the Eurozone and credit markets will have panned out by then - we'll either be back on track or living in caves!

[scburbs] 16/5/2012 08:45

My preference is still for discounted debt buybacks as you get more value for your debt repayment (anything in the 70's in £ or below is good) and it accelerates degearing.

However, they they could spend many years repaying debt at par so using all cashflow to repay debt at par and giving nothing to shareholders is a non-runner for me.

There needs to be a balance to give something to shareholders either from dividends or discounted debt buybacks adding to net asset value.

[epicmush] 16/5/2012 01:25

It's whatever is required to be able to refinance on the most beneficial terms (and more importantly to ensure that you can refinance!!). In this environment that means as little debt as possible. Once the company has got it's long term finance in place and the market is confident in it's continued existence then pay a dividend. Until then I don't think it's wise.

[jeffian] 16/5/2012 00:43

Fair enough, epicmush, and your view is clearly in the ascendancy but I would be interested if you could answer the question that spob ducked (and so did the Board when I last asked them!) - what, in your opinion, is the 'right' level of debt?

[epicmush] 15/5/2012 23:48

The share price is hugely depressed and why? Obviously because of all the debt; in today's economic environment everyone is scared of debt. Surely the best thing the company can do for shareholders is to manage that risk down by paying off as much debt as possible, and that strategy isn't consistent with paying a dividend. Once the company is on a sounder footing then fine, pay a dividend, but this isn't the right time. I implore you My Tuppen (and with all due respect jeffian) please don't listen to jeffian!

[scburbs] 15/5/2012 23:29

Just to finish my line of thought before I had to go out ...

Based on £134m of operating cash flow (after tax and interest) in 2011 then a dividend of £40-50m could be possible if they can get that cash flow to stabilise. This gives something to shareholders and ensures the debt is being amortised as well.

A split of surplus operating cash flow perhaps 2/3rds to debt repayment, 1/3rd to dividend or something like that might be sustainable in the medium term if they can get the starting debt down a little with the c.£250-300m net disposals scheduled in 2012/13.

[scburbs] 15/5/2012 18:09

Jeffian,

On reflection I think I am reading my own preference for discounted debt buybacks into it.

What they actually say is:

"No material additional purchases once the £74m acquired."

Once they are one year ahead, they could just stay one year ahead by meeting the next years amortisation. This means a continuing c.£75m obligation which is broadly equally to the cashflow (predisposals) in the securitisation.

This would leave them free to pay dividends out of the surplus cashflow from the remaining portfolio (if they can refinance the bank debt on sensible terms and deal with the Feb 2014 repayment out of disposals).

Disposals could help with the overall strategy, perhaps meeting the amortisation out of net disposals. However, the plan seems to be high disposals this year and next year and then reverting to £50m disposals/£50m capex after that, meaning the divi & amort would both need to be funded from operating cashflow alone.