Enterprise Inns Share Discussion Threads

[cerrito] 28/11/2011 19:27

From UK-Analyst.com today
I suppose the olympics wont harm but not sure if they will help all that much
quote
Enterprise Inns (ETI) retained its "buy" rating from Panmure Gordon, with a target price of 80p. The broker is encouraged by the government's decision to not to increase industry regulations and believes the pub chain can now focus on improving like-for-like EBITDA growth and refinancing its debt. Panmure has high hopes for the firm in the 2012 financial year, with Euro 12 and the London Olympics expected to boost sales. The shares jumped 1.75p to 33.75p.

[cerrito] 25/11/2011 18:52

Listened to some of the webcast and had a good look at the figures.
Two things struck me about what Tuppen said in the webcast. The first is that to quote his words there will be no following wind in the next 3/5 years. ie a hard slog. The second is his worry about the fragility of the banking scene in terms of his refinancing, and the deterioration in the last 3 months. No surprise of course but have not heard it mentioned so explicitly by others. Confirmed that had no current intention in buy backs of shares or bonds or securitizations(though he wondered for the last two how much in reality they would be able to buy back) as they focused on debt reduction.
Discussed change in property portfolio management; was looking this current FY of £150m in disposals. £50m would be tail end disposals, and the other £100m would come from special situations where they have good assets which they would sell in excess of book value if others could make better use of the property-ie sale of pub for residential or a pub where another operator could make more money.
Good discussion on Project Beacon , which I took to mean trying to make a go of 600 odd small pubs which not worth selling in a distressed market, using their centralized skills and where flexibility is the key.
Also focus on securitizations: They are right to tackle this issue head on given market concern and I was comfortable about their ability to handle the covenants.

My comments on other points
Interesting to note that with last year's eps at 23.4p the shares are currently trading at less than 1.5pe.
Surprised that 976 publicans have been in situ for less than a year
Of £454m net income, £229m comes from beer, cider, fabs and £217m from rent
Slide 24 shows comfortable cover on bank covenants
Interested in the high cost of disposing assets ie note 4 of the balance sheet says that to sell gross £117m had £11m of costs.

Conclusion: Happy with my holdings of the 2018 bonds and shares. Do not see any dividend payments till 2013 at the earliest and not sure if we are going to see a rapid bounce in the shares.
Note that there is a concern among bond holders with some largish sales going through since the results; £250000 face value of 2018 bonds sold yesterday. This means a price fall today with prices of 70.4/71.5 giving a GRY of 12% odd.

[jeffian] 25/11/2011 15:56

Of course, everyone has an 'agenda' in this debate and the anti-tie brigade has been very successful in persuading the press that the tie is at the root of pub closures. One question; how on earth can it benefit a brewer or pubco - who derive their income from rent and beer sales - to have a closed pub? Rather than listen to the likes of the GMB, probably better to go to the source and look at the statistics on which the BISC based their enquiry.



This shows that of all the pubs which closed in 2008 (the year the statistics were collected for the 2009 report), 55% were Free Houses. Only 33% were leased/tenanted.

One shouldn't believe everything you read in the papers - even the revered FT!

[cerrito] 25/11/2011 13:48

FT take on Govt decision

[the_doctor] 25/11/2011 10:19

Good spot jeffian - I was just wondering about that

[jeffian] 25/11/2011 10:15

Well that's lifted one cloud which has been hovering over the sector for the past couple of years, potentially far more damaging than financing risk.

[jeffian] 23/11/2011 17:47

That'll be a first, then!

8-)

[the_doctor] 23/11/2011 17:28

'every time this argument has been raised against the pub industry - and yet it's still there'

out of interest, was it as debt ridden before though?
and taxes on booze were proportionally a lot lower too


'evidence that food pubs have actually prospered during this recession as people have traded down from restaurants to pubs rather than stop going out at all'

I tend to agree

[jeffian] 23/11/2011 17:18

btw, spob, as you're 'back', you never did answer this question -

"jeffian - 20 Jul'10 - 18:01 - 369 of 407 edit


Well what do you think is the "right" level of debt and why?

If you were buying a house (or pub!), how much of the purchase price would you be prepared to borrow?"

There is a piece in today's Times Business pages about the housing market with a graph indicating new mortgage loan-to-value ratios from 1975 onwards. They've consistently been around 85%, with a stint (1985-2000) at 95% before 'diving' in the 2008 credit crunch. They now stand at 80%. ETI's loan-to-value ratio is 65%. So I ask again, what do you think is the "right" level of debt and why?

[jeffian] 23/11/2011 16:52

I don't want to get involved in this game but, of course, there is an argument that if "inflation going one way" (up) then holding real assets (e.g. property) funded by debt being eroded by inflation is exactly the right way to go! I agree with spob that inflation is being built into the system via QE and although the Govt wouldn't say so openly, the plan is simply to inflate away the debts of UK plc. What's good enough for UK is good enough for ETI?!

In the shorter term, in relation to spob's comments about pressure on consumer disposable income, I have worked through every recession since 1972> and every time this argument has been raised against the pub industry - and yet it's still there. Firstly, although obviously 'discretionary' spending, going to the pub seems to be among the last things cut rather than the first(!) and, secondly, the industry has evolved, most notably by moving away from wet-led high-volume 'boozers' to food-led quasi restaurants. In fact, there is some recent evidence that food pubs have actually prospered during this recession as people have traded down from restaurants to pubs rather than stop going out at all.

As Mark Twain nearly said 'The death of the pub has been greatly exaggerated'.

[spob] 23/11/2011 16:43

petrol prices

utility bills

car insurance

stealth taxes

government cutbacks

unemployment to rise further

consumer confidence wiped out

euro meltdown

US national debt melt down

depression just around the corner

1929 was a walk in the park

[spob] 23/11/2011 16:38

no chance

inflation going one way

[jazza] 23/11/2011 16:30

spob,

I would expect inflation to drop like a stone, taking the pressure off wallets..

[the_doctor] 23/11/2011 16:28

do you not think the market has priced some of that in?

[spob] 23/11/2011 15:56

so do you expect consumer disposable income to improve going forward from here

and do you expect asset prices to hold up going forward

and what do you foresee the consequences of any unforseen minor set back on a company already burdened so heavily

[the_doctor] 23/11/2011 15:36

if you've already drawn your conclusion spob, then no, you're not going to be interested

ETI is still making money and covering interest payments
the assets are still valued way over the liabilities
the debt should well be able to be rolled in years to come
I think your view is premature

BUT, the amortisations force ETI to pay off some of the debt and just paying off the bank debt is going to take further asset sales, although that debt could be refinanced most likely?

The amortisations are the biggest concern IMO, since they're quite a hefty drain of cash. If earnings stay as they are, they'd not have to sell off many assets to cover the amortisation payment shortfall

[spob] 23/11/2011 15:32

sooner or later the lions get the weak calf

[spob] 23/11/2011 15:16

my point is

that they WILL very likely go bust in my opinion

and i drew that conclusion 3 years ago

just a matter of when not if

but that's just my opinion, so please draw your own conclusions


theres a point of no return which i feel ETI have crossed

one minor unforseen setback and it's game over imho

[the_doctor] 23/11/2011 14:59

'enough said'

no consideration of assets and cash flows needed then? 'lol'



There IS a need to consider the debt payments, because they're EVERYTHING regarding ETI's future essentially - and EBITDA:net debt

If ETI cant meet the mandatory debt payments, they'll go bust
I overlooked the fact some of the debt would be amortized from 2013 when I bought
A lesson learnt there.


three approaches
1. hold and assume the debt payments can be covered
2. sell and assume they cant
3. look at how ETI plans to cover them and what that means, then decide to sell or hold

[spob] 23/11/2011 14:53

What's to say

net debt 3000m

mcap 156m

consumer disposable income evaporating

risk of equity wipeout very very high


enough said

no need to analyse the debt repayments from every angle

[the_doctor] 23/11/2011 14:40

'The company have highlighted an issue which appears to concern you and others in the market'

yes, an issue that I tried explaining to you and others before, but you were having none of it!


'have spelt out several options for dealing with it. You either accept it or you don't'

I prefer not to make blind decisions and instead actually look at how realistic the options are!
Furthermore, when you know what impacts the viability of the options going forward, you can keep an eye out and act accordingly


'What does it matter what I think?'

It doesnt at all. I was simply asking around.
You usually try and present yourself as someone who understands this company, so now we're FINALLY on the same page about the debt payment issues, I was interested to see if you had any insight into the options

As stated, hands up, I'm in no position to make any call on how realistic the management/fee options are.
I therefore dont try to claim they are 'extremely low probability'- or 'long odds' if as you seem to make out, there's a difference

[jeffian] 23/11/2011 14:24

Assess away, doc. What's to say? The company have highlighted an issue which appears to concern you and others in the market and have spelt out several options for dealing with it. You either accept it or you don't. What does it matter what I think?

[the_doctor] 23/11/2011 13:02

None of you got a view then?? I'll take the absence of an answer as 'I don't know' from you jeffian


It's funny - several of you rubbished what I previously said, which was that when the amortization payments kick in from 2013, ETI's mandatory payments would exceed current operating cash flows.
I dont think one other person clocked that!
Still, there's no denying it now that the company has very clearly shown the problem in the recent slides (well done for their honesty)
It is precisely what I was on about before! Even now, I'm not sure you get it jeffian?

The next step is to assess how surmountable the issues are.

[the_doctor] 23/11/2011 08:01

what's your take on how viable the solutions are jeffian

I'll have a listen to the webcast in due course

[jeffian] 22/11/2011 23:24

doc (#631)

Here it is. Make of it what you will.