Punch Taverns sees surprise uplift

Share prices in troubled pubs group Punch Taverns have jumped by nearly 7% today, after a trading update showed it has managed to improve its performance and put a dent in its £3bn-plus debt. In fact, the group, which has had a difficult year, said it’s now expecting to meet full-year expectations after sales in its managed pubs rose. So that’ll at least calm angry shareholders, who are likely to voice their unhappiness over various aspects – including CEO Ian Dyson’s pay – during an AGM today.  

It’s no secret the pub trade is in trouble, and with more than 7,100 pubs across the UK, Punch has been one of the hardest hit. But, according to the company, ‘recent action taken’ has managed to shore up like-for-like sales at its 700-strong managed chain, which have grown by 2.2%, with drinks sales rising by 1.7% and turnover from food growing by 2.6%. Bottoms-up to that.

On the other hand, its leased estate, which is run by external landlords, has been a different story: earnings have fallen by 8.7% (and that’s excluding the 1,000 or so pubs in its ominously-named ‘turnaround division’), while like-for-like sales have dropped by more than a fifth. In fact, so troubled are some of its establishments that it’s now spending just under £2m a month to keep them afloat – not exactly and insignificant figure.

The chain is due to hold its AGM today, and there’s a good chance the newly-anointed Dyson will come under fire from investors, despite today’s uplift in share prices – partly thanks to the rumoured ‘multi-million-pound’ golden hello he received when he joined the company back in September. But they’ll also want to know how the strategic review he began when he started the job is coming along. Dyson, whose previous post was the finance director at Marks & Spencer, has even drafted in Blackstone and Goldman Sachs to help him set out proposals to curb the debt, and said today he would be able to give an update ‘by early next year’. So that’s at least something to hold on for.

One solution that’s been doing the rounds for a while is the idea of defaulting on a series of bonds issued by the chain, and handing the keys of about 5,000 of its leased pubs back to its bondholders. It’s unlikely to be popular among the landlords of those pubs, but it would apparently save Punch something in the region of about £3.6m a month in interest payments on the bond debt – which it could then put back into the 1,300 or so of the pubs left, or could even be given to shareholders as a nice little ‘thank you’ for staying on. Of course, that option would mean decimating the number of pubs it owns – but if it’s a choice between that and going out of business entirely, we’d wager it’ll plump for the former.

So it’s unclear how Punch is going to get itself out of this mess. Although having Dyson, whose strength is in finance, rather than beer, at the helm is a very good start.