Pub operator Punch Taverns sounded pretty gloomy this morning, despite telling investors that it was still on track to meet to its full-year forecasts. Although the brief spell of sunshine in early July brought back a few recession-affected punters, they promptly disappeared again once our barbecue summer got rained off – leaving Punch to conclude that there’s no prospect of sales picking up any time soon. But despite the fact that Punch is selling less beer, its shares actually jumped 10% this morning - because it’s been selling off property to reduce its debt. Pub companies aren’t what they used to be…
In a trading update today, Punch said that the recession had ‘significantly reduced consumer confidence and impacted the level of disposable income being made available for leisure activities’ – in other words, we have less cash to fritter away in our local Dog & Duck (or Lease & Leverage, in Punch’s case). So despite the fact that this summer’s been a bit better than the previous two, if only briefly, Punch has seen no real improvement in its trading. But the good news is that it’s still on course to make profits of £160m for the year as a whole – less than last year, but not a complete disaster.
Better still, as far as investors are concerned, Punch is starting to make progress in trimming its vast debt pile, which stood at £4.5bn at the start of this year. It reckons it can wipe about £1bn off that total by the end of 2009, largely by selling off its worst-performing pubs. Apparently earlier this year it set up a ‘Turnaround Division’ of the 1,250 biggest dogs in its portfolio (which is about to get another 400), and it plans to sell off all the ones whose performance can’t be improved. This reduction in its debt was much more than analysts expected, and explains the 10% bounce in its share price this morning – which would otherwise seem rather odd.
In truth though, this says a lot about the pub industry these days. The sector is certainly under threat from people drinking out less, but it’s also struggling with the huge debt burdens that many of these big pubcos have saddled themselves with. For companies like Punch, owning pubs is as much a property play as it is about running boozers – and the huge amounts of leverage they took on to build their empires in the boom times are now coming back to haunt them. And public sentiment isn’t really in their favour – we can’t see too many drinkers complaining if the coming shake-out results in a lot more of our local pubs returning to independent hands.
In today's bulletin:
Summer sucker Punch
Persimmon boost as housing market recovery continues
Stricken bankers-turned-entrepreneurs rescue Regus?
Managing a recruitment business through the recession
FDs want to scrap your perks