The transformation continues for Enterprise Inns

The company will announce its first-quarter sales and revenue report on Thursday 5 February. 

Staff member pouring drink in pub
Source: Bloomberg

The pub group owner posted its first full-year increase in like-for-like net income in seven years, and even though the company has undergone a large transformation it hasn’t stopped there. Enterprise Inns has a portfolio of over 5000 pubs, and last year saw LFL net income increase by 1.4%. That said, the top 90% of the best performing pubs witnessed a 3.1% increase in LFL net income.

The number of underperforming pubs has been in decline and the amount of capital investment is on the rise, which indicates the firm is near the end of its restructuring plans. Enterprise Inns has over 700 pubs in the greater London area and the division is the best performing in the country. This saw net income increase by 4.4% during the period. In line with the rest of the industry, the business in the midlands and northern England remains ‘fragile’.

The company reduced its debt by 4% to £2.4 billion, and this has lowered interest payments, but more importantly excessive levels of debt brought the company to its knees during the credit crunch. Although its debt position is improving, the pub chain owner will not be paying a dividend in the near future as its cash flow will still be used to service debt.

The share price of Enterprise Inns took a knock last year when the government decided to scrap the law which tied managed pubs to the brewer and allowed it to purchase beer on the open market. The share price has stabilised since, but it has failed to recoup the losses it incurred in November.

Enterprise Inns will announce its full-year figures in November, and the consensus is for revenue of £624 million and adjusted net profit of £98.2 million. These forecasts equate to a 1.2% decline in revenue and a 1.4% decline in adjusted net income.

Equity analysts are moderately bullish on Enterprise Inns, and out of the 11 recommendations, three are buys, five are holds, and three are sells. The average target price is 122p, which is 13% above the current price. Investment banks hold a moderately bullish outlook for Punch Taverns, and out of the six ratings, two are buys, two are holds and two are sells. The average target price is 152p, which is 39% above the current price.

The share price is receiving support at 100p and the upside resistance of 115p is the target. If that is cleared traders will be looking to fill the gap at 123p. 

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