Small Cap Value Report (11 Aug 2016) - ETI

11th Aug '16 by Paul Scott

25 comments 12436 reads

Good morning!

ShareSoc Brighton

Firstly a date for your diaries - 13 Sep 2016 - ShareSoc are re-starting investor evenings in Brighton, just down the road from me. The idea is to make this a monthly event, on the 2nd Tue of each month.

Palace Capital (LON:PCA) are coming along to give a presentation. Also, I'll be giving a 30 minute talk about the most interesting small cap share ideas that I've come across in the last month. Then there's an optional meal afterwards. Plus of course I shall be propping up the bar & chatting shares with everyone, so am really looking forward to this.

We're keen to get the numbers this time, so please book as early as you can, here is the booking link. Note that it's a new venue - very near Brighton station, called the Caxton Arms.

Enterprise Inns (LON:ETI)

Share price: 93.75p (up 0.5% today)
No. shares: 497.4m
Market cap: £466.3m

Trading update - pubs seem to be doing quite well at the moment, with a number of quite positive statements recently from pub/brewery groups, e.g.;

Young & Co's Brewery (LON:YNGA) - reported on 5 Jul 2016 that LFL sales were up 4.1% FY to date.

J D Wetherspoon (LON:JDW) - reported on 13 Jul 2016 that LFL sales in the last 11 weeks were up 4.0%, although its operating margin for the full year had fallen to 6.8% (prior year 7.4%). This is the statement where its Chairman blasted the "unprecedented & irresponsible doom-mongering" of many august bodies and individuals over Brexit.

Fuller Smith & Turner (LON:FSTA) - reported on 21 Jul 2016 that LFL sales were up 2.1% in managed sites, but down 2% in tenanted ones, and referred to "a more challenging environment".

Marston's (LON:MARS) - reported on 27 Jul 2016 that LFL sales were up 1.8% in the most recent 16 weeks, down a bit from the higher growth of 2.5% for a longer 42 week period."Not seen any discernible impact" from Brexit.

Mitchells & Butlers (LON:MAB)…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Andyin

11th Aug '16

Paul, You usually report on SIV, any views on latest update?

martinthebrave

Paul, PTSG reported decent looking interims today. The issue seems to be the pace of acquisitions that they are undertaking. I know you are a busy guy but if you have time......

melody9999

PHD Proactis also strong update. SP fall recently for no apparent reason

PJ0077

I think the apparent reason for the weakness in the share price of Proactis Holdings (LON:PHD) is the continued selling by Hendersons, who still hold 4.46 million shares, 10.7% of the total.

They could take a while to fully exit (if that is their goal) unless another institution buys them as a block.

bobo

Palace; are they the guys who hide on Guernsey?

Fangorn

Marston's has long been a favourite of mine - originally owned around 100p mark, sold out at decent profit despite the attractive yield - am looking for a re entry as it's a well run quality company in the pub sector and it has lost its frothiness recently (160p odd was the high I vaguely recall)

JoeRob

You say current valuations, the likes of PUB, MAB, ETI are hardly expensive, PUB for example is trading at a massive discount to it's NAV.

People take a very simplistic view of the pub industry, it amazes me how many people say oh that's riddled with debt I'm not touching it, the likes of PUB and ETI are like property companies in lots of ways, i.e. the debt is due to property, I would guess a lot of the properties are also worth lots more than existing book values, I reckon if the whole of PUB was broken up it would be worth 4 - 7 times the current market cap, obviously this is never going to happen however these companies are sitting on some very tasty assets.

The one share I wouldn't touch at the current valuation is JDW, at around £9 it's up over 30% in recent months, staggering valuation when compared to something like MAB.

Michael Mortphew

Thanks

schober

ETI should have made the debt callable?

Enterprise Inns & Punch Taverns were so financially leveraged going into the 2007-09 Great Financial Crisis that they literally found themselves re-negotiating debt 'over a barrel'...

I still remember the day in March 2009 that Punch as a distressed seller sold 6 platinum London pubs to the cash-rich Fullers, including Ye Old Mitre (Holborn) & The Hereford (South Kensington).

Let us all seek to avoid high financial leverage going into a recession.

gus 1065

Hi Trident.

I think you are referring to Hugh Osmond, one of several entrepreneurs that bought in to the business in the 1990's using a highly leveraged tenanted pubs model. Moved on into the Insurance Industry with Pearl as I recall. Last seen in the ST rich list and worth over £250m.

His (Punch Taverns) was one of several UK pub cos that hoovered up large pub estates from the brewers and then financed these by issuing 30 year high grade bonds, often raising debt proceeds in excess of the estate purchase price. Others in the game included Guy Hands' Unique and Pubmaster. To be fair, the huge changes in the UK pub industry in the last 30 years are as much to do with the disruption from the original Beer Orders legislation in the 1980's that required the Brewers to sell off their tied estates in the interests of competition and changes in tastes and market dynamics (preference for drinking cheap supermarket hooch at home rather than in a pub, the smoking ban, alternative higher value use for prime/sub prime high street sites etc.).

I think the days of the traditional working man's cheap and cheerful boozer are now consigned to a world of B&W analogue TV and Saturday afternoon all-in wrestling. Everything is now either gastro food or high street national chain led. All in the interests of progress ...

Gus.

Cisk

I've owned Fuller Smith & Turner (LON:FSTA) for years, a great company with solid finances, conservative management, premium sites and some sites have accommodation. Recently bought a few Marston's (LON:MARS) - again a great company, Thwaites deal last year looked well timed but they have significantly more debt.

Fullers especially have key sites in London - weaker pound bringing in even more tourists bodes well for them. Happy holding both.

Trident

Hi Gus

Yes that's the chap.

Thanks for reminding me

Trident

Cerrito

As regards the issue of the balance sheet value of pubs, note as far as ETI are concerned 90% odd by value of the pubs are held as security by the lenders and as such are valued externally every year- in ETI's case by Colliers and GVA Grimley both of whom I understand are reputable. It is true that just under 10% of the pubs which are not held as security are valued internally-I have always found this strange but never questioned the company as I have never made it to an AGM.

RMundy

Regarding the Brighton Sharesoc events... Hopefully the the RMT and Govia can sort out the utter farce that is southern rail before the 13th Sept so we can get a decent turnout...

john bradney

aldermore
good evening Paul
can you shed any light on why this company, who have just reported favourably, should be so badly regarded by the investing fraternity.
i think they look undervalued, by a lump, but worry that i am missing something

help - please

john

Paul Scott

12th Aug '16

Sorry, I didn't get much further reporting on companies, after having a nap, and then checking out the Caxton Arms.

FREng

Something's up at SCISYS (LON:SSY), judging by recent price activity, but there's no RNS.

Poor interims from Cloudbuy (LON:CBUY) today (Friday) . Looks like one for Paul's bargepole list.

Small Cap Value Report (11 Aug 2016) - ETI

ShareSoc Brighton

Enterprise Inns (LON:ETI)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

25 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...