$PUB.L - Punch Taverns - Recovery play

No doubt you’ll all think I’ve lost my mind, but here goes anyway …

Pub chain Punch Taverns (LON:PUB) announced its prelims today, http://is.gd/IYOlQR, causing an “interesting” market reaction … more about that below.

Revenues were down 7% to £458m, and PTP was down 23%. However, PUB did report a strong cash position of £329m, and net debt decreased by 6%, or £122m. What’s been happening is that PUB has been disposing of pubs in order to pay down debt, and naturally revenues have consequently decreased. Importantly, average net income per pub is up 1.5% across the year.

From a technical perspective, PUB has had a 52-week low of 6.06p, and a 52-week high of 15.75p – which is approximately where it is today. It has an RS6m of 36% – so there’s momentum behind it.

Now onto the interesting thing about the share price reaction. I have been noticing this from time-to-time with other companies that are reporting: the market reacts at opening, but then either reverses, or recovers. This isn’t what I (personally) would normally expect. What I would consider more normal is what happened with ALY’s (Laura Ashley) interims, issued today: it goes down (or conversely, up) and stays down (or up).

The share price of PUB was down around 7% in early trading, but then settled to be down about 3% by mid-morning. At the close, the share price remained unchanged from the opening. It looks like someone is hoovering these up.

So, interesting recovery play here – although clearly not for widows and orphans. I have a small position in these. Let’s see if I end up with egg on my face in 6 months time.

15.00p