Tue 1st Sep 2015 - Punch reports full-year profits in line with management expectations Punch reports full-year profits in line with management expectations: Punch Taverns has reported overall profit performance for the 52 weeks to 22 August was in line with management expectations and previous guidance and it expects to report underlying Ebitda of between £193 million and £200 million. The company reported positive like-for-like trends in net income with core estate net income up 0.3%. Disposal proceeds are ahead of guidance at £89 million, above book value and at a multiple of 26 times Ebitda. Punch reported further reduction in nominal net debt, down £513 million in the year and down by £102 million since the October 2014 refinancing to £1,406 million. Its property estate has been externally valued at £2,097 million, £691 million in excess of nominal net debt. The company exchanged contracts with NewRiver Retail for the disposal of 158 non-core pubs for £53.5 million (average of circa £340,000 per pub), with disposal expected to complete on 11 September 2015. Punch reported a higher quality pub estate with average profit per pub up circa 4% benefiting from the disposal of non-core pubs - the core estate is now expected to generate circa 95% of pub Ebitda in the 2016 financial year. Duncan Garrood, chief executive Punch, said: “The business has ended the year with a solid set of results, in line with our expectations. The business has clear plans for further debt reduction and will benefit from being able to focus more resources on the higher quality core pub estate. Since joining Punch on 15 June I am excited by the opportunities I see in the business. I look forward to updating the market on our plans when we present our full set of results on 12 November.” Numis Securities leisure analyst Douglas Jack, issuing a ‘Buy’ note with a 180p price target, said: “Last year, average Ebitda per pub was £59.5k, but was £58.5k after removing the 53rd week. 4% average growth implies £60.7k in 2015E, which equates to £196m of Ebitda (based on 3,710 average number of pubs) after our estimate of £36m of central costs and £7m of income from Matthew Clark. Thus, Ebitda is in the middle of the £193-200m Ebitda guidance, and ahead of our previous £193m forecast. In 2014, Ebitda was £205m. In 2015E, as the core estate added £0.6m Ebitda, disposals removed an estimated £4.6m of Ebitda and lower central costs/Matthew Clark growth added an estimated £2m of Ebitda, we estimate that non-core Ebitda fell by £7m or 23%. In this light, it is positive that the core estate should account for c.95% of pub Ebitda in 2016E. Nominal net debt fell by £513m in 2015E, and it has fallen by £102m since the October 2014 restructuring. This in line. In comparison to the resultant £1,406m of net debt, the estate has been externally valued at £2,097m, implying £3.11/share of equity value, before considering the 50% JV stake in Matthew Clark (c.£7m pa Ebitda to Punch), from which income grew by 82% between 2012 and 2014. Although we are not upgrading 2016E due to dilution from the NewRiver Retail disposal, there are potentially more positive catalysts. In addition to a strategic update in the 12 November finals, the press has suggested that Punch could sell Matthew Clark. Either way, the £90m of 15% PIK debenture notes should be refinanced in October 2016, possibly enhancing PBT by c.14%, and this is not currently in forecasts.”