Monday, March 10, 2008

From A Brian Jacobs

RE: Charity: Enterprise edging towards Reit result?

So Enterprise chairman Hubert Reid reminded analysts of one highly salient point about the quality of the average Enterprise boozer: today's average Enterprise pub - with a combined average Enterprise and licensee profit of £115,000 per annum (pubco: £68,000, licensee: £47,000, including the £10,000 live-in benefit ) - Now that is interesting. Quality?!

According to the 2007 accounts the average pub in Enterprise ownership was valued at £736,000. That means that Enterprise have valued its pubs on the basis of 6.4 times earnings and that includes wholesale profit. Now we all know that wholesale profit should not affect the value of a pub since it is not a profit that relates to the value of the freehold. Also if the wholesale profit is stripped out on the basis that rent is 50/50 of profit then the earnings ratio7.8 times profit and that is always assuming that the Enterprise "Guess" of licensee profit is 47k which I very much doubt.

If one looks at the 2007 accounts the rent and earnings for the tenant are £33,000 rather than the £47,000 which Hubert Reid quoted. That in itself must give cause for concern since his latest figure of £47,000 is 42% higher; has something happened to create this substantial increase in profit? Current statistics indicate that there has been a dramatic fall in turnover and profit for the tenant following the smoking ban. If the 2007 accounts are used as a measure then the multiple is 11 times the pub profit. With borrowing at an average of £492,000 per pub, 67% of their valuation, this suggests that both the valuation and borrowing are out of kilter.... in fact they both look excessive. Of course if the wholesale profit is erroneously put into the frame the picture looks better but not that much better.

At a time when property companies have falling profits and asset values Enterprise, who are essentially a property company with wholesale profits as a sideline, have worked up their property valu

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