Tuesday, July 08, 2008

Punch Taverns shares continue to fall over debt fears.

Punch Taverns’ shares fell nearly seven per cent this morning, wiping out gains made after yesterday’s debt update with City pub watchers.

Pressure on the group’s shares had been temporarily lifted yesterday as Punch met with analysts to bring the City up to speed with a number of finance-related issues, including its debt situation and progress on becoming a real estate investment trusts (REIT).

The pubco told the gathering that its balance sheet was “well structured and strong”, according to Blue Oar Securities’ Mark Brumby, and was no more indebted than a number of its peers. It also told analysts its dividend was safe.

The meeting was held on the day the group’s interim management statement (IMS) had been originally due out. The IMS was actually released two weeks ago, after speculation surrounding Punch’s debt situation sent the group’s shares tumbling.

At yesterday’s meeting Punch chief executive Giles Thorley repeated his assertion that the group did not need a rights issue, while any breaching of one of its debt instruments, ‘Punch A’, would have “no impact” and any lockdown of cash held within it would not be permanent.

Meanwhile the cost of Punch becoming a REIT would be at least £260m, Thorley told analysts. Blue Oar’s Brumby said the “undertone seemed to be that a conversion did not make sense at present”.

Another analyst who attended the meeting yesterday took a sanguine view of the outcome and Punch’s debt situation. “It would take a dramatic fall in profits to affect the dent position. They’re fine as long a trading doesn’t collapse,” he said.

The City meeting came as Punch confirmed the departure of Spirit Group managing director Andrew knight and his successor, ex-Whitbread executive Michael Tye.

Punch acknowledged that Spirit’s trading in the last six months had not been as robust as it had hoped and signalled that it believed Tye would turn things around across the estate.

YOYOS in the market. Excellent.

Analysts now regard business peers being equally up to their necks in indebtedness as evidence of financial security. The logic here is that of the Emperor's New Clothes: As long as no one points out the obvious and acts on it. IT'S ALRIGHT. ISN'T IT?

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