Pubs ‘n’ Bars, the AIM quoted community pub owner and operator, has announced its results for the year ended 31st December 2007. These show a broadly in-line-with-forecast underlying pre-tax profit of £893,856, down from £1.07 million in calendar 2006. This was recorded on revenue up over 30% to £20 million, boosted by the acquisitions of Moorgate London Ltd, Community Taverns Ltd and Moorgate Taverns Ltd which were completed in 2007. These helped underlying operating profit increase by 12.2% to £2.68 million but contributed significantly to the £392,864 increase in finance costs to £1.82 million which led to the underlying pre-tax profit decline.
Headline pre-tax profit increased by 107% to £1.03 million as 2007’s numbers benefited from £725,254 of negative goodwill from the Moorgate Taverns acquisition. This together, with a tax credit of £594,221, largely as a result of the recognition of deferred tax assets, saw basic earnings per share increase by 128% to 5.3p.
The balance sheet shows total assets of £62.22 million – including current assets of £3.05 million – against £36.62 million of non-current liabilities and £3.41 million of current liabilities. As such, the net debt at period end totalled £36.99 million. The company generated £2.89 million of cash from operations providing cashflow cover of 1.59 times.
Since the beginning of the smoking ban, which came into effect on 1st July 2007, the company has seen a 5% decline in like-for-like revenue, the majority of which it believes is directly attributable to the ban – although it is difficult to calculate exactly how much has been lost to this and how much is attributable to other factors such as the impact of alcohol duty and competition from supermarkets. Together with an adverse macro economic backdrop and an early and snowy Easter, the company also reported that first quarter turnover in the current year fell approximately 2% below budget. As a result it felt unable to responsibly maintain a 1p per share final dividend and is recommending a cut to 0.5p, making a total of 1.25p for the year – down from 1.75p for 2006.
This, together with the company’s debt and present challenging climate for all those operating in the sector - and indeed the leisure and property sectors as a whole – could deter many investors. However, this is a company with significant tangible asset backing which is now trading at a 60% discount to (revalued as per IFRS) net asset value.
Pubs ‘n’ Bars also remains confident that over the longer-term “running convivial, non-fashion dependent pubs is a resilient business with good growth prospects”. This certainly seems reasonable since such pubs seem to have an enduring attraction as friendly neighbourhood meeting places (Pubs ‘n’ Bars 5% decline in like-for-like revenue compares with estimated falls of around 10% for some of the other listed pub operators) and indeed with favourable summer comparatives – with June and July of last year being the wettest recorded since records began in 1956 – together with a full year’s contribution from three acquisitions completed in 2007, we maintain our 2008 forecast of £944,000 in underlying pre-tax profit on revenue of £23.19 million.
As such we regard the debt level as manageable and with the shares trading on a prospective current year price-earnings multiple of 9.4 and even with the reduced 1.25p dividend yielding a healthy 5.6%, they continue to have appeal. Since we initiated coverage in March the shares have now gained almost 35% but with the price-earnings multiple undemanding, dividend attractive and a net asset value of almost 55.5p per share there looks to be further upside remaining. At 22.25p our stance remains buy.
Forecast Table
Year to 31st December
|
Sales
(£million) |
Normalised Pre-tax Profit
(£million) |
Earnings Per Share (p) |
Price Earnings Ratio |
Dividend Per Share (p) |
Dividend Yield (%) |
2006A |
15.33 |
1.07 |
2.32** |
9.6 |
1.75 |
7.6 |
2007A |
20.00 |
0.894 |
5.30** |
4.2 |
1.25 |
5.6 |
2008E |
23.19 |
0.944 |
2.36** |
9.4 |
1.25 |
5.6 |
**2006 and 2007 figures benefit from tax credits. A nil tax rate is assumed for 2008.
*Pubs ‘n’ Bars is a corporate client of Bishopsgate Communications which is owned by Rivington Street Holdings, the ultimate owner of GE&CR.
RSH also owns shares in Pubs N'Bars.
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