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Sun 10th May 2015 - Jamie Rollo - Enterprise Inns strategy review could lead to higher quality, smaller estate
Jamie Rollo - Enterprise Inns strategy review could lead to higher quality, smaller estate: Morgan Stanley leisure analyst Jamie Rollo has forecast tomorrow strategy review announcement, updating on how it will maximise long-term value from the estate, could lead to a smaller but high quality estate. He said: “We think this will involve more investment in building up Enterprise’s fledgling managed pub business, offering more flexible and franchised contracts (extending project Beacon), offering more attractive terms to some pubs, shifting capex back to shorter-term projects, reducing some support for some pubs, and accelerating the disposals of non-core pubs. This will likely mean higher operating costs, which could impact shorter- term profit forecasts, and EPS dilution from selling assets and paying down debt. It could also mean exceptional charges if a restructuring or accelerated disposal programme are required. While this means more uncertainty for investors over the next couple of years, ultimately this should lead to a higher quality, more viable, and faster growing (if smaller) pub estate, a part of which we think could even be spun off as a REIT, although the company has not discussed this.” Meanwhile, Canaccord Genuity has removed Enterprise Inns from its list of stocks to avoid and moved to a more moderate 'hold' investment rating from 'sell', stating that the prospect of a new Conservative government should result in the regulatory threat to the company receding. Punch Taverns was also upgraded to a “hold” rating in a report released on Friday. Enterprise is due to update on its strategic response to the legislation tomorrow. Canaccord analyst Nigel Parson said: "A new Tory minister at the Department for Business, Innovation and Skills should be much less interested in tightening the dreaded MRO [Market Rent Option] clauses that so worry the owners and managers of the tenanted pub industry. A hung parliament or a Labour/SNP victory would have made this problematic but fortunately now management can present against what should be a more benign political outlook.”  


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