Spirit Pub Company - same again please!

Spirit Pub Company: They have released their fourth quarter trading update to 16^th August. The good news is that ‘full year results are expected to be ahead of market expectations’. Their managed pubs are cited as trading ahead of the market, with like-for-like net sales up 2.1% over 12 weeks and +4.4% for the year. This is despite tough comparisons from the previous year and a deteriorating weather pattern in August this year. They are now acquiring pubs/sites in this division with 11 added, maybe as many again in process and a long term target of 400 additions mentioned. These additions are expected to ‘generate returns materially ahead of our cost of capital’. The more troubled leased division also traded well with like-for-like net income up 4.8% for the twelve weeks and +4.2% for the year. Gradually the spectre of their onerous lease provision has faded and the debt pile has come under control. At the interims debt was £726m and net debt to EBITDA was 4.7x, since when it will have improved further. So eps for the year just finished of maybe 6.8p is a PE of 11.5x at 78p, with a yield of 2.8% on a 2.2p dividend. For August 2015 eps could be 7.5p , with a three times covered dividend of 2.5p, giving a PE of 10.4x and yield of 3.2%. The valuation discount perhaps reflects lingering concerns about its ancestry within Punch Taverns and the intricacies of some of its debt, but that all feels increasingly harsh. These metrics seem very good value for a company trading well, with good free cash flow and improving its balance sheet. (5th September 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk