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by Dan Coatsworth
Analysts have been calling the market bottom for pubs group Punch Taverns’ share price slump for the past few months. Unfortunately, speculation over a tie-up with Mitchells & Butlers and a possible sale of its managed pubs business, Spirit, kept the share price volatile. Confirmation last week that it is not considering either corporate transaction has prompted Richard Carter at Numis to definitively state that Punch has been oversold. ‘The stock now more than discounts the uncertain near-term trading environment,’ he says. ‘Punch has a strong balance sheet, is well funded and the increased possibility of a share buyback programme strengthens, we believe, the deepening value proposition that Punch Taverns now offers.’
Although upgrading the stock to buy from add, Carter cuts his 2008 pre-tax profit forecast by 0.8% to £276.6 million on higher capital investment. The 2010 forecast is cut 3.2% to £297.6 million on the assumption that Spirit margins will slip by 150 basis points.