Shares in EI Group (EIG) rise 5% to 219p as the UK’s largest owner and operator of pubs reports half year profit before tax of £59m. Although this result is in-line with analysts' expectations, the market is pleasantly surprised by increased guidance and the potential for higher returns of cash.
Despite reducing the total number of pubs slightly to 4,405 sites, EI Group grew earnings before interest, depreciation and amortisation (EBITDA) by 2% to £140m in the six months ended 31 March.
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The company reports like-for-like growth of 6% in the managed pubs estate, which combined with the mitigation of cost pressures, drove an improvement in the half year margin.
Managed pubs is the fastest growing part of the business and EI Group increases its guidance to 460-470 pubs by September 2019, up from the 419 sites today.
The company is confident that it has an efficient asset management process whereby it can convert 100-120 pubs a year.
EI Group has substantially grown its commercial properties business over the last few years, primarily through the transfer of pubs from tied Publican Partnerships to pubs operating on free-of-tie agreements.
On 14 March 2019, the company sold 348 of the 370 commercial properties up for sale, for gross proceeds of £332.7m, with the rest subject to landlord approval. Completion of the sale of the remaining 22 commercial properties will result in aggregate gross proceeds of £11.4m.
The disposal was achieved at prices in line with book value and represented 13 times earnings, giving management increased confidence in the reported tangible net asset value of the group.
The company has indicated it will return 20% of the proceeds from major monetisation events from the commercial property portfolio, implying a circa £65m pay-out, up significantly from the £35m analysts were previously looking for.
Adding the £20m buyback already completed, this would be equivalent to 11% of EI Group's current market capitalisation.