The strategy, announced in November 2015, saw Punch develop new operating models including a retail/managed division and commercial free-of-tie lease division.
The group has sold 158 underperforming non-core pubs, which drove the average profit per pub up 3% in the six months to 5 March. However, the reduction in the size of the estate and sale of drinks wholesaler Matthew Clark has resulted in overall pre-tax profit plunging from £348.5 million to £54.7 million.
The measures aim to help Punch mitigate the impact of the Market Rent Option and put it in a stronger financial position in the future. The balance sheet has already been strengthened, with net debt down £191 million, or 14%, in the first half and £235 million of cash.
Punch says underlying profits and sales in the retail division are ahead of its expectations. The anticipated EBITDA per pub is between £90,000 and £110,000 – an uplift of between £15,000 and £25,000 compared with historical EBITDA under the tied tenanted and leased model.
Punch currently has 50 retail pubs and says it’s on track to have 100 by the end of its August 2016 financial year.
Investors will need a lot of patience as the strategy will take a long time to implement and it carries execution risk, but today’s results are an encouraging start.
Canaccord Genuity’s target price is 130p, implying 25% upside.