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Wolfgang Felix10 July 2023Current Trading

- Weak cashflows: The company is not currently earning its interest.

- Consumer sentiment and disposable income are a key driver for orders generally. The world at large, but the UK in particular are set to be going through tough times (inflation, cost of living).

- Moving systemically into Managed Pubs requires CapEx and investment into mostly human resources.

- The mega trend of lower alcohol consumption is running against pubs in general, as is the trend to lie on the couch and play on the phone or TV instead of socialising. Pubs do have the opportunity

however to re-invent themselves and be the focal point for brits to socialise even with less alcohol and more alternative offerings. Still, that transition needs to be managed and at best holds orders

constant.

- All electricity contracts came to an end in September 2022 and Punch entered into a new contract which management claim provides flexibility to acquire energy either directly on the wholesale market

or under longer-dated fixed price contracts, including green energy offtake agreements. We don't know more about the contract except that it will be significantly more expensive than the old.

- The bonds have been sold on the basis of significant EBITDA adjustments that reflected savings and additional sales that had yet to be achieved with re-opening and other measures.

Wolfgang Felix10 July 2023Key Risks

- Migration from T&C to MP pubs can add more revenue and EBITDA per pub and therefore improve credit stats and ultimately valuation. However, this segment also holds more business risk than

charging rent and wholesale distribution of drinks.

- Food is worth more than cigarettes. Being the landlord, Punch has control over rolling out a "restaurant chain" to a captive audience, which should deliver a higher contribution margin than mere alcohol

and cigarettes as well as carry a strong valuation on its own - in addition to the discounted future rent on the estate.

- Reopening: Away from royal turnover, such as jubilees or funerals, especially L&T pubs have been struggling to pass 90% of 2019 orders, reflecting the lasting acceleration the pandemic has brought to

many mega trends.

- The majority of gas contracts were fixed in 2021 through to November 2025. Good timing.

- Strong asset coverage. However, the strategy is to sell assets to fund conversion CapEx. So based on a 3.5 year payback period, asset coverage will drop before a raised EBITDA results in lower leverage.

Wolfgang Felix10 July 2023Key Value Drivers

- Late 2021 Punch was sold to Fortress Investment Group in a tertiary buy-out. Fortress strategy is to increase the share of managed pubs (MPs). By comparison, Punch are dramatically underperforming

their larger competitors Stonegate in that segment, which suggests there is room for improvement.

- The Leased & Tenanted pub model has been bleeding pubs for decades. Since the Pub Bill in 2016, the Beer Tie has been terminated. But rather than leading to a mass conversion of pubs into "free

houses" (pay market rent and buy any beer at market prices), pubs of the old model tend to roll off and are just not being replaced with new pubs.

- Fortress have been seen participating as bidders in the process for Amber Taverns in July - sold by MxP Partners for a touted £200m. If brought into the restricted group, Punch would have to maintain

the same FCCR.

Wolfgang Felix10 July 2023Current Trading

- We are not taking a position. Wedon't like swimming against the tide. The idea of turning L&C pubs into managed pubs is an old one and has clearly been difficult to execute. We appreciate the potential

in the strategy, but consider it for the equity. Any disruption on the way will only fan the secular headwinds L&C pubs are facing and if Punch fail to turn around in time, the documents are weak.

- Punch is a bad company with a good balance sheet. That has been so for the last 10 years and we are not seeing any change.

Wolfgang Felix10 July 2023Investment Considerations