Punch - Timing

All,

Please find our updated analysis of Punch here. 

As we’ve been saying before, this name should refinance soon. If we were management we would not hold out to next year for the last 1.5 points of call protection but expect a straight refinancing after the summer, although there is a chance that management play it cool and wait another year. Punch is clearly the easier proposition, compared to Stonegate and should achieve a lower cost of capital.

Investment Considerations:

- We have missed the Punch trade. The bonds have always traded a little inside of where we would have been ready to own them. We expect a refinancing after summer, but management have time and might just wait a year until the bonds become callable at par and some more of those rate tightenings come through. 

- Among the two HY-issuing pub companies in the UK, Punch are the weaker one without doubt. But in the inflationary environment, the wet-led high L&T exposure benefits from being more engrained in peoples' everyday lives and thus allows for better pass-through of altogether milder cost inflation than what the food-serving managed pub estates are exposed to. 

- The company recently outperformed our more cautious expectations and investors buying into the name last year seem to have gotten it right. Q324 confirmed the stronger development.

- Punch is now a reasonable place to just park some cash for a while without taking any real risk.

Q324 Update:

- Beer inflation, Sales and earnings have all been tracking the model very closely as the company re-enters calmer waters. The only significant deviation from our forecast was the acquisition of 24 L&T pubs for approx. £14m, which reflects a relatively low valuation compared to the average estate. 

- Liquidity is therefore considerably tighter now at a mere £43m, although the company considers the acquired pubs still as "Available Resources". 

Happy to discuss,

Wolfgang

E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk