Broker snap: Punch over the worst

Punch Taverns, once habitually referred to as 'heavily indebted', may soon lose that tag as its asset disposals programme is reducing debt faster than expected, according to broker KBC Peel Hunt.'Disposals for the year are in excess of £400m, well ahead of our expectations. As a consequence net debt has been reduced by more than £1bn. Management expects the payment conditions to be met for the Punch A and B securitisations, allowing further cash to be upstreamed to the plc,' KBC analyst Paul Hickman noted.Trading in the fourth quarter of the company's financial year was mixed, with performance dragged down by poor trading in late July and August, but overall trading conditions appear to have stabilised, the broker said.'While we do not underestimate the challenges presented by the financial leverage within the business, from a trading and cash perspective Punch appears to be beyond the worst,' Hickman suggested.Progress on the debt front is likely to be well received and attract investors to the stock. KBC rates the shares a 'buy' and has a target price of 170p. 'The financial gearing that has worked against the company in the downturn should equally work for it as the improvement comes through, with substantial upside in the equity as debt is paid down,' KBC said.