Broker snap: Punch split on the cards

A break-up of debt burdened pubs group Punch Taverns could be on the cards, reckons Peel Hunt, with the group's Spirit managed pub estate being sold to the highest bidder."Saturday's FT reports that six bondholding institutions have approached Marston's and Enterprise Inns (among others) to either buy or manage Punch's 5,300 tenanted pubs in the event of default on the A and B securitisations," notes Peel Hunt analyst Paul Hickman."The move, if correct, suggests that the bondholders do recognise the real possibility of default," Hickman said. The broker has long argued that a straight default would be the most direct way to clarify value in the Spirit arm."Given the scale of Punch's tenanted estate, we believe that both Marston's and Enterprise would have significant issues with conflict on the ground against their own pubs. Such difficulties would make the prospect of default even less palatable to the bondholders and increase the relative attractions of continuation on reduced terms, as we suggested in our note [of December 2010]. This would have the advantage of giving the bondholders access to the administrative infrastructure necessary to operate the estate," Hickman states.Getting shot of the tenanted pub estate would leave the way clear for a rival such as Mitchells & Butlers to make a move on Spirit, the managed pub arm. "That could resolve the whole issue of Punch Taverns in short order," claims Hickman.Using as a benchmark the price Greene King paid for its acquisition of Cloverleaf Restaurants (8.7 times earnings), Peel Hunt has increased its target price for Punch from 96p to 100p. Mitchells & Butlers