Broker snap: Split decision on Punch

This morning's trading statement and announcement of a £350m placing and open offer by heavily indebted pub group Punch Taverns has left the investment analyst community divided on the stock's appeal.Broker KBC Peel Hunt rates the shares a 'buy' and has a price target of 230p. It recommends shareholders take advantage of the open offer which it expects to succeed at a small discount to the current share price. The tender price for the offer is not less than 95p.The £350m Punch is seeking to raise 'represents 8% of Punch's debt of £4.464bn, and deals with its most immediate debt concern, the convertible redeemable December 2010,' KBC analyst Paul Hickman said. Trading is in line with expectations for the year, with like for like (LFL) earnings before interest, tax, depreciation and amortisation (EBITDA) in the first 40 weeks of its financial year 'slightly improved at -11.2% for tenancies and 1.2% for managed pubs.'KBC expects to upgrade its current year earnings per share estimate of 40.1p following the trading statement.In contrast, Charles Stanley is concerned that the company's focus is fixated on raising cash through disposals rather than running the business. 'The news filtering through from the management team is that operationally there is considerable work necessary to order that the business can trade through this environment,' said Charles Stanley analyst James Dawson.The broker has downgraded the stock from 'reduce' to 'sell' and has a price target of 115p, 'A statement confirming the cessation of the 'fire sale' of quality pubs would be the strongest indication that sufficient funds had been raised to cover near term refinancing requirements,' Dawson reckons. 'Over the longer term investors will need considerable reassurance that the managed houses and tenant/leased houses can both be reinvigorated. Therefore longer term cash flow from trading will need to stabilise in order that capex [capital expenditure] spend can be reinstated, thereby bring about the necessary operational enhancements,' Dawson said.