Punch Taverns ready to shed more pubs after group overhaul

PUNCH Taverns is expected to unveil plans to sell or close more pubs this week when the boss of one of Scotland's biggest chains provides an update on an overhaul of the business.

Analysts believe the group, which has about 400 pubs in Scotland, could increase the number of under-performing outlets it plans to offload as part of the review by chief executive Ian Dyson, the former Marks & Spencer finance chief who arrived last year.

Punch has already said it wants to reduce its tenanted pub estate to about 5,000 from a figure of about 7,600 in 2009.

Analysts say Dyson may increase the sell-offs as part of a bid to focus on higher-performing leased pubs and to devote more resources to its successful managed business.

The managed pubs have benefited from the credit crunch as cash-strapped diners have switched to the group's pub restaurants from more expensive venues.

Punch has 803 managed pubs, including the Chef & Brewer, Fayre & Square and Flaming Grill chains, and 5,967 leased inns and bars including Tonic in Edinburgh and Lebowskis in Glasgow.

Paul Hickman at broker Peel Hunt said: "It's possible they might increase the number of pubs they want to dispose of."

Dyson is expected to provide an update on the financing of the group's pubs, which has involved splitting them into three groups - Punch A, Punch B and Spirit, in a securitisation programme, in which the pubs are used as security against debt.

The Spirit group, which is believed mostly to include managed pubs offering food, is understood to be performing better than the other two. Analysts say Dyson could reduce or withdraw support from one of either Punch A or Punch B, which could cause the unit in question to default on its debt and to fall into the hands of bondholders, although such a decision at this stage is believed unlikely.

Hickman said: "There is quite a range of options open to Dyson, but I think it's more likely that (this week's update] will be the start of a process rather than any dramatic conclusion."

Analysts say the worse-performing units may need to be supported with cash from Punch or from the Spirit unit. Simon French at Panmure Gordon said: "The real value in the company appears to be in Spirit."

Punch gave a positive trading update in March, reporting strong sales growth in managed pubs, improved trends in the leased division and forecasting full-year results in line with expectations.

Dyson said at the time that the group remained confident of making further improvements in the second half of the year.