Investors in Solihull-based Enterprise Inns will be hoping for an update on the group’s proposed conversion to the more tax efficient Real Estate Investment Trust (REIT) model when it updates on full year trading on Tuesday.
The pubs group has already got the go-ahead from HM Revenue & Customs, which some analysts believe could enhance future earnings by about 30 per cent and lead to progressively higher dividend payments.
Ahead of the conversion, Deutsche Bank rates the stock as ‘buy’ with a target price of 860 pence.
Meantime, the group is expected to reiterate its gloomy view of the pubs sector as the smoking ban, coupled with the slowdown in consumer spending, continues to squeeze profits.
The group, which operates around 7,785 tenanted and leasehold outlets across the country, said at the time of its interim results in May that trading conditions over the past six months were some of the worst in the company’s history.
Pretax profits for the six months to end-March 2008 were down by 11 per cent to £132 million, although at the EBITDA level they were steady at £256 million.
The smoking ban and pressures on consumer spending have weighed heavily on pub profits recently. Some industry statistics have suggested that beer volumes have fallen by around nine per cent since the start of the smoking ban in England and Wales last year.
Despite the uncertain outlook for the pubs trade, and renewed volatility in debt and financial markets, analysts expect Enterprise to push ahead with the REIT conversion. Some believe the group will be in a position to put the proposal to shareholders by the autumn, with full conversion early in 2009.
The group is expected to adopt the form of a twin opco/propco company(operating company/property company), which would allow it take advantage of the tax efficient nature of the scheme and pass property profits back to shareholders in the form of higher dividends.
Some brokers believe Enterprise could more than double its current rate of dividend - 15.5 pence a share in 2006-07.