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Pub closures are inreasing say BBPA - predicting 43,000 sector job losses over next 5 years
Britain's cash-strapped pubs groups, faced with the toughest trading conditions for years, look set to accelerate pub closures as the government turns the screws and presses ahead with planned tax rises.
The British Beer and Pub Association (BBPA) has said closures across the UK are running at 5 a day, up a third on last year, with close to 1,900 of the country's 57,000 pubs set to shut this year if the current rate continues.
The industry is angry with the government for pressing ahead with tax rises when it is facing the toughest trading conditions for years with pressure on household budgets, last year's smoking ban, cheap alcohol offers in supermarkets, and the miserable summer weather encouraging drinkers to stay at home.
Investor concern over the health of Britain's two biggest pubs groups, Punch Taverns and Enterprise Inns, gained momentum over the summer and shares in both have now lost more than half of their value since the start of the year.
Shares in Punch Taverns currently trade at 3.1 times forecast earnings for 2008, with Enterprise at 5.3 times. That compares with a price-earnings ratio for the FTSE All Share Travel & Leisure Index of 9.0.
Punch raised alarm bells earlier this month by scrapping its final dividend to ensure it could make future bond repayments. Punch, which has debt of £4.5 billion compared with its market value of £640 million, has repeatedly denied rumours it could breach banking conditions on its long-term debt, which is secured on most of its pubs.
Merrill Lynch analyst Jamie Rollo wrote in a recent research note that 20%-30% of Punch and Enterprise's leased pubs were now uneconomic, with licensees making less than the £20,000 a year considered necessary to make a pub worth running.
Mark Brumby of Blue Oar Securities was also critical of Punch and Enterprise's treatment of tenants.
'They've ratcheted up rents time and time again and jacked them up to such a point where the pubs are running on a margin which is uneconomic,' he said.
Brumby expects the rate of closures to go down before the Christmas holiday season before accelerating again in January.
'The pubs will bend over backwards to stay open for the second half of December which is a complete windfall. The first week of January is going to be when reality dawns,' he said.
Charles Stanley analyst Sam Hart believes Punch's balance sheet is overleveraged and further measures in addition to the dividend suspension will be required to shore up cash.
'Debt covenants will probably have to be renegotiated and the possibility of a rights issue, debt-for-equity swap and disposals cannot be completely ruled out,' he said.
In recent weeks, the industry has gone on the offensive.
Punch Chief Executive Giles Thorley called on UK Chancellor Alistair Darling to resign while JD Wetherspoon founder Tim Martin demanded a five year moratorium on beer duty.
Martin reckons changes in the treatment of the industry by the government are needed to avoid closures and says excessive 'red tape' is playing a part in rising costs.
The BBPA has predicted up to 43,000 job losses in the pub industry over the next five years. It has called for the government to abandon its plans to raise tax on alcohol by 2 percent above inflation annually for the next five years.
A spokesman for the Department of Culture, Media, and Sport said pub closures were a 'matter of concern' but that the industry must adapt to the changing market conditions.
The government was doing its bit by curbing red tape, he said: 'We cannot control market forces and we need to recognise that one of the great strengths of the hospitality industry is its ability to reinvent itself.'
The British Beer and Pub Association (BBPA) has said closures across the UK are running at 5 a day, up a third on last year, with close to 1,900 of the country's 57,000 pubs set to shut this year if the current rate continues.
The industry is angry with the government for pressing ahead with tax rises when it is facing the toughest trading conditions for years with pressure on household budgets, last year's smoking ban, cheap alcohol offers in supermarkets, and the miserable summer weather encouraging drinkers to stay at home.
Investor concern over the health of Britain's two biggest pubs groups, Punch Taverns and Enterprise Inns, gained momentum over the summer and shares in both have now lost more than half of their value since the start of the year.
Shares in Punch Taverns currently trade at 3.1 times forecast earnings for 2008, with Enterprise at 5.3 times. That compares with a price-earnings ratio for the FTSE All Share Travel & Leisure Index of 9.0.
Punch raised alarm bells earlier this month by scrapping its final dividend to ensure it could make future bond repayments. Punch, which has debt of £4.5 billion compared with its market value of £640 million, has repeatedly denied rumours it could breach banking conditions on its long-term debt, which is secured on most of its pubs.
Merrill Lynch analyst Jamie Rollo wrote in a recent research note that 20%-30% of Punch and Enterprise's leased pubs were now uneconomic, with licensees making less than the £20,000 a year considered necessary to make a pub worth running.
Mark Brumby of Blue Oar Securities was also critical of Punch and Enterprise's treatment of tenants.
'They've ratcheted up rents time and time again and jacked them up to such a point where the pubs are running on a margin which is uneconomic,' he said.
Brumby expects the rate of closures to go down before the Christmas holiday season before accelerating again in January.
'The pubs will bend over backwards to stay open for the second half of December which is a complete windfall. The first week of January is going to be when reality dawns,' he said.
Charles Stanley analyst Sam Hart believes Punch's balance sheet is overleveraged and further measures in addition to the dividend suspension will be required to shore up cash.
'Debt covenants will probably have to be renegotiated and the possibility of a rights issue, debt-for-equity swap and disposals cannot be completely ruled out,' he said.
In recent weeks, the industry has gone on the offensive.
Punch Chief Executive Giles Thorley called on UK Chancellor Alistair Darling to resign while JD Wetherspoon founder Tim Martin demanded a five year moratorium on beer duty.
Martin reckons changes in the treatment of the industry by the government are needed to avoid closures and says excessive 'red tape' is playing a part in rising costs.
The BBPA has predicted up to 43,000 job losses in the pub industry over the next five years. It has called for the government to abandon its plans to raise tax on alcohol by 2 percent above inflation annually for the next five years.
A spokesman for the Department of Culture, Media, and Sport said pub closures were a 'matter of concern' but that the industry must adapt to the changing market conditions.
The government was doing its bit by curbing red tape, he said: 'We cannot control market forces and we need to recognise that one of the great strengths of the hospitality industry is its ability to reinvent itself.'
Wed, 17th Sep 2008