Broker snap: Enterprise still a sell, despite OFT verdict

22nd Oct 2009 11:44

The decision by the Office of Fair Trading (OFT) not to investigate the beer tie which forces pub tenants to buy their beer from their landlords has prompted a surge in the share prices of the pub groups, and this presents a good opportunity to reduce exposure to cash-strapped Enterprise Inns, Charles Stanley reckons.'The greatest beneficiaries of this announcement are those pubcos with the most significant tenant/leased estates, specifically Punch Taverns and Enterprise Inns,' said Charles Stanley analyst James Dawson.Panmure Gordon agrees with this analysis, listing Enterprise and then Punch at the top of a list of pub groups ranked in order of percentage of group earnings from leased and tenanted earnings. Marstons, Greene King and Fuller, Smith & Turner were ranked third, fourth and fifth in the list.Charles Stanley remains a buyer of Punch Taverns stock, 'whilst acknowledging the operational issues that the company must still address.'It remains a seller of Enterprise Inns, however, and recommends 'investors should take the opportunity in this stronger market given its above sector multiple rating,' The OFT's decision has also failed to persuade Panmure Gordon to change its 'sell' recommendation for Enterprise.The broker warned investors that the government has yet to respond to the Business and Enterprise Committee (BEC) report from May on the pub companies. This report 'recommended that the Secretary of State refer the matter to the Competition Commission for urgent investigation by a body which has no vested interest in defending its earlier position.''The BEC subsequently asked the Government to await the outcome of the mediation talks between the industry and lessees and tenants, which were inconclusive and any OFT review, which we have now had. Hence any relief may be short-lived,' analyst Simon French reckons.Panmure Gordon has a price target of 70p for Enterprise.