Broker tips: Pub groups, Aviva, Debenhams

22nd Oct 2009 12:26

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. Panmure Gordon likes the look of the restructuring of its European businesses announced by insurer Aviva on Thursday.'In our view the strength and future potential of its European operations have been long overlooked and as such we believe that today's move is positive and will be taken well in the short/medium term,' Panmure analyst Barrie Cornes believes.The decision to combine 12 individual businesses will give Aviva additional muscle in Europe, there 'the potential market is huge and the demographics are attractive,' Cornes reckons.The broker has a target price of 526p for Aviva, and rates the shares a 'buy'.Full year results from Debenhams should prompt some upward revisions to some of the lower end fiscal 2009/10 earnings forecasts, Singer Capital Markets believes.Headline pre-tax profit of £125.2m was ahead of Singer's forecast of £124.0m, whole the improvement in the year-end debt position to £590m was also ahead of the broker's expectations; Singer had forecast debt of £597m.'A total of £100m debt repayment has been made since the year end, making the total repaid or bought back £211m out of a total of £303m new cash raised in the market. This latest repayment will positively influence interest cost forecasts, and should be well received,' Singer reckons.'This update should act as a reminder about how much the business proposition is being moved on, and that there is still more to go for,' Singer concludes.The broker recommends buying the shares and has a target price of 100p.