Capital Pub now 'in play', says Peel Hunt

17th Jun 2011 08:04

Although it has sent Fuller's away with a flea in its ear after the London Pride brewer made two bid approaches, London-based pub operator Capital Pub Company is now 'in play', according to broker Peel Hunt. Fuller's, which operates in London and the Southeast of England, said it wrote to Capital's board in March about a possible all-cash offer of 175p a share, which was rejected, as was an offer worth 200p a share the following month. Peel Hunt described the second shot by Fuller's as a "reasonably full offer" which, based on the forecasts by Capital Pub Company's house broker, values Capital at 20 times last year's projected earnings and 18.3 times next year's forecast earnings. Capital said it had considered both offers and "decided that even the higher indicative offer substantially undervalued the business and its prospects."It said it would be "inappropriate" to engage further with Fuller on these proposals.Fuller's pointed out that its offer represented a 29% increase to Capital's closing price on Thursday and added that Capital's growth strategy is likely to require further equity assistance. "Fuller's considers that there are considerable risks associated with the successful execution of this strategy that could dilute the overall quality and attractiveness of Capital's estate and which could have a negative impact on valuation over time," Fuller's said "In contrast, any offer by Fuller's of 200 pence per Capital share would provide Capital shareholders with the certainty of a cash exit in the near term at a substantial premium." Peel Hunt believes Fuller's approach exposes Capital to other potential bids byacquisitions-led pub companies."We think a bid will succeed. Our reading is that Capital is likely eventually tofall to a bid. It is mainly a matter of price. We would see the top price as around 10.5x FY12E EBITDA [fiscal 2012 earnings before interest, tax, depreciation and amortisation], implying a price of 220p," Peel Hunt said.Capital Pub operates 34 of non-branded and non-themed pubs in and around Greater London. Fuller's operates pubs across the South of England and brews beers such as London Pride and Discovery.RG & JH