Fuller's picks holes in Capital Pub brush-off

22nd Jun 2011 08:19

Pub group Fuller, Smith and Turner has taken a magnifying glass to smaller rival The Capital Pub Company's full-year results and identified several issues that it thinks should persuade Capital shareholders to accept its rebuffed bid.Capital, which runs more than 30 pubs in the London area, last week rejected a 200p a share approach from Fuller's, which has a much bigger portfolio of watering holes across the south of England. Unveiling a rise in full-year profits yesterday, Capital pointed out that the offer from Fuller's values it at 8.9 times EBITDA (earnings before interest, tax, depreciation and amortisation) for fiscal 2010/11, compared to the 9.8 times historic EBITDA recently paid by Young & Co for Geronimo Inns and the 8.4 times forecast EBITDA paid by Greene King for Realpubs.But Fuller's notes that Capital's full year EBITDA of £6.8m was £300,000 short of estimates by Capital's broker Panmure Gordon. It also says that the adjusted EBITDA Capital disclosed includes 'exceptional operating charges' of £388,000 that do not appear to be classified as exceptional items in the consolidated income statement. And it notes that in July Capital will surrender the lease on The Hog in the Pound, the central London pub that also houses Capital's Head Office "and which Fuller's believes was a material contributor to house EBITDA for the year ended 26 March 2011."Fuller's questions Capital's growth strategy, noting that it took it 10 years to grow its estate to 34 pubs. It also took issue with Capital's reference to the price Young & Co paid for Geronimo, pointing out that "whilst the implied historical multiple for the year ended June 2010 was 9.8x house EBITDA, the implied multiple for the year ended June 2011 was 7.3x house EBITDA."Fuller's said that, using Capital's reported EBITDA before exceptional items and share option charge of £6.4m, its proposed offer for Capital would value it at 12.9 times full-year EBITDA."This compares favourably to the implied forward multiple paid by Greene King PLC ("Greene King") for Realpubs Ltd, where freehold assets comprised 9% of its estate, of 8.4x next year's house EBITDA," Fuller's said.Capital, meanwhile, has responded to Fuller's statement saying it is "seeking to justify an inadequate value for the Capital business by questioning the group's growth potential." It continued: "Shareholders have no formal offer to consider from Fuller's and the performance of Capital's management and business as outlined in its final results statement speaks for itself."Capital's response came as it announced that it has acquired a new pub, the Village in Muswell Hill, North London, for £2.9m in cash. It also said that sales in the first 10 weeks of the current financial year have increased by 11% on a like-for-like basis compared to the same period the previous year.At 13.35pm, shares in Fuller's were trading flat at 689p, while Capital Pub's were also flat, at 200.5p.