Equity investors in Punch Taverns now have their backs against the wall. The company´s current quandary is such that it must either restructure its debt or face the risk of default. "These circumstances represent a material uncertainty that casts significant doubt on the ability of a significant part or substantially all of the group to continue as a going concern," Punch directors said yesterday. Should the firm default the lenders could then request early repayment of all the outstanding debt, amounting to roughly 2.4bn pounds. Putting that in perspective, it is more than seven times the shareholder's equity of 296m pounds, and almost 25 times the current market capitalisation. As well, profitability has taken a turn for the worst.
Despite the stock´s strong performance year-to-date the statement from Punch management should send a chill down the spine of any investor thinking of making a quick gain from a recovery. The fate of Punch is now largely in the hands of the lenders. That makes any investment in Punch Taverns equity an extremely high-risk option. The lenders could decide on extremely harsh terms in any restructuring, wiping out any value currently left in the equity. The Daily Telegraph´s Questor team thinks investors should call time on any investment and take what they can. Sell, says Questor.
The business model that has underpinned European energy utilities for two decades is crumbling, one political speech at a time. Europe's utilities have lived through a decade of deregulation, re-regulation and energy market turmoil. That costs money. So does investment in renewable energy, carbon reduction and infrastructure modernisation - policy goals across the continent. Citi estimates that about €1tn of capex will be required by European utilities over the next decade to meet those goals. Either customers or taxpayers must pay for it. The former, being user-based, is the fairer approach. The UK's energy policy is a mess and freezing prices would make it more so. Utilities are under huge financial strain as they juggle capex, dividends, creditworthiness and policy shifts. Adding political risk will give private investors another incentive to go elsewhere, the FT´s Lex column says.
If you started from scratch, you would not invent a business that looked anything like Daily Mail & General Trust. The group is a rather heterogeneous assortment of very different businesses, with the Daily Mail and The Mail on Sunday accounting for roughly half of the company´s revenues. The rest of its units include a software supplier for the insurance sector, online information services and exhibitions. This latter clutch of business interests is where the company´s growth is.
Analysts at Canaccord Genuity attach a sum-of-the-parts valuation of 834p to the shares, but with a discount of 10% or more to reflect the conglomerate nature of the group. At 784p the immediate upside in the stock seems limited. Nevertheless, its Zoopla property website could spark some interest if it floats at the rumoured valuation of £1bn, which compares very favourably with the £125m at whch it is carried on its books, The Daily Mail says.
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