Enterprise, Punch lead pub sell-off after vote unties tenants

<p>There was a broad sell-off in UK pub stocks today after Parliament unexpectedly defied the government and voted in favour of allowing pubs to buy […]</p>

There was a broad sell-off in UK pub stocks today after Parliament unexpectedly defied the government and voted in favour of allowing pubs to buy beer on the open market.


Rent-only option “disproportionate”–tied pub owner Enterprise Inns

Enterprise Inns led the beer slide with a 17% fall to an 18-month low.

It extended its fall on Monday of almost 4%, which came after it reported no improvement in full-year profit.

In response to the 284-in-favour/259-against vote on a ‘rent-only’ option in the Small Business, Enterprise and Employment Bill, allowing publicans to stock any booze they like, Enterprise Inns released a scathing statement.

“This amendment is a disproportionate response which proposes fundamental change that is wholly contrary to the findings of the consultation, from which the Bill was drawn up”, Enterprise said.

Almost half of Britain’s 50,000 pubs are run by tenants under traditional “beer-tie” agreements.

Typically, these force publicans to buy beer at above-market prices from a firm that is also their leaseholder.

In return they get subsidised rent or other benefits.

But some publicans complained such deals can be unfair—for one thing, they can offer very low salaries.

This led the government to unveil reform plans in June, including rent reviews.



British Beer Association warns tenancies may decline

The rapidity with which the proposals were heard and voted on in Parliament may not be entirely unrelated to the General Election likely to be held in about six months.

Legislation aimed at protecting pub landlords could lead to fewer people being able to enter the industry, the British Beer and Pubs Association warned last week.

“We are concerned about the cost to pub companies of complying with the new statutory code, which could mean there are fewer tenancies available, with the knock-on effect of there being fewer low-cost ways to enter the industry” the BBPA said last week.

The largest tenanted pubs stand to lose the most from the new legislation if it is enacted.

Those pub groups most pressured on margins, debt and other challenges, amid an on-going decline in UK pub trade—perhaps exacerbated by too-rapid expansion, are being hit the most.

Punch Taverns Plc. joins Enterprise with a loss for the day around 17%.

Enterprise shares look like they could reduce further, at least to the round number of 100p, on momentum alone.

Especially considering volume in the name today was still shy of positions taken on 25th September, a day when the stock moved over a much shorter range.



Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.