Enterprise Punch lead pub sell off after vote unties tenants

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.