Derek Pain: There's little to lift the spirits at Pubs'n'Bars

No Pain, No Gain
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The Independent Online

There is little chance of any festive cheer embracing shares of Pubs'n'Bars, the beleaguered drinks chain. They have been an unmitigated disaster since I recruited them to the No Pain, No Gain portfolio last year.

Last week, chief executive Mel Belligero confirmed that the group "continued to experience difficult trading conditions" and, worryingly, complained about a lack of suppliers' credit that was impacting on working capital. Banks, he added, continued to offer support on "a day-to-day basis" and were still in talks about longer-term funding.A few years ago, when the pub business still had much going for it, the shares nudged 50p. I alighted on them at 23.5p in the mistaken assumption that they had fallen so far that any problems were already discounted. Just to pile on the agony they are now a mere 3.5p, capitalising the company at around £1.4m.

The pub industry, which has weathered many storms over the years, is suffering unprecedented hardship. Recessionary belt-tightening would be bad enough but other influences, such as supermarket price-cutting, are also taking their toll. Vertically integrated groups - brewers with wholesale interests and pub estates - are surviving quite well. Managed pub groups, such as Mitchells & Butlers and JD Wetherspoon, are also countering the worst of the recession. But it's a different story at some other stand-alone pub chains, particularly those with a large tenanted influence. They are experiencing nightmarish trading.

Enterprise Inns and Punch Taverns, which have the two largest tenanted estates, are in the last-chance saloon, their shares pale shadows of what they were. So it is perhaps not surprising that the much smaller Pubs'n'Bars is also in deep despair.

Although around two-thirds of Pubs'n'Bars near 100-strong estate is under management, with the rest tenanted, it does not appear to be drawing the strength others are experiencing from more direct control. It borrowed to expand and with trading weak and pub values under pressure, it is in the same awful predicament as Enterprise and Punch.All three are heavily in debt, often the result of buying pubs at the top of the market at fancy valuations. But in Pubs'n'Bars' case the sums involved are much smaller - a debt pile, at the last count, of around £34.3m. The decline in property values forced it into piecing some of its banking agreements, and relatively long-term loans have consequently been reclassified as repayable within one year. Property write-downs were a major factor in a near-£9m yearly loss. In the following six months, the loss was £691,000.

Perhaps I should have followed the example of former chairman Seamus Murphy, who sold most of his shares in July, collecting, I believe, around 3p a throw. But I am hanging on - hoping this hard-pressed chain of boozers will overcome its difficulties. As I have moaned in the past, I have left it too late to sell. Obviously a cash injection is needed. An asset-disposal programme appears to have made little headway. And with the shares so down in the dumps a stock-market cash-raising exercise would be a difficult undertaking, although it could succeed. Clearly banking backing remains crucial. Encouragingly, the banks seem to be supportive.

I suppose some debt could be swapped for equity. Sometimes shareholders are annihilated in such exercises. I am hoping any such deal at Pubs'n'Bars would allow shareholders to salvage some dignity, although bankers would claim pole position.

On a brighter note, another constituent, Clarity Commerce Solutions, has managed an impressive interim performance with pre-tax profits emerging at £400,000 from sales up 10 per cent at £8.8m. Just to underline the strength of Clarity's recovery, the software group suffered a half-time loss of £25,000 last year and its full-year profit amounted to £465,000.

Like most companies, the group, specialising in such areas as leisure and retail, has trimmed costs and looks well-placed to produce a year's profit of around £1m. But as we all know, times are tough. And the chairman, Sir Colin Chandler, points out that customers "continue to tread carefully before committing to capital projects". He is, he says, "cautiously optimistic" about group's prospects.

The portfolio descended on the shares earlier this year at 29.5p. The price now hovers around 40p.

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