Anyone invested in the pub subsector for a while probably has the sort of hangover you could only get from drinking a vat of sour Guinness. However, Enterprise Inns cheered the City yesterday by predicting it could raise up to £200m through selling pubs this year, which will help with its debt burden. But it still described the outlook as "challenging".
It is hardly alone. Reports are coming in with alarming regularity about how tough conditions are for the industry. Enterprise is by no means the only company grappling with debt – and then there's the consumer squeeze. Handle with great care would be my advice with this sector. But is it all gloom?
More forward-looking operators, with less of the debt that forces them to squeeze both publicans and consumers, have started a new narrative. It says that amid all the economic depression, people are keen on a "cheap treat" which pubs can offer by serving ample helpings of decent quality, unfussy food while undercutting pricier restaurants.
They can do this and still provide a healthy return for investors – even relatively inexpensive pub food offers a much better margin than beer. When you add premium-priced gastropubs into the equation (which still have a better reputation for value than restaurants) the attractions are obviously.
On the downside, pubs still have to battle against people's inclination to save money by staying in and take advantage of loss-leading supermarket booze and promotions.
During the low point of 2008-2009, eating out and beer volumes fell by 8 per cent and 7 per cent respectively, according to recent research by Brewin Dolphin.
It revealed that for managed pub companies (where the pub manager and staff are on the company payroll) – the worst quarters over the 2007-2010 period were: -1 per cent for Mitchells &Butlers, -2 per cent for Marstons and Whitbread, -3 per cent for Wetherspoon and Greene King, and -6 per cent for Spirit. It was even worse for leased pub companies, which suffered as lessees struggled to pay rent and compete on beer prices and food offerings.
I'd be inclined to stick with managed pub operators, which rules out Enterprise. Yes, it could net up to £200m from disposals, but debt stands at £420m and its publicans are struggling with rising costs. The shares have been run up strongly recently. Steer clear.
If Enterprise's debt is a worry, what of Punch? The company still has 5,000 pubs – but its debt has forced the sale of hundreds of premises, the demerger of the managed pubs business into Spirit and a kicking from the stockmarket. Punch might be worth a gamble, but only with money you can afford to lose.
That managed pub business also has a debt burden and trades off nine times forecast earnings for the year to 20 August. Even with a yield (there is hope of a dividend to come), the shares have been on the rise and now is not the time to dip in.
Greene King has some attractions at 10 times forecast earnings for the year to the end of April, with a good yield (4.7 per cent). But wait until the shares have lost a bit of froth.
Another I'd be keen on if the shares were somewhat lower is Fuller Smith & Turner. It has so much to like: great pubs, great beer and solid, stable management. What I don't like is the shares' sky-high rating of 18 times 2012 earnings with a low yield. I'd be a long-term holder though, and buy again if the shares show weakness. Wetherspoon's is another which might be worth an investment if its shares fall back a bit.
My sector favourite right now is Mitchells & Butlers. At just under nine times earnings (for the year to December 2012) it has attractions. M&B has been repairing its balance sheet and there's hope of a small yield to keep investors happy, plus the chance that mega-bucks financier Joe Lewis will come back with a new bid this year, when the six-month moratorium ends after his decision to walk away last year. The downside with M&B is the revolving door at the top. If it can fix this, the shares could fly.
Marston's meanwhile, on 8.4 times earnings, yielding 6 per cent, may be worth a small interest.