Investment View: Follow its boss and walk away from Punch

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The Independent Online

Punch Taverns took another kicking after its chief executive, Roger Whiteside, walked out to take charge of Greggs, the bakery chain. You can see why. Punch, an advert for everything that was wrong about the debt-fuelled madness which infected corporate Britain before the credit crunch, still faces significant problems.

It's still dealing with the hangover from that, with a millstone of £2.4bn in unsustainable securitised debt hanging around its neck. Much of that was down to Giles Thorley, a predecessor of Mr Whiteside, who departed with his pockets bulging with cash and is now in private equity. Life's such fun if you're an executive.

And who can blame Mr Whiteside from wanting to have some fun himself with Greggs, which might be facing a tough consumer environment and the ever-present threat of the supermarkets, but is still expanding, making healthy profits and paying dividends. There's a lot more laughs to be had looking after that sort of operation than in spending your time negotiating with stroppy creditors.

Announcing his departure, Punch did at least say that trading was in line, which might come as a relief. The valuation metrics say the shares are cheap – trading on two times earnings for the year ending 31 August. There's a reason for that, although you could make a case for taking a speculative punt on this as a recovery play. But if so, why did Mr Whiteside leave? If Punch was a good bet, you'd think he would have stayed. I'd be inclined to follow Mr Whiteside's advice and get out of Dodge. Sell.

You couldn't find a starker contrast with Punch than Fuller, Smith & Turner. Family controlled, conservatively run, and located in the South-east, where the economy is more or less above water, there's a lot to like about the company.

The family usually has its hand on the tiller, and at the moment Michael Turner is executive chairman. Usually I'd be critical of this sort of thing, which veers away from modern governance norms. But with Fuller's I'm prepared to make a (very rare) exception, because in this case it has made for a stable and well-run business.

That shone through in the numbers. In the nine weeks to 19 January, the company reported that sales in managed pubs and hotels open at least a year rose by 4.5 per cent. That suggests things are picking up – it brought growth in like-for-like sales for the company's first 42 weeks to 2.6 per cent against the 2.1 per cent after 33 weeks. Profits in the tenanted inns division increased by 1 per cent for the 42 weeks, having been level after 33 weeks. The company bought two pubs in November (in Bath) but managed to reduce net debt.

That's a very happy scenario, and the trouble is that buying into it comes at a price. I keep suggesting that investors put some of the shares away if they show any weakness, and they dipped a bit in October, so you'll be happy now because they've put on more than 10 per cent since then.

The stock is very pricey at 18 times forecast earnings for the year ending 31 March, with a forecast yield of just 1.7 per cent. But if you have the shares you should keep hold of them because you probably won't go far wrong. On their current lofty rating, however, you'd be better off for now in spending your money in Fuller's pubs rather than buying more of its shares. You won't regret it.

After a run of upbeat trading statements from the sector, Marston's cooled things down a bit as the snow took the gloss off its latest update. Sales at pubs open at least a year for the 16-week period to 19 January were 1.2 per cent ahead of last year.

For the 15-week period to 12 January they were 2.1 per cent better. In other words, people stayed at home and turned the heating up rather than heading to their local hostelry when the bad weather struck.

With Marston's seeking to maintain margins by pushing through price increases (good luck with that in the current climate) I'm inclined to steer clear. At 10 times forecast earnings for the year to 30 September, the shares look no better than fair value.

This leaves Mitchells & Butlers, which doesn't update until next week.

I'll run the slide rule over this company in a future column.