The Investment Column: Rosy prospects for Enterprise

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The Independent Online
Looking at the speed with which the big brewers are throwing money at developing new themed bars and massive city centre ``super pubs'', you would have thought the days of the traditional British boozer were numbered. However, the outstanding success of Enterprise Inns, with its burgeoning portfolio of small tenanted locals, shows this is a long way from the truth.

Enterprise's pre-tax profits, ignoring restructuring charges, rose 71 per cent to pounds 14.5m in the year to September. More importantly earnings per share, which more accurately reflect the underlying performance of the business, rose an impressive 26 per cent.

The acquisition of John Labatt's British pub interests and the west country pub group Discovery Inns were behind the strong growth. Both look great buys. By spending money sprucing up the estates and gradually disposing of the worst performers, average income per pub rose 9 per cent. And margins continue to rise as Enterprise spreads overheads over its larger portfolio.

Enterprise plans to continue the acquisition spree, aiming to double the size of its chain to around 2,500 pubs within five years. It can comfortably afford to spend another pounds 50m on purchases without having to call on shareholders for more cash and there are no shortage of targets. The brewers are still intent on running down their tenanted estates and plenty of smaller pub groups up for grabs. So far Enterprise has shown it has a keen eye for a bargain and as long as it can keep picking up purchases at a decent price its prospects look rosy.

The sort of returns being made from investing in managed pubs still look attractive compared to tenanted estates. However, the managed pub market is looking increasingly overcrowded and Enterprise's profits are less likely to be affected if the economy begins to slow.

ABN Amro Hoare Govett forecasts full year profits of pounds 20.5m, putting the shares on a prospective PE ratio of just 11. Enterprise's share price have risen sharply since the group floated at 145p two years ago, and closed up 0.5p to 261.5p yesterday. They still look good value.