Enterprise Inns Plc Ordinary 2.5p (ETI)

Company overview

The Group's core activity is the sale of beers and other products along with the collection of rents from its estate of around 7,700 licensed premises. The Group operates solely in the United Kingdom and employs around 550 people either at its head office in Solihull or in the field providing support to its network of pub licensees.

HL Update (13 May 2008)

The pub group’s recent half year results saw both the smoking ban and reduced consumer confidence taking their toll - group pre-tax profit before exceptional items declined by 11pc to £132m (£149m), whilst revenues fell to £438m from £453m the year previous. On a more positive note, the company has recently received approval from the UK tax authorities to convert the company into a Real Estate Investment Trust (REIT). Management is now analysing whether to recommend the change of status to shareholders at a special EGM. The company expects the analysis to take several months to complete. As for the trading outlook going forward, management conceded that trading was tough, but it remained confident that the company would continue to deliver ahead of rivals – confidence which was reflected in a 12pc increase in the half year dividend payment. On balance, market consensus opinion is currently favourable in tone.

HL Comment (18 January 2008)

While the group stands as one of the UK’s biggest pub owners with around 7,700 properties to its name, Enterprise leaves the day to day management of each pub to its tenants and leaseholders. These licensees operate each pub as their own business, while ordering beers and other products from Enterprise Inns and paying a monthly rent to the group for the privilege.

The pub group’s recent trading statement (mid January 08) suggested that coming full year results should prove in-line with current analysts’ expectations, although it remains cautious with regards to the outlook for consumers. It also noted the adverse impact which the smoking ban had been having on a number of its pubs. Furthermore, discussions with the UK authorities are continuing with regards to management’s assessment for the potential for the establishment of a REIT (Real Estate Investment Trust), in which to hold the group’s pubs.

Overall, analysts’ perception of Enterprise seems to have moved from a play on operational progression to one which concentrates on cash returns and the potential for the group to possibly establish a REIT, hopefully releasing latent asset value for shareholders. However, the unfolding of a credit crisis has now cast a major shadow over the prospects for property going forward, whilst also raising concerns with regards to those companies with above average debt levels. Given this and the uncertainties still surrounding the introduction of the smoking ban, Enterprise shares (down by over 30pc over the last 3 months alone – as of 17Jan08) along with fellow pub groups, have recently seen sentiment towards them deteriorating. That said, with Enterprise remaining cash generative and broadly perceived as still defensive in nature, market consensus opinion is currently positive in tone.

All yield figures are variable and not guaranteed.

Fundamental Data

Year Ending	Revenue (m)	Profit Before Tax (m)	EPS (p)	P/E Ratio	PEG	EPS Growth (%)	Total Dividend	Dividend Yield
30-09-2007	921.00	337.00	53.40	14.90	0.90	16.00	15.60	2.60
30-09-2006	970.00	415.00	50.50	15.40	0.90	17.00	13.50	2.60
30-09-2005	952.00	275.00	30.50	14.40	n/a	n/a	9.00	2.10
30-09-2004*	712.70	213.20	n/a	n/a	n/a	n/a	6.00	2.10
30-09-2003*	480.60	173.10	n/a	n/a	n/a	n/a	2.14	0.90

* Prior to 30th September 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).