The first offer is from Patron Capital Advisers for 174p per share. Under the terms of the proposal, Heineken would buy Punch from Patron immediately on completion of the deal. According to Punch’s press release on the matter, the group is in advanced discussion with all parties concerned with this offer. 

The second offer comes from Emerald Investment Partners, the private family firm run by Alan McIntosh, one of Punch’s founders. Emerald’s offer is for 185p per share in cash, although this offer is “conditional on, amongst other things, arranging committed financing, confirmatory due diligence, and the recommendation of the board.” 

Punch also warns that as of yet there can be no certainty that any firm offer will be made by either Patron or Emerald. Both suitors have a deadline of 5 pm on 11 January to make an official, firm offer for Punch or walk away. 

Time to buy? 

Punch’s shares are up by 39% after this deal announcement and are currently trading at 178p, just above the Heineken-Patron takeover offer. As the shares remain below the Emerald offer, it looks as if the market believes this deal won’t go ahead and Patron will win control of Punch. That being said, the fact Punch’s shares are trading above the offer price indicates traders believe Patron might come back with a higher offer to fend off Emerald.  

It’s always difficult to predict the outcome of any takeover battle. Patron could make a higher offer, or both bidders might drop their proposals altogether. In this scenario, it’s reasonable to assume Punch’s shares would quickly fall back to pre-bid levels. 

With this being the case, it might not make sense to buy Punch right now. Yes, a higher offer could reward investors with a few percentage points of profit, but in the event a deal doesn’t take place, the downside could be as much as 33%. The risk/reward here is skewed against investors. 

Look to the long-term 

Punch Taverns has always been a dull stock. During the past five years, pre-tax profit has hardly budged, earnings per share have stagnated, and there’s been no dividend for investors. A bid for Punch will give the company’s long-suffering shareholders a profitable way to exit the business. 

By comparison, peer Marston’s has grown pre-tax profit from -£136m for 2012 to £81m for 2016 and is expected to report a pre-tax profit of £102m this year. Furthermore, shares in the company support a dividend yield of 5.5%. 

So overall, considering the tiny returns on offer and the company’s history of underperformance, Punch Taverns isn’t a buy on takeover chatter. 

The post Is Punch Taverns plc a buy on Heineken-Patron takeover offer? appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

That’s easy to say, but often not so easy to do. But can these two cheap pub shares really be good enough?

Back in the black

Shares in Punch Taverns (LSE: PUB) have had a hard time — they’re down 15% over the past 12 months, and down 65% since a peak in January 2014. But the latter part of 2016 is looking kinder for Punch investors, as the firm’s big restructuring and asset disposal looks to be paying off — and after a false start over April and May which quickly collapsed, the shares have put in a 30% recovery since late July.

The release of full-year figures today gave the price a 3.8% boost to 116.5p, as the company revealed that it is finally back in the black — against a pre-tax loss of £105m last year, Punch recorded a profit of £60m in the year ended in August. And that comes despite the new Pubs Code regulations apparently proving a bit of a pain and forcing the firm to revisit its pub lets.

The thing that will probably please investors most is the reduction in debt, which has been the driving force behind Punch’s recovery plan. Over the year, nominal net debt was cut by £233m — a drop of 16%. And the company’s property estate has been externally valued at £2,030m, which exceeds nominal net debt by £848m.

Forecasts now put Punch Taverns shares on a prospective P/E multiple of just five for the year to August 2017, with a return to EPS growth on the cards — City analysts have a 23% hike penciled in. A lot of that apparent undervaluation will be covered by the firm’s debt, but its property asset value suggests that’s not such a big problem now. And I think the shares look good value.

There’s no dividend on the cards yet, and I wouldn’t want there to be one — I want to see cash used to chip away at debt. But overall, I can see 2016 being a turnaround year.

Fellow struggler

Enterprise Inns (LSE: ETI) shares a lot of similarities with Punch Taverns.

For one thing, its shares are also on a very low P/E, of just five based on expectations for the year ended in September — results are due on 15 November. And Enterprise Inns is also working to reduce a sizeable debt pile. At its interim stage on 31 March, the company had net debt of £2.3bn on its books, although that was balanced by property of £3.7bn (based on a September 2015 valuation, not expected to be materially changed, and will be revalued by full-year results time).

August’s trading update revealed a 1.9% rise in like-for-like net income from its leased and tenanted business for the 44 weeks to 30 July, and the firm is increasing its number of managed houses — there should be more than 100 in operation at September’s year-end.

Earnings had been falling, but 2015 saw a halt to the slide and expectations for this year and next suggest a flattening off. And, again, there’s no dividend. But at this stage in the firm’s progress, with debt needing to be reduce further, and in the current economic climate, I’d be satisfied with that — and again I think we could be looking at a good long-term bet.

The post These two pub stocks look temptingly cheap appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Total’s global network of farms allow it to grow the wide variety of produce that we expect to be in our grocery baskets year round, seasons be damned. That gives it a huge moat to entry for competitors who would need large amounts of capital as well as local know-how to grow bananas in Belize, blueberries in Australia or avocados in Kenya and somehow turn a profit after shipping them across Europe.

The wrinkle is that margins for grocery stores aren’t exactly astronomical, so imagine how low they are for the suppliers of commodities like fresh produce.

Have a number in your head? Now halve it.

Interim results released this week showed operating margins of a mere 1.5% over the past six months.

Of course, the company can still boost profits by moving the top line. And that’s what Total has done through organic growth and acquisitions. Revenue was up a full 10.4% year-on-year to €1.9bn. The mover and shaker behind this rapid growth was its international markets such as the US and India where sales rose 65.4%.

Befitting its staid industry, international expansion has been cautious and set up to avoid major pitfalls. A key part of this is a conservative approach towards leverage that led to net debt of only €95.7m at the end of June, which is only 1.1 times annualised EBITDA.

With relatively low debt, a high moat to entry for competitors and growing dividend, Total is one to watch for cautious investors.

Down but not out

Unfortunately, these are all characteristics that pubco Punch Taverns (LSE: PUB) can’t boast. That’s because while all pub chains have been affected to some degree by the end of the beer-tie and falling foot traffic, Punch Taverns has done enough on its own to dig itself into a very deep hole over the past few years.

The culprits in this case are a whopping £1.2bn worth of nominal net debt sitting on the books and a bloated collection of 3,330 pubs that needs to be slashed to restore overall profitability.

However, management is working to solve both these problems. The company sold off £199m worth of properties over the past half-year, which allowed nominal net debt to come down by £191m during the period.

Like all competitors, Punch is also working on improving food and drink offerings in an effort to attract new customers. So far this is working out well with profit per pub up 3% in the past seven months and like-for-like net income rising 1.6% at core pubs.

Turnaround efforts are going well then but there’s still some way to go. The company is targeting reducing total pubs owned to around 2,800, leaving much work to be done. Likewise, it will take time to judge whether the company’s efforts to revamp the estate towards short-term tenancy agreements with landlords will pay off in the long run.

There are very valid reasons for shares trading at 5.5 times forward earnings, but if turnaround efforts continue to progress well Punch Taverns could be one to watch for bargain hunters.

The post Pubs and fresh produce: Selling boring essentials warrants a second look at these two shares appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Gushing higher

Fossil fuel producer LGO Energy (LSE: LGO) has shot 7% higher in Wednesday business on the back of a positive operational update.

The London-based driller has received approval from authorities in Trinidad to perforate a new oil zone well at its GY-671 well in the Goudron Field, it announced. The zone is located within the Upper C-sands and covers a net pay interval of 208 feet.

LGO Energy added that its GY-50 well had been re-entered and logged to a depth of 2,428 feet, and that an application will now be lodged to perforate and complete 223 feet of new net oil pay across two producing zones.

And the energy producer completed a stunning hat-trick by advising it had also identified six additional extra wells, offering an opportunity to create further low-cost production by accessing previously-uncompleted productive zones.

LGO Energy certainly has the wind in its sails at present, the business also receiving shareholder approval in recent days to raise £28m through a rights issue. Still, the unpredictable nature of oil exploration — allied with LGO Energy’s still-fragile balance sheet — makes the business a risk too far, in my opinion.

Toast terrific returns

Drinking hole operator Punch Taverns (LSE: PUB) was last dealing 4% higher on Wednesday following a bubbly trading update.

At first glance the firm’s latest figures provide little cause for celebration: Punch Taverns saw pre-tax profit slump 84% between September and February, to £54.7m. However, the business put these results down to £288m worth of disposals during the past 18 months.

Indeed, Punch Taverns’ restructuring drive certainly appears to be delivering the goods — average profit per outlet rose 3% during the six months, with like-for-like net incomes across its core estate increasing 1.6%.

Punch Taverns is clearly a firm on the rise, and the City expects the firm to bounce from a 29% earnings dip in the year to August 2016 with a 28% rise the following year. I reckon a P/E rating of just 5.8 times for the current period represents a great level to latch onto the company’s improving growth story.

Recruiter on the rise

Recruitment specialist Servoca (LSE: SVCA) also lit up the leaderboards on Wednesday thanks to a 16% session-on-session rise.

The company advised in its latest trading update that “trading performance has shown excellent progress and results for the first six months will be significantly ahead of the corresponding period last year.”

Servoca announced back in December that its Healthcare and Education units continued to perform strongly, underpinning a 20% revenues rise in the year to September 2015. And the business hinted further acquisitions could be ahead to complement solid organic growth.

The number crunchers expect Servoca to enjoy a 15% earnings gain for fiscal 2016, leaving the business dealing on an ultra-attractive P/E rating of 10.6 times. And a sub-1 PEG reading of 0.7 underlines Servoca’s terrific value. I reckon the business could prove a very shrewd growth stock at current prices.

The post Should You Buy Servoca Plc, LGO Energy PLC & Punch Taverns plc Today? appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The first-half results underline just what a good company SABMiller is, and although reported revenue dropped 12%, a lot of that was due to unfavourable exchange rate and the firm reported a 5% rise in organic revenue at constant currency. Adjusted EPS on the same basis was up 5%, leading to a 9% hike in the interim dividend to 28.25 cents per share.

SABMiller’s expertise in developing markets, where it sees most of its annual growth, will make AB InBev a formidable proposition.

Engineering challenge

A third-quarter update from IMI (LSE: IMI) disappointed the markets, sending the engineering firm’s shares down 8% to 896p — the word “challenging” as early as the third sentence was probably enough for some to reach for the Sell button.

The problem is that reported revenues for the quarter were 7% down on the same period a year ago, and even when adverse exchange movements are factored in, there’s still a 5% drop in organic revenue — although the firm does expect its organic revenues and margins in the second half to come in ahead of the first half.

Forecasts had the shares on a P/E of 14.5, and a coming downgrade will likely be in proportion to the share price drop, so the multiple will probably remain steady. With dividend yields around 4% expected, the shares seem fairly priced, but no great bargain.

Pubs back on track?

Punch Taverns (LSE: PUB) revealed the latest progress in its restructuring along with reporting a full-year loss of £105m. The loss was largely down to a £166m charge to cover debt restructuring costs and falls in the value of its pub estate, but efforts to get the debt pile down are working — from around £2.3bn three years ago, this year saw a further drop of £513m to get the total down to £1.4bn.

And despite the statutory loss, Punch reported underlying EBITDA of £196m, albeit down from 2014’s £205m. With significant disposals now completed, the company told us it expects to get around 95% of its pub profits in the coming year from its core estate, up from 88% in 2014.

This progress is significant, but whether it makes Punch a good investment is hard to say in the absence of any real quantification of its future fundamentals.

The post Should You Buy SABMiller plc, IMI plc & Punch Taverns plc After Today’s Results? appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended IMI. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Conviviality, whose main brand is the 600-strong Bargain Booze off licence chain, plans to triple its annual sales. The firm has confirmed previous reports and announced plans to acquire drinks wholesaler Matthew Clark, which is a 50/50 joint venture between Punch Taverns and Hertford Cellars Limited.

Conviviality will pay £200m for Matthew Clark, which will be funded with a £130m placing of new shares and a new borrowing facility of £80m. The deal should transform Conviviality into a major UK drinks wholesaler and the group expects to have combined annual sales of more than £1.1bn, nearly triple last year’s turnover of £364.1m.

Punch will also benefit, as it will receive around £100m for its stake in Matthew Clark. This will help to reduce its hefty £1.5bn debt burden.

Is the price right?

Based on figures provided by Punch, Matthew Clark’s post-tax profits for the last twelve months were £15.6m. This makes the £200m price tag equivalent to a P/E ratio of 12.8, which seems reasonable.

Does this deal make Conviviality or Punch a more attractive buy?

Punch

Punch shares currently trade on a 2015 forecast P/E of just 3.4. The reason they are so cheap, of course, is that the firm had far too much debt and nearly went bust in the aftermath of the financial crisis.

Things are improving. Net debt has fallen from £3.6bn in 2009 to £1.5bn, and further improvements are expected as Punch continues to sell non-core pubs and focus its estate on more profitable locations.

Punch is very much a turnaround investment at the moment, but today’s deal is good news and I can see the investment potential here. According to Punch’s latest trading update, the net value of its pub estate, less debt, is £691m. That’s more than twice the firm’s market cap of £291m.

Punch could be a value buy.

Conviviality Retail

Conviviality floated on AIM in 2013, since when its shares have risen by 48%, including today’s gains. Net profit has also risen strongly, from £4.8m in 2013, to £11.2m in 2015. Before today’s gains, Conviviality shares offered a generous dividend yield of about 5.3%, and traded on a forecast P/E of about 13.

Today’s deal looks set to change the picture completely. The £200m acquisition is larger than Conviviality’s £125m market cap and will require the firm to issue £130m of new shares and borrow £80m. Sales are expected to rise to more than £1.1bn and the firm’s larger scale may mean it can secure more competitive pricing on its stock, which could be good for margins.

However, the placing shares were sold at 150p, significantly below the current share price, and we don’t yet know how quickly the firm will be able to start reducing its net debt. In my view, it makes sense to let the dust settle before deciding whether to invest here. There will probably be better buying opportunities, once the excitement surround today’s deal has died down.

The post Are Sky-Rocketing Conviviality Retail PLC and Punch Taverns plc A Buy After Today’s Deal? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.