Our new EPS are 42.8p (08), 59.1p (09) and 64.4p (10). For 2008 we are more than 25% below consensus
(probably due to writedowns), and for 2009 – which is probably a more representative measure of BARC mid-term
earnings capacity – we are around 10% below. The stock is trading at 5.4x 2009 PE, and at 1.2x P/NAV, so a rally
in the short term is a distinct possibility. However, we still remain structurally cautious on investment banks
revenues and hence do not see BARC or other IBs as interesting mid-term investment options.
Three new shareholders have been introduced into the foray; Qatar Investment Authority, Challenger and

For example, its statement on current trading and prospects implies that it’s doing well – although a close reading of Barclays’ words makes no commitment about the out-turn for this year.

What Barclays says about its capital ratios, those regulatory measures of its financial strength, also begs questions. As Barclays pointed out on 24 April and repeats again today, one of those ratios was above target and one just a fraction below. And the new £4.5bn will take the ratios well above international minimum standards and Barclays’ own targets (which the bank is not changing).

So if you were an intergalactic investor just landed from Mars, you would be scratching your head and wondering why on earth Barclays wanted £4.5bn from new and current shareholders.

The answer is that banks are insured, regulated institutions and therefore cannot ignore pressure from the Financial Services Authority, the City watchdog.

It wants all our big banks to have a significant cushion of capital, and has made that abundantly clear to all of them.

The tit-for-tat of the Bank of England’s £100bn mortgage collateral swap – which Barclays was influential in negotiating – was that the banks would do their part in shoring up the financial system by raising risk capital.

As I’ve written, it was the FSA which forced Bradford & Bingley to raise emergency funds from Texas Pacific Group, the private-equity giant, when its rights issue was on the brink of collapse.

And now that Bradford & Bingley’s big shareholders have taken my advice and come up with their own competing recapitalisation plan, the FSA will look under the bonnet of the banking takeover vehicle being constructed by the financial entrepreneur, Clive Cowdery.

I also have no doubt that the FSA will ensure that Alliance & Leicester, the medium-sized bank, finds safe harbour from the financial storms.

Meryweather Investments Limited, the seller of the shares in Lefever, will on
completion of the transaction hold a 13.07% interest in the enlarged share
capital of CAMEC. All of the shares issued to Meryweather will be subject to a
lock in for six months and 50% of those shares will be subject to a lock in for
12 months.

Managed pubs lfl sales have declined at -3.6% over the 44 weeks. This compares to -2.8% for the first 28 weeks, implying a run rate of -5% in March-June quarter. The interim statement implied a -4.3% decline in January & February.

Punch indicates that it is “confident of meeting the market’s FY profit expectations”. We understand this is for adjusted PBT of £258-275m (Cazenove £269m).
On balance sheet issues “the group has sufficient funds to meet its current financing needs”.

Implications, valuation and conclusion
In the short term this statement is likely to provide reassurance that trading in Q3 has been no worse than expected, notwithstanding the weakening consumer environment and the poor weather in April. It also provides short term comfort that there has been no deterioration in the headroom against covenants. Clearly, this does not change the fact that trading is still weak and a small recovery will be needed in Q4 trading to meet our forecasts.

Punch now trades on a 2008E PER of 4.0x and EV/EBITDA of 8.9x compared to ETI on 11.0x and 9.5x respectively. We would expect this rating gap to close and retain an Outperform recommendation.

Management is confident that 2008E PBT will be in line with expectations,
which ranges between £258m and £283m. With leased pub LFL profits down
3.4% after 44 weeks, we are downgrading our 2008E forecast by 3%, a
scenario that requires flat trading in Q4E against weak comparatives. The
shares are cheap, but there is no growth or short-term catalysts.
After 44 weeks, leased pub LFL contribution is down 3.4%, implying a 4.5% reduction during the last 16 weeks. We estimate that the disposal of 869 pubs in April 2007 boosted average contribution per pub by 9% (to 7%) in H1 and by 6% in Q3.

After 44 weeks, managed pubs LFL sales are down 3.6%, implying a 6.5% reduction during the last 16 weeks. Due to higher operational gearing, LFL profits are likely to be down over 10%.

Fortunately, managed pubs account for just 19% of group profits. Again, our forecasts
anticipate an improvement in Q4E due to the weak weather-related LFL comparatives.

All £4.8bn of net debt is fixed at a rate 6.6% and for an average of 19 years.
Having passed through the toughest trading period in living memory, Punch.s cash
interest cover remains above 2.0x. We believe EBITDA would have to fall by c20% to endanger the covenants, which is unlikely. Trading over the summer should be flattered by weak weather-related comparatives; the next major challenge could emerge in the Winter, if heating costs remain high and employment falls.

Management believes that a REIT could be undertaken without demerging Spirit. It also believes that it may be possible to demerge Spirit without out breaking its securitised bond. There are still potential catalysts for the shares, but we doubt any of them are likely to be executed in the short-term. We are not forecasting any growth, but expect cash flow to remain strong, financing a 4.4x covered dividend yielding 5.5%.

We cut our 2009 and 2010 earnings estimates, primarily to reflect cost pressures. However, Mitchells & Butlers now trades in line with the sector on a P/E basis on our downgraded earnings forecasts, following its recent share price decline.

We thus upgrade Mitchells & Butlers from Sell to Neutral. We reduce our 6-month
price target to 220p from 290p, reflecting lower earnings estimates and a lower estimated freehold value.

We downgrade our 2009 and 2010 earnings estimates to reflect
higher energy and food costs and continued weakness in consumer demand. Our 2009E EPS falls to 26.55p from 29.51p and our 2010E EPS falls from 31.52p to 28.66p.

Our 6-month price target (based on long-term average P/E and adjusted P/B ratios) falls to 220p from 290p, driven by a 15% cut in our assumed freehold value of the estate and lower earnings estimates. Mitchells & Butlers trades on a calendar 2009E P/E of 7.8x versus the sub sector on 8.1x. The key negative risk to our
estimates and price target is a failure to pass on any of the higher input costs to consumers.

Values in the Midlands and the North have fallen between 10-20%, but the ripple effects from London and the south east will affect these values as well.

The research found that vendors expectations of land values are taking time to readjust to new market levels. Supply is also outstripping occupier demand, due to a strong recent development pipeline. The research said that this is causing short term developer traders to pull out of the market.

Len Rosso, head of logistics and industrial at Colliers CRE, said: ‘The good news is that rents in the logistics and industrial sector remain stable at the moment. However the early casualties of the current climate are third party logistics companies, particularly smaller firms, who are feeling the pressure of rising costs.’