Investors exposed to the UK pubs sector may have had a tipple too many. The diverging share prices of Enterprise Inns and Punch Taverns on one side, and Heineken on the other, are hard to fathom.
Many UK pub companies' stocks have fallen since British lawmakers voted on November 18 to liberalise the beer supply rules. At present, a pub can be obliged to source supplies through the brewer or property company that owns it. About half the UK's 50,000 pubs are "tied" in this way. Others are either managed by employees of the parent or are fully independent "free" houses.
Enterprise Inns, which owns more than 5,000 pubs, is down 18 per cent since November 14, the end of the week just prior to the surprise vote. Punch Taverns, owner of another 3,900 outlets, is also down 18 per cent. Greene King, another pub operator, is down four per cent. Shares in Heineken, which owns 1,300 UK pubs, have risen four per cent.
Of course, Heineken is a sprawling global company. The Dutch brewer publishes little financial detail about its UK operation and investors can also only guess how much of its business is done through its tied pubs in Britain. By contrast, net income from sales of beer and cider at Enterprise Inns accounted for more than half the total for the year ended September 30. The pattern is similar at Punch.
Heineken also sells its beers and ciders in grocery retailers and unconnected pubs. If it loses in the tied properties it may win in the other channels. In common with the likes of Punch and Enterprise, Heineken may be able to jack up rents if earnings from drinks sold in tied pubs fall.
As the world's third-largest brewer, Heineken's performance across its 70-odd other operating territories will balance any weakness in the UK, if it materialises. But western Europe accounts for around 35 per cent of Heineken's total revenue and a quarter of its operating profit. For now, shareholders seem strangely ambivalent about the potential impact.
