Honeycombe Leisure

AVOID

12/01/2004

North West pub operator Honeycombe Leisure is apparently on target to reach analysts' forecasts of �1.9m profit for this year. Like-for-like turnover for the six months to October rose 0.6% to �16.19m with a loss before tax of �17,000. Having realised it cannot compete with major players, such as Punch Taverns, which boast low-cost funding structures, chief executive James Baer believes that by pursuing a strategy to manage pubs on behalf of large and small owners, future growth can be gleaned from substantial management fees. For instance, Honeycombe received �94,000 in fees in the first half from Nectar Taverns for managing its 14 pubs. This is expected to double by the year-end and, when Nectar Taverns has fully grown its portfolio, fees receivable could hit �500,000. At the same time, other management deals, which include six Ma Hubbard sites and 13 Punch pubs, will assist in lowering operating costs for its own 57 unbranded pubs. This is because Honeycombe will have greater purchasing power and therefore be able to broker cheaper supply deals. In addition, a saving of �125,000 per year will be made since the group negotiated a new �32m loan and working capital facilities. This enabled Honeycombe to raise �1.1m before expenses for working capital and other purposes. Gearing is now just below 200% compared to 283% in the same period last year. Despite the improvements, we're still not fans.