Barclays downgrades Enterprise Inns to 'underweight'

Barclays downgraded Enterprise Inns to ‘underweight’ from ‘equalweight’ and slashed the price target to 80p from 155p.

It pointed to the selloff in credit markets, which it reckons could continue to impact sentiment towards highly leveraged equities such as Enterprise, which has the highest debt/EBITDA in the sector at 7.6x.

Barclays also highlighted the £350m bond due for refinancing in 2018

“We are concerned that if credit markets deteriorate then the interest cost on refinancing debt could increase, damaging P&L earnings and cash flow,” the bank said.

In addition, it pointed to risk to earnings from the forthcoming Market Rent Only legislation.

Barclays said while it admires the “bold” strategic review introduced by the company in 2015, there is execution risk on completing such an ambitious project whilst running a highly-leveraged balance sheet.

“Although Punch faces very similar issues, we believe that Enterprise’s greater leverage (and higher EV/EBITDA) creates additional risk to equity holders from a valuation perspective.”

At 1009 GMT, Enterprise shares were down 0.9% to 86.25p.