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STOCKS NEWS UK SMALL-Punch weak, Marston's up, RBS review sector
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12:49GMT 12Jan2009-Punch falls, Marston up, RBS (LSE: RBS.L - news) reviews UK pub sector
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Punch Taverns (LSE: PUB.L - news) is the largest faller in the FTSE 250 (news) index of medium-sized companies, down 12 percent at 67 pence, as RBS analysts downgrade the highly-leveraged pub operator to 'hold' from 'buy'.
'We believe debt repayments can be met from cash flow, but headroom is low,' they say in a note. 'All cash flows over a prolonged period will likely go to repay debt. Ultimately these repayments should leave an attractive equity terminal value, but risks are high.'
Citi also downgrades Punch to 'sell' from 'hold' in a sector review over similar concerns about shareholder control over cash flows.
RBS is more bullish on Marston's, up 6.5 percent at 126.75 pence, which it upgrades to 'buy' from 'hold', saying that while it may also be overleveraged, it should not be viewed as a distressed equity.
'We anticipate dividends will halve, allowing a gradual de-leveraging,' they say. 'We find the stock at the lower risk end of our pub universe and the stock looks attractive.'
In a review of the sector, RBS also upgrades Mitchells & Butlers to 'buy' from 'hold', and says the company is proactively de-gearing its balance sheet. Its shares rise 2.2 percent to 186.25 pence.
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