ALE EOFY results saw dividend increases and prosperity predicted to arise from growth and opportunities in partnership with ALH – backed by flustered supermarket giant Woolworths.

In days since the announcement (ASX: LTN) ALE’s securities have remained steady around $4.34 – trading at a healthy 71 per cent premium to their underlying value of $2.53.

ALE MD Andrew Wilkinson summarises investor perception of value in three areas: income, due to the long leases and options with the country’s largest publican, ALH; growth, due to capital investment by ALH on the properties it leases from ALE; opportunity to increase the developed percentage of the land the hotels occupy.

ALE holds 86 properties in its portfolio, valued at nearly $1bn and representing nearly 1,000,000 m² of which only 25 per cent is developed. All properties are tenanted by Australian Leisure & Hospitality (ALH), which operates 320 licensed venues and over 550 retail liquor outlets. ALH is 75 per cent owned by Woolworths.

Meanwhile, Woolworths (ASX: WOW) has not had as great a year, fighting shifting public perception and an aggressive new competitor to post a $972.7 million loss in half-year results earlier this year.

The Board reacted by appointing South African-born Brad Banducci as chief executive and managing director in February. Banducci began with WOW in 2011, in Woolworths Liquor Group.

The new boss recently announced further movement on his “turnaround measures” that will carve operating costs off future reports, with 500 support and supply staff to be sacked (drawing around $35 million in redundancy) and another 1,000 office staff installed into the business elsewhere.

Currently operating 960 supermarkets across Australia and New Zealand, 21 will be shut immediately and their six or more year leases paid out. Another 20 supermarkets are “underperforming” and under consideration. Plans to build 90 new stores over the next three years have been cut to 45 stores.

Paradoxically, the Woolworths announcement also cited the closure of three of its hotels, but the company would not elaborate further.

“We are not in a position to confirm locations at this time I am afraid,” a spokesperson told PubTIC. “This is due to existing leasing arrangements.”

This, and rumours some of the supermarket giant’s more ethically sensitive investors aren’t fond of association with a company that operates poker machines, has led to speculation WOW may be considering divesting its hotel interests.

ALH is valued around $2bn, although its consistent success has proven a moving target and difficult to accurately evaluate. Divestment by WOW would likely take the form of an IPO (initial public offering), or spin-off with some equity interest retained.

Both ALH and ALE were formed out of the divested hotel interests of Carlton & United Breweries, with ALH the operator and ALE its landlord. ALH now has several ASX-listed landlords, indicating the strength of its covenant as an A-grade tenant.

The distributable profit of ALE rose marginally on 2015, to $29.6 million, and 2016 distribution of 20¢ per security was similarly an 18.7 per cent increase. Property valuations rose 10 per cent to $990.5 million.

Wilkinson posed in an interview that $1 invested in other sectors 13 years ago would now be worth $2 to $3 (accumulated value), whereas $1 invested in ALE would be worth $14.


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