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Smith & Williamson pub EIS offers food for thought

Smith & Williamson Investment Management

British Country Inns 2

Type: Enterprise investment scheme

Aim: Growth by investing in the acquisition, development and management of freehold or long leasehold pubs

Minimum investment: First offer lump sum £5,000, second offer lump sum £35,000

Closing date: January 26, 2007

Charges: Initial 7.5%

Commission: Initial 2.5%

Tel: 020 7131 4502

This EIS will provide growth by increasing the turnover of the businesses and increasing the capital value of the properties – for example, through refurbishment and development.

Allenbridge Tax Shelter research director Richard Allen points out that this EIS is based predominantly on freehold property and he likes the fact that it is asset backed. He is also impressed with the track record of the team behind it.

“The directors have proven themselves with the successful exit achieved from English Country Inns plc, where £1.28 was realised per £1 originally invested,” he says.

Allen regards the target of raising £8m for this EIS as reasonable given that £7.5m was raised for the preceding British Country Inns offer last year. “This should provide for the acquisition of eight to 10 individual pubs – the resultant portfolio will spread risk across a number of units,” he says.

In Allen’s view. the refurbishment of select properties should help contribute to goal of increasing long term value. He also draws attention to the emphasis towards food, which may prove beneficial when the impending smoking ban comes into force.

Although Allen has no real dislikes about this offer but refers to a number of caveats. “Public house property values have continued to appreciate over recent years but there is no guarantee they will continue to do so. Also, food focused pubs have higher costs than drink focussed pubs due to the requirements for a kitchen, chefs and waiting staff. However food is now accounting for a significantly greater proportion of pub turnover than several years ago and this strategy is in line with the trend.”

Another potential risk relates to the borrowing facility that will be in place. “If the balance sheet is geared to fund additional acquisitions, rises in interest rates could impact on profitability. Finally, the exact locations and therefore cost and nature of supplies is not yet known. However this is the case with all pub EIS companies,” says Allen.

Looking at the market for possible competitors Allen says: “It remains early in the tax year, but other as yet unannounced asset backed EIS companies, particularly similar freehold property public house EIS companies may come to market. Approved EIS funds may also compete.

BROKER RATINGS

Suitability to market: Good
Investment strategy: Good
Charges: Average
Adviser remuneration: Average

Overall 8/10

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