UPDATE 2-Enterprise Inns reassures on full yr, shares soar

(Recasts, adds further detail, CEO, analyst comment)

By Matthew Scuffham

LONDON, Sept 30 (Reuters) - Enterprise Inns (ETI.L), Britain's second-biggest pubs group, said on Tuesday it expected earnings and dividends to be in line with market expectations this year as food sales grew, sending its shares sharply higher.

The group, which has 7,700 pubs, said it expected second-half earnings before interest, tax, depreciation, and amortisation to be similar to the 256 million pounds ($461.4 million) it made in the first half.

Enterprise said trading conditions had, as expected, remained difficult during the second half, with sales hit by last year's smoking ban, the poor summer weather, and weakening consumer spending as household budgets become stretched.

However, the group said it was encouraged by the growth of food sales and that 40 percent of its pubs had managed to grow income from the sale of beer despite declining volumes across the industry.

Numis analyst Richard Carter reiterated his "buy" recommendation saying trading had been "not nearly as bad as some commentators have recently suggested".

"Although sentiment will undoubtedly continue to be negative towards pub groups, we think Enterprise's valuation largely discounts this negative sentiment and offers compelling value," he said in a research note.

Shares in Enterprise were up 12.6 percent at 177 pence at 1035 GMT, after plunging 60 percent over the last six weeks. Rival Punch Taverns (PUB.L) was up 13 percent at 136.25 pence.

HARD HIT

Shares in both had been hit hard in recent weeks by investor concerns over debt and the overall trading environment.

Merrill Lynch analyst Jamie Rollo said in a recent note that 20 to 30 percent of Punch and Enterprise's leased pubs were now uneconomic, with licensees making less than the 20,000 pounds a year considered necessary to make a pub worth running.

In an interview with Reuters, Enterprise Inns Chief Executive Ted Tuppen said he did not believe as many pubs as Rollo identified were in trouble.

"I don't think it's anything like the percentage that he's talking about because he doesn't have full access to the workings of our estate. The danger is, if you use the law of averages, you can often reach the wrong conclusions," he said.

Tuppen did say, however, that Enterprise is currently looking for new tenants in close to 10 percent of its estate.