Interactive Investor

Why Marston's has something to cheer about

30th November 2017 14:36

Graeme Evans from interactive investor

Cheer from Britain's pubs sector has been in short supply in recent months as rising costs and weak consumer confidence continue to keep spirits low. That was until Marston's stepped up with results that popped the shares up over 10%.

Only last week, All Bar One owner Mitchells & Butlers said it would not be paying its interim dividend while it waited for the outlook to become clearer.

It was a similar downbeat story from Greene King today as it reported a challenging first half of the financial year for its managed pubs estate, with underlying group profits falling by 8% to £128 million.

In light of this, the full-year results performance at Wolverhampton-based brewing and pub company Marston's is all the more impressive. Profits were up 3% to £100 million, with the added bonus that like-for-like sales have shown a positive trend in the opening few weeks of the new financial year.

There have been no material changes in cost trends, with margins protected through long-term relationships with suppliers and fixed price contracts.

Chief executive Ralph Findlay, who has been in charge since 2001, was keen to credit the group's resilience on the recent work to update and improve the quality of both its pub and beer businesses.

Marston's shares stood out from the pub crowd today, with the FTSE 250 stock surging by 10% to 115p, while Greene King fell 14p to 526p and Mitchells & Butlers stood firm at 261p.

Liberum, which had a 'buy' recommendation and 140p target price on Marston's prior to the results, described the update as reassuring. Even so, Marston's shares are still 14% lower so far in 2017, having fallen sharply since the summer.

Marston's has been trading on a 2018 price earnings (PE) multiple of 7.4, with a dividend yield of 7.4%.

Despite the uncertain conditions, Findlay said that continued investment in new pubs and bars was crucial to generating shareholder value. In 2018, the company expects to open 15 pubs and bars and six lodges.

It has now opened 200 pub-restaurants in the last 10 years, accounting for around 60% of its current estate of family-friendly pubs. These sites target sales of around £25,000 per week and a food sales mix of around 60%.

The past decade has also seen a dramatic rise in the UK beer market, with a revival in demand for craft beer and real ale. Around 1 in 4 premium bottled ales and 1 in 5 premium cask ales in the UK are Marston's brands.

The Wainwright and Hobgoblin brewer recently added to its portfolio with the acquisition of beer business Charles Wells, which included the brands Bombardier and Young's, for £55 million.

Numis Securities believes this strength in brewing is a positive for the company in the current climate.

Analyst Tim Barrett said: "Despite operating in a difficult sub-sector with cost and consumer headwinds, Marston's is differentiated from its peers by its growth in brewing where synergies and integration should support earnings growth."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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