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Tempus today said buy, he reviewd several brewers and pubs
I saw the Tempus review late last night and thought it backed up my reasons for remaining top heavy in Marstons and light on JDW and MAB, bet he’s all to familiar with shares dropping the day after he tips them :-) after the 100% rise I thought about rebalancing but MARS has a great balance with supermarket sales whereas JDW is pub based only and a high volume low margin model - they need lots of customers. MAB is similar. Good weekend all and DYOR.
I am a online member of the Time, I will put the article here
hings change quickly in hospitality. Yesterday’s £88.4 million equity raising by Young’s came only six weeks after the pub company’s boss said that it would not need to bolster its finances during the lockdown by selling new shares. Patrick Dardis, 61, the Young’s chief executive, said the group had considered following some peers in raising new equity, but rejected the idea. “Debt is still cheap, so we decided not to go down that route.”The capital raising came despite his insistence that the scale of the liquidity available to Young’s meant it could cope with a “worst-case scenario, taking us through until pretty much this time next year”.Young’s, which began as a brewer in Wandsworth, south London, issued new shares equivalent to 19.2 per cent of its current share capital at a discount of about 10 per cent. Retail investors were able to participate, buying £2.7 million of stock through the Primary Bid platform.
The group plans to reopen all its pubs between July 13 and July 20 and said the new funds would enable it to kickstart investment in its pub estate, strengthen its balance sheet and “pursue opportunistic acquisitions”.This investment opportunity appears to be the key to Mr Dardis’s change of mind. While there is little doubt he could have kept Young’s afloat for 12 months, the restrictions inherent in relying on government-backed loans would have taken growth off the menu. Raising money from the market gives him the flexibility to invest in new and existing pubs. As one analyst put it: “There are two options: you either grow your way out of the crisis through the topline or grind your way out through the bottom line.”
JD Wetherspoon
Debt and a £141 million equity raising gives Tim Martin, the pub group’s founder and chairman, the liquidity he needs, while Wetherspoons is ahead of the curve in ensuring its pubs are “Covid secure” come July 4. Expect him to cut prices to coax customers back through the door, although generating the level of sales necessary to make a decent margin could prove a short-term challenge. Avoid
City Pub Group
A solid start to 2020 was halted by the lockdown, but chairman Clive Watson has been through a few downturns and has acted decisively to cut the cost base. Although rents remain a concern, this is a quality company and a £22 million equity raising has enabled him to cut its bank borrowings by two-thirds. Buy
Revolution Bars
Lockdown came just as Rob Pitcher, the chief executive, was starting to sort out this problem child. A £15 million share placing eased the financial pressure, although this was at a cost of a 42 per cent discount owing to the scale of the issue compared to its £17 million market value. The Covid-19 pandemic threatens to halt the momentum. Avoid
Whitbread
Having handed £2.5 billion to shareholders after the £3.9 billion sale of Costa Coffee to Coca-Cola, Alison Brittain, chief executive of the Premier Inn and Beefeater owner, has reclaimed £1 billion via a rights issue. It may sound bizarre, but it’s a pragmatic move that will ensure the FTSE 100 group emerges as strongly as any company from the crisis and in prime position to take advantage of growth opportunities. Buy
The Restaurant Group
Andy Hornby is in firefighting mode at the casual dining group, exiting most of the Chiquito chain via an administration, deploying a company voluntary arrangement to shed 125 mainly Frankie & Benny’s outlets and raising £57 million of new equity. Refocusing the business on the excellent Wagamama and Brunning & Price brands is sensible, but the road to success is still long and painful. Avoid
Loungers
It was all going so well. Yet only a year since it floated at 200p a share, the operator of the Lounge and Cosy Club café-bars is languishing at 127p. However, this is a business that is constantly evolving to stay relevant, while its value-for-money proposition should resonate with a post-Covid audience. Its recent £8.3 million share placing provides an extra buffer. Buy
Mitchells & Butlers
One of the few pub groups not to issue shares, but with a well-invested estate and no apparent desire for acquisitions, the £100 million loan secured should provide all the liquidity it needs. Hold
Marston’s
Another pub company to sidestep an equity raise, although it didn’t need one. Instead, Ralph Findlay, chief executive, formed a £780 million joint venture with Carlsberg, collecting £273 million of cash to reduce debt. Pulling this rabbit out of his hat doubled the share price, but it could have further to go. Buy
Interesting comparisons between various brewers etc. Management of debt will be a fundamental issue for many business.
MAB has a relatively modest debt to revenue ratio and significant assets ( over £4billion) which relates to 450p NAV, SP currently under 200p, so well supported.
MARS after reciept from Carlsberg will have a residual debt to gross income of over 100% and NAV of 74p.
MARS will come through given the likehood of a Rights Issue which are popular within the sector currently. and further relieve the debt pile which has for too long acted as a Millstone.
It is strange Tempus has not made more of the asset backing of Company's being promoted.
It is an illusion to believe things will be the same once everything opens up , there are significant headwinds to come.
6 breweries for a lager factory and a minority stake at that. Call that a rabbit out of a hat ? Clearly its a pig in a poke.
The JV will practically commence once the initial equalisation payment of £239m (Q3). is completed . Integration of the brewing businesses it's infrastructure and distribution facilties will have costs, it is projected full cost savings will not be achieved until year 3.
In return for the equalisation payment Marstons will transfer properties ( Breweries and associated properties) valued at £580m to the new Company, Carlsberg will transfer it's UK Brewing Facilties valued at £200m. Marstons have 6 breweries and Carlsberg 1 main brewery with a small Craft Brewery in London. The assets will disappear from the existing Parent Co's balance sheet, transferring to CMBC of which Marstons have a 40% holding.
Carlsberg is the 4th largest supplier, by value, of beer to the UK market, Marstons are 5th.
Carlsberg have more than double the supply capacity against Marstons at 5.5mllion Hectolitres.
Carlsberg UK import beer and lager from it's parent company in Denmark, precise quantities are not disclosed as is the inclusion or otherwise of this product into CMBC. Is it reasonable to concluded this import is not part of the JV?
Dividends, when earned, from CMBC, will be distributed on the ratio of 60/40.
Cost savings are projected but not until year3, so based on existing gross profits and assuming sales growth will be more or less stagnant, £65.7m is generated which if fully distributed amounts to £39.4m to Carlsberg and £26.3m to Marstons. Marstons current earning from it's Breweries is £44.6m.
Add in the projected savings ( yr 3) of £24m and the possible distribution is £53.8m Carlsberg and £35.9m to Marstons.
For Marstons to retain profits from the Brewery JV equal to those of recent times there must be a 24% increment in disposable profits (dividends) from CMBC.
Marstons shareholders should not be under the illusion dividends from CMBC will flow directly to them, they will not but will be be consolidated into the Parent accounts...used to manage debt, fund development and enhancement of the Pub/Hostelry estate.
The company had projected to spend £90-95m this year on it's estate, having pulled development and re-furbishment too it's Pubs last Summer. It is realised the Pub Estate is in serious need of updating.
Given the success of the JV, Marstons is going to be left with debt of £1+billion, £350million of which is due for repayment in 2023,apart from other short term lending previously identified.
Questor gave an overview of the sector and, imo, did not dig down into fundamentals which support the SP of companys reviewed, MAB have a NAV of 450p and current SP of under 200p. MARS have a NAV of 74p and SP of 60p.
Judge for yourself which is the better investment.
AIMO DYOR
I find your post to be a little pessimistic about Marston's future fairdealer. I'm intrigued how you calculated the NAV to be 74p?
IMHO this will be £1 plus come 2-3 years time, the joint venture will be nothing but good news for Marston’s. An additional 34 million will be paid to Marston’s PLC in Q3 2021 when share prices have recovered and Covid-19 is behind us. The JV will IMHO bolster the dividend funds in a few years time and create good value for shareholders.
Slightly off topic but relevant to the SP I believe a vaccine will start to be circulated in Q1/2 2021 around the globe. The world is working on it with unlimited funding and I expect we will hear some very good news by September 2020. I wouldn't be surprised if we see 2-5 successful vaccines being used and circulated in 2021 which will enviably cause another bull-run and the saying "a rising tide raises all boats" will apply here.
In regards to the near term, I'd like to imagine the government will cut the hospitality/events/tourism sectors some slack and make it easier for companies to recover their operations through various schemes. Personally, I'll be buying the dips but then again I'm a long term investor only risking a small amount of capital that I could ultimately afford to lose (event though that is not my intention obviously). If you need access to your money within 12 months I'd be more hesitant to invest now but then again it always depends on your situation and risk appetite. For me, 0.1% interest on a savings account or buying Marstons at 60p I know what I'd rather have!
AIMHO. DYOR. Have a great weekend.
quite obvious hes gone short.
Wrong again draft. As a Trader would expect that comment from you.
Have been here for 5 years, and with one or 2 others can claim too have a little more knowledge of the Company's affairs than most.
How long have you been here?
Rick the NAV is published in the annual accounts, have a read.
The basic point being whatever an individual's take, on stated profits from the Brewery division Marstons lose out and require an increase in profits of the combined operation to the tune of 24% to just standstill.
Marstons will still retain a big debt pile to manage/maintain.
If my words appear pessimistic so be it, but realistic when judged against other Companies within the sector.
It is not a popular proposition here but a Rights Issue would give the company the run way needed.
Do you mean I've gone short draft? I've never made a short in my life as I'm a passive LTI. I took time to read Fairdealer's post and tried to offer an alternate opinion, is that not the basis for healthy debate and discussion after all? I've seen fairdealer post on a few other shares and I value their insight.
FD
A great post re split of profits etc, but I suspect, if anything, that you are rather generous with the nav which I guess is largely supported by the value of their pub estate ?
Given we know their less attractive pubs had a sale 9 or 10 months ago when everything in the pub garden was looking rosey, & were sold at a significant loss to book, then to make matters worse their announced intention to sell Pitcher & Piano chain failed to find a buyer, it is hard to see this estate being worth much, after the debt which is secured on it ?
But protestations by posters that this will be worth £1 (or more) in a year or 2 are pure speculation, just like the suggestion that you are short, quite probably made by someone who is long & wrong !
FWIW my guess is covid has changed public habits, whether pubs will go the way of newsagents remains to be seen but if more drinking is done at home less will be consumed overall, and at a much lower profit margin to the brewer. I think new investors here need to be cautious, not gung ho.
Oh wait I see what you mean now draft you were referencing fairdealder. My apologies.
Thanks for that Fairdealer I shall take another look.
Rick, he (draft) means me. Like yourself have never shorted in my life indeed believe it should be illegal as in Germany.
Thanks for the insight barchild. I admit my £1 estimate is pure speculation I hope I had made that clear before but if not I will endeavour do so next time. I take the point about spending habits changing in the short-medium term but again it is my speculation that in the long term things will recover. If a vaccine is around next year and all the big sporting events are back up and running we should see a much more positive spending spree in summer 2021?
Barchid,
Have erred on the positive side with profit projections, knowing full well some will react in a disparaging manner. That said we (MARS) have a mountain to climb. Looking through rose-tinted glasses is a tool of trade for Traders.
As indicated I am not happy with not knowing how Carlsberg UK will handle imports from Denmark. The cynic in me says knowing what an astute Company Carlsberg is, it will not be part of the JV structure and yet Carlsberg require direct access to all Marstons Pubs.
Rick
You may well be correct, but these boards are here so we can understand all sides of a particular story.
At present I am very nervous of companies with high debt levels, especially when they are at fixed rates of interes, as is the case at MARS as I understand it.
I just do not see where their required revenue will come from, a lot of their premises are pretty low grade too...
FD
Astute comment, however Carlsberg could possibly find that with a no deal, or limited brexit deal they might produce more of their beer which is currently imported at the JV premises.
It could be a (very) cheap insurance policy for them, does that make sense ?
barchid
right and no doubt Carlsberg had their eye on that ball too.
Judging by Carlsberg past collabatory agreements, they rarely run to term before they (Carlsberg) effect total control, which is fine providing the consideration is right.
I completely agree, I always enjoy hearing an opposing view to mine as more often then not you can take something constructive away from it.
I believe sales will recover quicker than planned and I hope I'm right but acknowledge I may well be wrong but that is a risk I can afford to take. With 90% of Marston's pubs having outdoor spaces and those that don't being predominantly located as more upmarket inner-city venues I see MARS generating a good amount of sales compared to a lot of the competitors who have a higher indoor-only estate.
Also, if I am not mistaken wasn't it reported in the accounts that wholesale sales were up 55% since the lockdown?
Apologies, this was what I was referencing " Cash flow supported by very strong off-trade sales - up 55% since half year"
rick correct sales were reported up. these are sales through supermarkets etc where margins are paper thin. Of course no mention of the loss in cask sales which is enormous.
At least you have an open mind. Lets hope you are right and I am wrong! Time as always will tell