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Wet led pubs revenue looks good at 3.8% maintained into the last 10 weeks.
Brewery revenue looks particularly good - tricky to discount the benefit of the CW acquisition but however I cook it beer revenue growth looks good.
Total revenue beat my target of £1,120m and broker consensus of £1,080m.
Positive write up in today's Times.
That's all good, but two areas bug me.
i) D&P like for like revenue growth and ii) the increase in finance charges.
i) D&P - Ralph said, "Although trading in Destination food-led pubs was weaker, this predominantly reflects issues beyond our control relating to unseasonal weather extremes and the World Cup." But over the last 10 weeks the comparatives with last year were easy to beat - in the same period last year LfL down 0.8%. And the weather over the last few months was okay, as I recall better than last year. Yet MARS only managed 0.1% LfL for the 10 week period. They talk of momentum from the weather and World Cup headwinds but momentum from a weak 2017 is static.
ii) Finance - with margins expected to be 0.5% below last year that equates to 17.1% for this year. Applying that to the 15% growth in revenues gives us 1.15 * 992.3 * 0.171 = £195.1m EBIT. If Pre tax is £104 then finance charge is £91.1m, up from £74.4m last year. The securitisation profile predicted an increase of £1.7m, but that still leaves an additional £15m in finance charges.
But for this £15m extra in finance charges EPS would be over 14.8p. On a full 18% tax charge on the £104m pre-tax, EPS will be 12.9p (the tax charge should be lower). The £104m estimate is referred to as underlying so that doesn't suggest an exceptional finance hit. There was no sign of an increase in finance costs of this level at the half way stage, yet the full year trading update states "higher interest charges". I hadn't factored in this increase, perhaps the brokers had!
The more I look at this the more I think I must have made an error in my assessment. Could someone please point it out? Perhaps I need a pint of Pedigree to clear my head. No doubt all will be clear on the 21st Nov.
As Tempus says, "The debt, at about £1.3 billion, is high, but most of it is long term with a fixed rate of interest."
Yesterday I wrote to MARS investor relations with my numbers on the finance charges - hopefully accounts are have a good laugh at my school boy calculations.
Liberum are today also recommending a buy rating starting at 99p with a target price of 130p.
"Put simply, Marston’s share price is confusing. The debt, at about £1.3 billion, is high, but most of it is long term with a fixed rate of interest. The dividend is twice covered by cashflows and the net value of Marston’s assets is 150p a share. Buy the shares, hold them, and wait for the City to change its mind.
WHY Next year’s trading shouldn’t be as tough and the dividend feels safe"
Marston’s, one of the country’s biggest brewers and pub operators, has shrugged off Brexit as “not a big issue”.
The boss of the Wolverhampton-based company said it had identified "supply chain alternatives" to mitigate potential import blockages caused by Britain's exit from the EU.
Speaking as Marston’s posted a “strong year” of trading, chief executive Ralph Findlay was optimistic of successfully navigating any fall-out.
“The majority of our concerns will come down to imports and how they are handled,” he told The Daily Telegraph. “For most categories we have got pretty good supply chain alternatives. If you take wine… there are new world wines that are just as good [as EU wines] and in many cases provide cheaper options.
“We import food and drink from Europe. But the key point is that there are identified alternative suppliers that we can use.”
He continued: “There is also a potential Brexit impact on labour in the pub and restaurant sectors. [But] for Marston’s it is not a big issue. Most of our pubs are not in city centres. The percentage of our workforce that is non-EU is quite small. It is about five or six per cent.”
Marston’s employs around 14,500 people, operates more than 1,500 pubs and brews a broad range of beers including Hobgoblin, Young’s and Bombardier. It Britain’s pubs.
Annual turnover rose 15pc to £1.1bn with underlying profit before tax of £104m. Pub sales increased by 3.2pc with sales from its beer company up 47pc - boosted by the acquisition of Charles Wells Brewing and Beer Business, good summer weather and the World Cup.
Shares slipped 2pc, however, as annual profits missed expectations - analysts from Liberum had projected £107m.
Lord Adam. I agree.with your post to a degree.
Yes, if a company is doing well, and increasing profit year on year and is well managed, there is no reason for them not to maintain, or increase dividend to shareholders. No one could or should argue against that.
However if for any reason, profits fall would it not be prudent to reduce dividend over the short term to preserve future profitability, and to aid the company's survival for longer term income from divvis?
Getting something is always better than getting nothing.
Just my take on it, or course.
We income investors ... would NOT welcome a cut in dividend.
Indeed one of the main attractions of the company has been its consistent dividend policy in the past. For true, high yield income investors, the share price is more or less irrelevant -- other than to provide buying opportunities.
What really matters is that the company continues to trade and pays a consistent dividend year by year, preferably keeping track with inflation. With a never sell type approach the rest is irrelevant.
If your hope is to gain from an increase in the share price rather than the income distributed by dividend then you're probably more in the speculation camp than the investment one.
Now I realise that I've just kicked the hornet's nest ... and I didn't mean to start a flame war ... just to show that there is another way of looking at the present situation. :)
Used my Privilege card last night and noted it expires 31/10/18. Sent email today and Marston's replied immediately (great service !) that replacement cards had been sent out yesterday by 2nd class post and should therefore arrive imminently.
As for the Trading Update - noted today that there is likely to be Brexit deal after all which should 'provide a tailwind for domestically exposed stocks' - such as Marston's …
In meantime, looking forward to some Brakspear/Henley Old in time for XMAS.
No worries, Leas.
I only have a 2000+ holding here, so small potatoes in the grand scheme of things, but I do like this company, that's the main reason I bought in.
Being the old fart that I am, (55th birthday coming up soon) so I believe that I'm going to be getting a small little windfall from pension pots coming up soon so I'm going to put a little of it in buying a few more, along with Stagecoach, (another one I'm quite fond of too).
Despite the sp drop here, I'm not too overly concerned about where the sp is at the moment, as I'm an investor, not a trader. Company seems well run, despite the eye watering debt pile.
Thanks Trent, will check mine but I seem to remember October being the renewal month. A divvy cut of 20% may please the majority and send out the right message to the city. I still think on assets alone we are undervalued so happy with any scenario. Be interesting to see what the new Chairman has to say. May give investors a better insight. Liking the guys background, time will tell.
If the BoDs are confident they can do both comfortably that's fine, but I'd be happy to take a cut in divvi to help reduce debt.
On another note, those that have the privilege cards might need to look at them as they may well be out of date at the end of the month.
I've emailed our investor relations team just now to ask to replace mine.
Those that use theirs might need to see if you're needs doing.
Just a thought.
Appleby, I agree that cutting the dividend or even suspending it would be good to pay down debt and that is always a good option to have. They are acquiring assets and covering the payout. If the assets are generating growth then I think the current strategy should be kept.
I think we are forgetting the current MC. imo those accumulated assets together with the core business are way undervalued and the 5 year trend should reverse.
Your probably right and I am wrong , just the share price over last 3 years keeps dropping 20-30p pa , so looking forward 2 years at the current rate of loss ,this is 60p a share but that's ok because you got 16p in divvy . What if the general economy has a shake. Change of policy needed.
As long as the debt is affordable and the dividend is covered what is the problem. Sales up, company acquiring assets I cannot see why share price is falling. OK it is not going to rocket but upwards slow and steady surely.
Surely if the board stopped the divvy for 2 years, then paid a chunk off the debt mountain , the outcome would be a better, stronger company . If they are not bold the 5 year share chart shows the direction of travel . Not pleasant but needs doing .
Happy with that.
I agree with you, we just sit and take the divi and, rather like Micawber, wait for something to turn up !
Which I suspect will happen, I just wish they could go 2 years without buying anything and concentrate on lowering their debt a bit.....
I call that a good report. Just customers need to go out for dinner more + intrest rates are a thorn in EVERYBODY'S life
As expected, stronger growth in the last few months. Profit slightly up but margin slightly lower. Yield investment for me so happy to hold.
Not bad update, city will not like the margin dropping 0.5 % .
Marston’s has confirmed that trading at the operating profit line is broadly in line with expectations but PBT estimates will be pulled back a little.
• The World Cup and the warm weather have been, overall, helpful. But margins have fallen a shade and interest costs have risen. Drink has performed well but food sales were impacted earlier in the year by hot weather and by the World Cup (and earlier still by the Beast from the East).
• What remains clear is clear that the balanced model has smoothed trading for Marston’s given the swing in trading performance (food has been tough and wet sales have been strong.)
• Marston’s shares trade on a PER of little more than 7x with a yield of around 7.5% and rising. The shares appear cheap as the group, which has an attractive, well-managed and well-maintained estate of largely freehold properties, is selling product that the consumer would like to buy at a price they are prepared to pay.
• Lodges, craft brewing and food (in the longer term) remain growth areas. Marston’s is a major brewer and has a large wet-led element to its estate and is well-placed to grow and to create further value for its shareholders.
Have a few bottles of the Wychwood breweries Dunkel Fester on special at Aldi , what a disturbingly favour some beer , worth buying the shares for this product alone .
Villagreg, these are my expectations:
In Destination and Premium, like-for-like sales were 0.8% below last year.
In Taverns, like-for-like sales were 3.5% above last year.
Total managed and franchised pub sales were up 5%
Brewing up around 50% with good growth in the underlying business.
On pubs and lodges, I expect some of the 15 pubs planned for the year will miss the financial year end.
But that's all revenue. I'll be mostly interested in what they have to say about margins. At best I'm expecting slightly down on last year. If there's anything market moving I'd expect it to be centred on cost/margin commentary.
On pubs and lodges, I expect some of the 15 pubs planned for the year will miss the financial year end.
Thanks for the info.
I'm not 100% upto speed with their business but living within 10 miles of Burton on Trent Im very familiar with the product and the amount of properties they still directly own.
I'll look back at RNS 2017 etc and see what breakfast time tomorrow brings. Thanks londoner
Villagreg, companies tend to follow the format of previous years so take a look at last year's year end trading update. An update on trading was given at the 42 week stage. Peers have reported over the more recent period and if you're familiar with MARS business and last years comparisons you'll have a good idea what to expect for the last 10 weeks.
Put it all together and you should have a good idea of what to expect in tomorrow's update, and be prepared to react to something better or worse than your expectations. The RNS will be at 7am so you'll have an hour to digest the news before the market opens.
Villagreg, it's tomorrow. Should be an RNS at 8am. What's it likely to say. Good question?