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I think the market is pricing in the possibility of the company becoming insolvent within 1 year because its current liabilities is far greater than its current assets. let's reassess the company's solvency picture:
Total Current Assets: £773.7 million.
Additional Resources (excluding unrestricted cash and cash equivalents):
Undrawn Revolving Credit Facility (RCF): £243.0 million.
US Private Placement Loan Notes: £101.9 million.
Total of Additional Resources = £344.9 million.
Combined Total of Current Assets and Additional Resources:
£773.7 million (Current Assets) + £344.9 million (Additional Resources) = £1,118.6 million.
Total Current Liabilities: £1,441.6 million.
Deferred Income: £606.3 million (pre-payment from customers, no need to pay back as long as the company can continue to operate normally and deliver its contract obligations)
Adjusted Total Current Liabilities (excluding Deferred Income):
£1,441.6 million - £606.3 million = £835.3 million.
Solvency Assessment:
The combined total of current assets and additional resources is £1,118.6 million.
This amount is greater than the adjusted total current liabilities of £835.3 million.
Conclusion:
If the company can operate normally and fulfil its contractual obligations (thereby not necessitating immediate payment of the deferred income), it appears to have sufficient resources and assets to cover its adjusted current liabilities. This suggests a positive short-term solvency position, indicating that the company is capable of meeting its immediate and near-term financial obligations.
For FY2024, if the company can keep the margin of 2023H2 and no more one-off items like the "the final settlement following a transitional services agreement with CMBC", we can expect a decent Cash In-flow of £40m to £50m, but the market capitalisation is only £189m, so means the company can earn that money in less than 4 years. Don't forget the net value of pub properties is over £600m ( after loan). You are basically buying the pub properties at less than 1/3 of their net worth plus the pubs will make enough money to buy you another Marstons. Unbelievable bargain!
Now we have the annual result, we know what happened to the £24m (i.e. £55m-£31m): it was mainly used to pay suppliers, so you can see from the Balance Sheet that "Trade and other payables" reduced to £170.4m from £204.4m. From the notes, I guess this might be "the final settlement following a transitional services agreement with CMBC".
Investors are worried with this fact: Asset disposal £55m but debt only reduced by £31m , does this mean the company will have to dispose more properties to get the debt down? The management could have explained this much clearer, for example what happened to the £24m (i.e. £55m-£31m)? I think the most plausible answer is the money is added to the cash, and it is a sensible move at this environment, why rush to pay down the debt if it is not mature yet?
I have been buying Mars in the past 3 months and will continue to buy more.
Here is a simple math:
Gross Property value: £2.111 billion
minus:
Long-term borrowing £ 1.561 billion
Net Property Value: £0.55 billion
But the current company valuation (@ 31p/share) is only £0.197 billion, so you are paying only ~ 1/3 of the net property value, this is remarkably crazy low price. Even if the management has been a bit optimistic, it is still a bargain.
On top of the unbelievable discount on the property value, the company can generate over £60m free cash flow, so in roughly 3 years, the company will double your investment!
I don't understand why there are investors who are willing to buy those Marston's pub properties at 25% over book value, the more sensible way is to buy the Marston shares which can effectively own the Marston pub properties at 1/3 of its net value.
Disclosure: I have been buying Marston for the past 6 months.