RE: RE: CMA Decision8 Oct 2020 09:51
Astute Investors are aware of the significant headwind the whole hospitailty sector is facing, not just Marstons but each and every Beer House, Motel chain, just read their recent reports. Some are more resilient than others due to low debt levels, foresight to raise funds earlier this year. MAB, Whitbread and Fullers are well placed to pick up distressed pub/motel outlets.
Just over a year ago it was clear MARS debt pile was becoming a concern, hence a virtual fire sale of PUBS to Admiral at a significant discount to Book value. If as seems likely the price Admiral payed was regarded as fair-value, what impact does that have on the Valuation of the retained properties? It is well known Commercial Properties are being re-valued downwards. Against this background it is reasonable to believe our estate is not worth what is currently stated within the accounts. By his very actions RF clearly accepts, otherwise he could be culpable of poor management.
Faced with an unmanageable debt level , clearly the arrival/approach from Carlsberg last November was a God-send, it offered some relief to an over-borrowed position. The JV agreement was thrashed out before the impact of COVID, which has changed the whole hospitality landscape.
It is an illusion to believe the actions of one and probably other, competitors, will add greatly to the benefit of others. It may have a minimal effect which will be spread across other providers not just MARS.
Speculation that the JV and other events stated, will enable MARS to increase staffing levels is pi in the sky. The very purpose of this and any JV agreement is to reduce costs, basically Human resources, which ultimately produces bigger margins.
The JV should be analysed in conjunction with the historic validated numbers and projected returns into the future.
In essence in return for £273m, in total, Marstons and Carlsberg will combine their various Breweries and Distribution facilties in a New Company CMBC ( Carlsberg Marstons Brewing Company). Marstons will retain it s Pubs and Motels.
Marstons will have a 40% share in CMBC, generated profits will be distributed pro rata. Have done the calculations previously and to retain the status quo, profits made by CMBC will need to grow by 22% in the 1st 5 years of the Agreement, for Marstons to just standstill on known values. Marstons Brewery profit growth has never exceeded 3%pa
Marstons intention is to pay down debt with the receipt from Carlsberg. The company then intends to focus on providing operational excellence within the pub and accommodation business ( retained assets). The company intended to spend £90m in the current year on capital items ( enhancements, new build ). The funding of a programme forwards is yet to be fleshed out, it is difficult to see it coming from profits........shareholders could be waiting some time for a return to the dividend list.
Currently the SP is under-pinned by the last published NAV , likely to be downgraded.
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