Charles Jillings, CEO of Utilico, energized by strong economic momentum across Latin America. Watch the video here.
Interesting seeing comments on all sorts of shares I hold, but never on this. Steady growth in profits and dividends - obviously boring!
Annual results from Marston's (MARS) were released less than three weeks after the pub operator confirmed that chief executive Andrew Andrea would stand down with immediate effect. Justin Platt, the former Merlin Entertainments chief strategy officer who will take the reins in January, has a significant task on his hands to rejuvenate the share price, which is stuck far below pre-pandemic levels.
Like-for-like (LFL) sales rose 10.1 per cent against last year, with food and drink spend rising by 8.1 per cent and 8.6 per cent respectively. Momentum slowed after the year-end, with LFL sales up 7.4 per cent, although management flagged that Christmas bookings are ahead of last year.
Elsewhere, income from the company's joint venture with Carlsberg (DK:CARL.B) tripled to £9.9mn.
Despite revenue growth getting the company closer to returning to £1bn in annual sales, it fell into the red as £21.6mn of losses on interest rate swap movements and £31.2mn of property impairment charges dragged it down.
Looking ahead to the medium term, management is targeting a 200 basis point uplift in margin. The underlying profit margin was flat in the year at 14.3 per cent, on increased operating profits of £125mn.
Analysts at Peel Hunt argued that the 9.8 per cent increase in the national living wage, which is coming in April, "should be mitigated by adjusting prices from one of the lowest price points in the sector and the acceleration of the cost efficiency programme".
The valuation is cheap, with the shares trading hands at just four times forward consensus earnings. But as we have noted before, the hefty discount to net asset value could also highlight justified market disinterest. Hold.
Last IC view: Hold, 35p, 16 May 2023
I am not in the same league as many commentators on here but I do have the advantage of age: I have commented previously on here about the effect of inflation on debt and how inflation erodes debt. I lived through 25% inflation in the 1970's, and saw how a house would be sold for the same nominal value as a year previously, but in reality was 25% cheaper.
First, this company is not trading at a loss and there is no reason why it should not continue to increase sales short of another epidemic or everyone suddenly becoming teetotal. Therefore the key financial points are revenue, debt and net assets. On net assets this company is worth three times more than the shares are presently worth, and my reckoning is that the valuation of the estate is probably an underestimate. Pubs tend to be large buildings and with large car parks, and while I personally hate to see a watering hole closed and its premises converted to flats and development, as an investor this is a reassuring thing. A share worth less than 1/3rd of a companies asset is a no brainer to hold.
On debt, the high inflation rate of 10% in the last year has seen this eroded in real terms by some 10%. The repayment of loans seems low, at about 30 million, but inflation has seen it eroded by far more.
Take the 22 and 23 figures. 2022 Debt 1560 million, 2023 debt 1529 million. Revenue 2022 799 million 2023 872 million.
The ratio of debt to revenue for 2022 is 1.95. In 2023 the figure is 1.75, with only a token reduction in actual debt. This is against a background of an increasing financial squeeze on Consumers.
Like many I cannot understand why this share price is fatally wounded by good news, but despite my age I really do understand that long term means long term. My timing for my initial tranche was perfect - about a month before the first lockdown. I am not an idiot but I am happy to act as a consultant in share recommendations: Whenever I buy a share, despite my research, the price falls out of the sky. Marston's may well be better managed than it is now, but I am prepared to wait.
I had a huge commercial mortgage with Aviva but ran into problems following a severe car accident. I have a large shareholding in Aviva: The Reason? Any company that can treat its customers with complete contempt and can get away with it must be hugely profitable.
Hugely successful results and the shares go down. Yoof - buy. Us Oldies hold on. This is a really good company.
Interesting how there are never any comments on this share. Pretty impressive growth over a long period of time both in turnover and profits. Is this because it is not a speculative stock or considered boring by commentators?
Inflation of ten percent is a reduction of debt of ten percent in real terms.
Inflation of 10% in the last year effectively reduces the debt by 10%, a lot more than the company is repaying.
I am of an age where almost everyone I see or meet is younger than me but by way of recompense I have seen it all before. The good news from Marston's today seems to have been greeted outside this chat board with a monumental yawn, but I am certain the negatives about Marston's will be blown away soon.
Having lived through a period of high inflation for some 25 years, it was obvious that inflation was the debtor's friend and the saver's enemy. There is much concern about Marston's debts, which I can see from the annual report YE 2022 reports borrowings at 1.56 billion against revenue of 799 million. The ratio of debt to revenue is 1.95 debt to 1 revenue. Using todays figures, that ratio is already down to 1.72. On a modest case base, assume a 7% growth per annum in revenues and an annual 31 million payback of debts (echoing the figures today) the ratio is down to one by the end of 2028. Assuming a slightly more optimistic scenario, assuming a growth in revenues of 10% a year and repayments of debts of 50 million a year and ratio of 1 is reached about a year earlier.
The growth in revenue may be much higher in times of high inflation, and the company may decide to increase repayments, but while my parameters may not be the best choice the principle is sound. I bought this lot just before covid struck so while I will have to be in it for the long term, it is also wise for anyone else to be patient!
The company has to pay the annual interest on its loans without fail or the banks will become tricky. As long as the interest is paid, then inflation will erode the real size of the debt. Companies can also claim tax relief on interest but not on capital repayment so nibbling away at the debt makes sense. Repaying 50 mil each year and ten percent inflation is going to see this debt as a fraction of value and turnover fall quite significantly.
I have posted previously on the debt issue. Marstons is nibbling away at its debts, but the real reduction is coming about in the effect of inflation. With 10 % inflation over a year a billion pound debt is reduced by 100 million in real terms. 6% interest on a fixed rate secured loan seems pretty steep but then there is tax relief on the interest. We have had 10 percent inflation in the last year, assuming 5 % this year and (an unlikely optimistic) 2% and a 50 million repayment per annum and over seven years the actual real debt is about 430 million, and if sales increase in value by the rate of inflation then the debt ratio becomes even smaller. Inflation is the debtors friend and the savers enemy, something my generation have experienced but perhaps not many of the commentators here.
There was a lengthy interview with the Centamin boss some years ago in either the Times or the Torygraph when he explained the choice of Sukara. It seems there were a number of options in Egypt available to the company, but Sukara was the closest to water. Does anyone in the know have information on these other options? I suspect they were shelved as uneconomic.
I am old enough to remember the high inflation of the 1970's and frankly, inflation at 10% is doing the reduction in debt for the company. By all means nibble away at it by paying off 50 million a year but in real terms the debt has fallen by 100 million in real terms compared to a year ago. As a relative late comer to the investment scene, I always wondered why so many companies tolerated high debt levels, but of course there is tax relief on debt interest which makes things look different.
The high pound was a good reason for Europeans to work in the UK as it meant your wages could be sent home as major savings in your country of origin. The other reason is that the main EU population in the UK was Polish, and the Polish economy is doing very nicely, thank you.