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Marston’s Q3 trading update puts it on track to meet profit expectations and reoccurring FCF targets. LFL sales growth accelerated from 1.3% in 1H25 to 2.9% in 3Q25 despite tough comparisons given the Euro 2024 Championships, with a further acceleration expected in 4Q25E. Strategic initiatives are also delivering strong margin improvements which, combined with unchanged capex guidance, puts it on track to reach its goal of generating reoccurring FCF of >£50m pa. We leave our PBT forecast of £64.6m unchanged. The stock remains attractive on many measures, trading on 7.3x EV/EBITDA, 5.6x PE, 16.6% FCF yield for CY25E and 60% discount to NAV of 107p. Reiterate BUY.
Marston's PLC
Solid profit delivery despite mixed LFLs MARS has reported its Q3 FY25 trading (15 weeks to 12 July) with LFL sales +2.9% (+2.0% 41 week ytd) – Q3 LFL sales were +4.0% excluding England Euro 2024 matchdays. This follows +10.5% LFL sales in the 1st 5 weeks of H2, benefitting from Easter timing (+2.9% LFL 31 week), which implies c.+1% LFL in the last 10 weeks, following +0.7% in Q2. Given strong results on margin delivery, management are “confident” in delivering FY PBT in line with market expectations (£67.3m company consensus) and we don’t expect material changes to numbers today. Outlook unchanged For FY25, consensus expects £920m sales, £154m adj EBIT, £66.9m adj PBT and 7.9p adj EPS. We model +2.8% LFL sales to £917m, +8% adj EBIT to £159m, +64% adj PBT to £69.2m and +55% adj EPS to 7.8p. Our View MARS shares are flat ytd, leaving it trading on 5.5x/4.8x cal.25/26 P/E and 7.3x/6.8x EV/EBITDA. While it looks value on a P/E basis vs. the sector on 12x/11x respectively, it is more fairly valued on EV/EBITDA vs. the sector on 7.0x/6.5x reflecting its higher leverage >6.0x ND/EBITDA (albeit with minimal liquidity/refinancing risk). Though LFLs continue to lag those of other listed peers (JDW, FSTA, YNGA), management’s focus on profit/margin and cash delivery is clearly coming through to support estimates and ultimately, de-leverage.
Marston's^ (MARS, Buy at 44p) - Solid Q3 with FY unchanged. Continuing to execute but not reflected in the valuation
We believe Marston’s is trading ahead at the PBT level. Efficiencies have fully offset labour cost increases in 2H (even though the labour scheduling roll out is not yet complete). This should enable EBITDA growth in 2H, whereas our consensus-in-line EBITDA forecast allows for a £4m decline.
Marston's^ (MARS, Buy at 42p) - Now looking at a glass at least half full
Solid earnings delivery despite subdued LFLs We update our MARS model following its H1 FY25 results. Despite modest LFLs over the 6 months (+1.3% yoy; Q1 +1.9%, Q2 +0.7%), profit delivery was robust with adj EBIT +20% to £63.3m (margin +250bp to 14.8%), driving £19m adj PBT. While labour costs have increased since April, LFLs have accelerated, helped by weather and Easter phasing. For FY25, we increase PBT by 2% to £69.2m on +2.8% LFL and +100bp EBIT margin expansion to drive adj EPS 7.8p, +55% yoy. Self-help and investment-driven estate progress A lot of the margin and profit levers are unique to MARS in the short-term, reflecting its accelerating investments behind its estate (capex to be c.£60m vs. £46m yoy) and digital initiatives (updated labour-saving tool, new consumer ordering App). Of the 30 conversions planned for FY25 (each at an average cost of c.£250k), c.20 will be under the “2-Room” format which combines family dining with a more traditional drink-led area, broadening the customer catchment. While it is still early, of the 18 pubs converted so far, feedback has been very positive (reputation scores >850 vs. total estate at 800) and the venues have seen a 33% underlying revenue uplift on average. Future capex requirements will be fine-tuned once management get better visibility on returns from these initial investments. Few evident re-rating catalysts Shares are -8% ytd and leaves MARS trading on 5x cal.25 P/E and 7.2x EV/EBITDA – this is a substantial P/E discount to the sector (12x) but is broadly in-line on EBITDA. While the underlying cash generation is sustainably improving, leverage in absolute terms remains elevated with few evident catalysts at this point to accelerate the deleverage trajectory and with a refinancing of the capital structure unlikely for the mid-term (existing structure starts to mature post 2030).
Interims show strategic progress with accelerating LFL sales and impressive margin expansion. Momentum should be sustained in 2H25E with the roll out of more demand driving events, improving customer satisfaction and further data and technology-led improvements. We hold our PBT forecasts for £64.6m in FY25E and £75.8m in FY26E, mindful of the 2H25E step up in labour cost, but believe there are mounting grounds for margin upgrades. Meanwhile leverage has fallen to 4.9x net debt/EBITDA (ex- leases) and NAV has risen to 107p per share. The current CY25E EV/EBITDA and PE multiples of 7.2x (6.2x pre IFRS) and 5.4x respectively are attractive for an asset backed business that is growing and deleveraging. We reiterate BUY and TP of 80p (unchanged)
Significant Q3 pick up with +10.5% LFL; ytd +2.9% For H1, MARS delivered +1.3% LFL sales to £427m, +20% adj EBIT to £63.3m (margin +250bp yoy), £19m adj PBT (vs. £-0.2m yoy) and continuing adj EPS of 2.2p (vs. 0p yoy). Following +2.0% LFL sales for the 16 weeks to 18 January, LFLs over the 26 weeks of H1 were just +1.3%. However, over the last 5 weeks to 3 May, LFL sales were +10.5% boosted by a later Easter and good weather, bringing 31 week LFLs to +2.9%. Given the strong profit start to the year, management are confident of achieving consensus PBT of £66.8m for FY25 (GBY: £67.7m) with FCF heading towards c.£50m per annum (H1: £6m) as per the recent CMD ambitions. Outlook maintained For FY25, we currently model +2.8% LFL sales to £927m, +7% adj EBIT to £158m and +53% continuing adj EPS to 7.7p. VA consensus currently models +3.1% LFL sales to £924m, £153.6m adj EBIT and 7.7p adj EPS. Our view MARS shares are -6% ytd – this leaves MARS trading on 5.1x cal.25 P/E and 7.2x EV/EBITDA vs. UK Hospitality on 11.7x/7.0x respectively. Despite the softer sales delivery in H1, margin expansion was very encouraging, ahead of the further labour cost increases from Apr-25. The pick-up in sales and volumes in recent weeks provides a very encouraging backdrop for H2/FY earnings momentum. While we do not expect consensus to move much today, there is upside potential to estimates should the more favourable external weather/UK consumer backdrop continue.
Marston's^ (MARS, Buy at 41p) - H1 comfortably above forecast, strong start to H2
1H PBT outperformance was primarily driven by operational efficiencies. These gains have fully offset higher labour costs in 2H, and with further profit initiatives underway, the recent acceleration in LFL sales points to EBITDA growth in 2H. We believe further forecast upgrades are likely, and view the current 6.2x EV/EBITDA (IAS 17) as an attractive entry point. NAV stands at 107p/share. We maintain our 75p TP and Buy rating.
Marston's^ (MARS, Buy at 39p) - H1 preview; strong progress expected
A solid Q1 update (16 weeks to 18 January 2025), with total sales growth of +3.0% and LFL sales growth of +2.0%. This includes very strong festive trading (+11.1%) bookended by poor weather conditions. We leave our FY25E assumption of 4% LFL sales growth and PBT of £64.6m unchanged which builds in gathering momentum in H2 when comps ease and commercial initiatives take hold. Meanwhile, the valuation remains undemanding on 7.2x EV/EBITDA and FCF yield of 17.2% for CY25E and c. 60% discount to NAV of 102p. Reiterate BUY
Marston's^ (MARS, Buy at 42p) - Strong Xmas and continued confidence in delivering FY25F; forecasts maintained
We expect LFL sales to be 2H-weighted, due in part to softer comps (1H 7.3%; 2H 3.1%) and the many initiatives management announced at the CMD. The 6.2x EV/EBITDA (IAS 17) for an 83% freehold estate represents significant long-term value, in our view. The NAV is 103p/share.
Marston's^ (MARS, Buy at 39p) - FY24A slightly above estimates, forecasts maintained and NAV above 100p
In our view, the shares had priced in Budget forecast downgrades, but these extra costs can be accommodated within current forecasts. The resulting 6.2x EV/EBITDA (IAS 17) for an 83% freehold estate represents significant long-term value, in our view. The NAV is 103p/share. We reiterate Buy, TP 75p.
Marston’s prelims came in ahead of our expectations at the pub operating level and we hold FY25E forecasts despite a £4.6m unexpected impact from the UK Budget changes to NIC. CMD targets of 200-300bps margin improvement and >£50m pa of recurring FCF remain intact providing significant forecast and valuation upside if executed effectively. So far, the evidence is looking good with continued LFL sales growth outperformance, an improvement in guest Reputation score and pilot two-room pubs demonstrating encouraging results. The stock looks undervalued on 7.2x CY25E EV/EBITDA and FCF of 17.8%. BUY.
Down 13% over the last month, we believe the shares have priced in Budget forecast cuts, but we estimate that these extra costs can be accommodated within current forecasts. The resultant 7.1x EV/EBITDA (IAS 17) offers significant long-term value, in our view. We reiterate Buy, TP 75p.
Marston's^ (MARS, Buy at 37p) - Wrong share count...but the other way?
Marston’s investment case hinges on its ability to generate sustainable and reliable operating FCF, removing its reliance on asset disposals to fund capex and debt amortisation. Recent results show progress in this regard, with its subsequent CMD setting out targets for EBITDA margin expansion of 200-300bps and >£50m pa of recurring FCF, equivalent to a FCF yield of 19%. This will require targeted investment to align the estate under five ‘formats’ which, if executed effectively, should lead to significant forecast and valuation upside. We reiterate BUY and increase our TP to 80p (from 70p).
Marston's^ (MARS, Buy at 42p) - CMD to outline growth and cash flow
An encouraging update with good momentum as it closes out a transformational year that has seen a change in management, full exit from brewing, simplification of the business and meeting the milestone of bringing net debt below £1bn. FY24E PBT is expected to be in line with expectations and we leave our forecast of £40.2m unchanged (ex CMBC JV). Meanwhile net debt (ex-leases) is expected to come in c. £20m lower than expected at £885m. There is scope for further operational levers to drive improved cash generation which we expect to hear more about at its investor day on 16 October. Meanwhile, despite a strong run, the shares remain attractive on CY24E EV/EBITDA of 7.6x and we reiterate BUY.
FY24 PBT expected in-line, no changes to FY25 Marston’s has issued a pre-close FY24 trading statement confirming LFL sales +3.8% in the 13 weeks ending 28 September (FY +4.8% LFL, +5.8% total). With a focus on cost efficiencies, Pub profit is expected to come in-line with market expectations (£40.5m underlying PBT, excluding JV contribution – GBYe £40.8m). Food outperformed during Q4 which management see as a positive indicator for the festive season, though we don’t expect any changes to forecasts just yet (FY25 GBYe PBT £67m). With the proceeds from the Carlsberg Marston’s Brewing Company JV sale and strong underlying de-leverage, net debt (pre-leases) is expected to come in at c.£885m (GBYe £935m), c.5x EBITDA and down c.£300m yoy. Further detail on the long-term strategy will be outlined at the CMD on 16 October with FY24 results on 3 December. Accelerated deleverage can drive re-rating This is another reassuring update from the UK Hospitality sector following recent fears on demand due to unfavourable weather and potentially softening consumer confidence ahead of the upcoming Budget. The key highlight today from the MARS perspective was the accelerated organic deleverage with the underlying balance sheet now in the best position for over a decade. On our forecasts, MARS trades on 5.1x cal.25 P/E and 7.2x EV/EBITDA, a notable P/E discount to the sector on 13.4x/7.1x respectively. As deleverage continues to come through, we would expect to see the P/E discount to the sector to close. No conference call
Marston's^ (MARS, Buy at 43p) - FY in line; cash generation stronger
From a valuation of just 7.2x 2024E EV/EBITDA (IAS 17), vs an historic average of 9.7x, we forecast net debt reduction/EBITDA growth should add 56% to equity value over the next two years, before any re-rating. We expect the 16 October CMD to provide a positive catalyst with a roadmap for net debt reduction and EBITDA growth. Reiterate Buy, TP 75p.
We are adjusting our FY24E forecasts to account for the early completion of the CMBC disposal. Simultaneously, we are nudging up our pub EBIT estimates by 4% to £144.2m due to stronger margin progression. There remains scope for further operational improvements, which alongside falling debt should enhance the equity case. An investor day in mid-October could be a key catalyst. Meanwhile, the shares remain attractive on EV/EBITDA of 7.6x for CY24E. Reiterate BUY with an increased TP of 70p (from 65p) based on 9.0x pubs EBITDA for FY24E.
Following the CMBC disposal, Marston’s trades on 6.8x EV/EBITDA (IAS 17), based on 2025E forecasts that assume minimal operational progress. The autumn CMD should provide the foundations for greater EBITDA growth, which – combined with ongoing debt reduction – could result in the equity value doubling over the next two years, in our view.
Marston's^ (MARS, Buy at 40p) - Destiny in its own hands
Marston’s Q3 trading update puts it on track to meet expectations with an earlier completion of the CMBC disposal adding clarity and reducing debt. YTD LFL sales growth now stands at 5.2%. We are confident in our full year assumption of 5.0% growth for the full year, with softer comps heading into Q4. Importantly, the £206m disposal proceeds puts pro forma net debt at £959m and brings the equity case back into focus. The shares remain attractive on CY24E EV/EBITDA of 7.3x and PE of 5.4x. BUY
Softer 16 week trading; Pub EBIT outlook unchanged Marston’s has reported +2.4% LFL sales growth for the 16 weeks to 20 July (+5.2% ytd LFL, total sales +6.2%). This compares to +4.0% LFLs in the 1st 6 weeks of the period and is on a tough weather-boosted +10.9% comp. Strategically, MARS is accelerating the sale of its Brewing JV, with the £206m gross proceeds (and de-leverage), now expected by the end of July. The loss of the 2 months of JV trading will weigh on FY24 EPS (c.10%) but we expect no changes to underlying Pub EBIT delivery, nor importantly for overall FY25 and beyond momentum. Outlook unchanged, ex-JV ”The trading momentum seen year-to-date provides the Board with confidence that, adjusting for the impact of CMBC, performance will be in line with market expectations.” For FY24, VA consensus expects +5.7% LFL sales to £900.6m, £53.9m adj PBT and 6.8p adj EPS. We model +6.4% LFL sales to £901m, Pub EBIT +19% to £149m, adj PBT +51% to £54.9m (with a £14m FY Brewing JV contribution) and +30% adj EPS to 6.7p. Our view Shares are +13% ytd leaving MARS trading on 5.3x/4.4x cal. 2024/25 P/E and 7.9x/7.1x EV/EBITDA. Short term trading remains volatile on unfavourable weather, but the reiteration of Pub EBIT outlook is reassuring. The upcoming sale of MARS’ 40% holding in the CMBC Beer business for a net £202m (with the company still guiding to run-rate c.£18m in financial cost reduction from FY25) accelerates deleverage to below £1bn. It also simplifies the overall investment case ahead of a H2 CMD which will outline management’s strategy to elevate the in-Pub customer experience to drive LFL growth into the mid-term.
Marston's^ (MARS, Buy at 38p) - Resilient underlying trading (despite the weather); forecasts maintained
Post CMBC disposal, we forecast net debt of £815m in 2025E, vs £163m of EBITDA (IAS 17), implying an EV/EBITDA (IAS 17) of just 6.7x, comprising equity/EBITDA of just 1.5x and net debt/EBITDA of 5.2x. The historic average EV/EBITDA is 9.7x. We forecast the continuing business (pubs) consistently growing EBITDA and reducing net debt into the future.
The new Listing Rules have lifted the shareholder approval requirement, removing our restriction and enabling the transaction to complete sooner. Post-transaction, we forecast net debt of £847m in 2025E, vs £163m of EBITDA (IAS 17), with net debt/EBITDA (IAS 17) falling by 1.2x to 5.2x. 2025E EV/EBITDA (IAS 17) would be just 6.5x vs a 9.7x historic average. We reiterate Buy, TP 75p.
Marston’s £206m cash disposal of its remaining stake in CMBC is a positive strategic move for multiple reasons; 1) attractive valuation of 14.5x EV/EBITDA vs Carlsberg/Britvic deal 13.6x; 2) accelerates deleveraging bringing pro forma net debt to <£1bn ex leases, 3) broadly earnings neutral and 4) refocuses as pure play pub operator. Importantly this should improve visibility and transfer value back to shareholders. Reiterate BUY with stock trading on CY24E EV/EBITDA of 7.3x and PE 5.0x.
Britvic Carlsberg and Britvic agree on terms Marston's Marston’s agrees to sell remaining 40% CMBC stake Economic view Political and policy statement likely in France ITM Power POSITIVE - 500MW (~£200m) Capacity Reserved to 2028
MARS ITM BTVCF
Attractive deal will enable Marston’s material delever balance sheet Marston’s announced this morning that it has signed a binding agreement to dispose of its remaining 40% interest in Carlsberg Marston’s (CMBC) to Carlsberg for £206m (£202m net proceeds). The disposal will see Marston’s become a pure-play pub operator and, importantly, the proceeds will enable the Group to significantly pay down debt and achieve its medium-term target of <£1bn net debt well ahead of time. The Group anticipates its overall interest expense will fall by c.£18m annually vs current expectations. The transaction is expected to be accretive to EPS once these interest cost savings are taken into account. Disposal timing and distribution agreement maintained The disposal is targeted to complete by the end of September and, importantly, is not dependent on the proposal to acquire Britvic which was also announced this morning. CMBC will continue to supply Marston’s via the long-term brand distribution agreement the Groups entered upon the JV formation in 2020. Goodbody view This is a compelling transaction for Marston’s, valuing the JV at 14.5x cal.23 EV/EBITDA with the realised value representing over 100% of its current market cap (£197m). It will enable the Group to pay down net debt which will fall to <£959m (c.5.5x net debt/EBITDA) once the transaction completes and in turn drives significant interest cost savings and deliver EPS accretion. Importantly, the lower level of leverage will enable management to focus on executing against the growth opportunities within the pub portfolio.
Marston's^ (MARS, Buy at 31p) - Disposal of 40% in CMBC
Marston's^ (MARS, Buy at 37p) - More than a glass half full
Encouraging first half with LFL growth of 7.3%, ahead of the market, as its simplified model translates into a better customer experience. Importantly, Marston’s has improved operating margin by 170bps and reduced debt with more to come in the second half. While the new CEO has yet to unveil his key priorities, what is clear is that any future strategy will focus on sustained free cash flow generation. A CMD is planned for autumn. Meanwhile, it remains comfortably on course to meet our full year forecasts (unchanged). Reiterate BUY.
Marston's^ (MARS, Buy at 34p) - Interim resuts
On an IAS 17 basis, over the next two years we forecast 19% EBITDA growth and £138m net debt reduction, which equates to 64% of the market cap. The latest NAV is 95p/share, yet disposals continue to occur at or above book value. Our 75p target price equates to a 2025E EV/EBITDA (IAS 17) multiple of 8.3x, still well below the 9.7x historical average.
Loungers^ (LGRS, Buy at 220p) - Industry data beckons upside risk for H2
Marston's PLC Loungers Plc
An encouraging Q1 update (16 weeks to 20 January), with strong LFL sales of +8.1%, ahead of the market. The outlook is improving with inflationary headwinds abating and actions being taken to rebuild margins. We leave our forecast for Adj PBT (incl JV) of £55.2m in FY24E and £65.8m in FY25E unchanged but note scope for further operational improvements to accelerate deleveraging and rebuild the equity case. Additionally, the new CEO is now in place, which should be a catalyst for investor reappraisal. Meanwhile, valuation remains undemanding on 7.0x EV/EBITDA when adjusted for CMBC, and a 67% discount to NAV of 101p. Reiterate BUY
Initial Equity Trading Comments - 23 January 2024
MARS DEBS ROO DSCV WPP FIN PFD GPE SNUYF
Marston's^ (MARS, Buy at 33p) - Robust December trading, tracking above full year assumptions
On an IAS 17 basis, over the next two years we forecast £136m of debt reduction, which equates to 65% of the market cap, and 19% EBITDA growth. The latest NAV is 101p/share, yet 2023’s disposals occurred at a premium to book value. Our 75p target price equates to a 2025E EV/EBITDA (IAS 17) multiple of 8.3x, below the 9.7x historical average.
Marston’s prelims came in c.£10m lighter than our top of the range forecasts, with a pub operating margin of 14.3% (vs 15.1% expected), giving Adj. PBT of £35.5m. We adjust forecasts for the lower starting point but give credit for 90bps margin enhancement already in the bag to give Adj. PBT of £55.2m in FY24E. With our forecasts now more prudently set, the arrival of a new CEO could be a catalyst for reappraisal, operational enhancements and accelerated deleverage. We move our TP to 65p (from 75p) and believe the valuation remains undemanding on 7.8x EV/EBITDA when adjusted for CMBC, and a 70% discount to NAV of 101p. Retain BUY.
Marston's^ (MARS, Buy at 31p) - FY23A results in line; continued strong trading
On an IAS 17 basis, over the next two years we forecast £136m of debt reduction, which equates to 70% of the market cap, and 19% EBITDA growth. The latest NAV is 101p/share, yet 2023 disposals occurred at a premium to book value. Our 75p target price equates to a 2025E EV/EBITDA (IAS 17) of 8.3x, below the 9.7x historical average.
Marston's^ (MARS, Buy at 33p) - Appointment of new CEO
Marston's^ (MARS, Buy at 29p) - PER of 4x ignores asset optionality
Marston’s year-end update showed continued progress with strong demand, an improving cost outlook and net debt reduction ongoing. LFL sales accelerated to 12% over the last 5 weeks, with food and drink strong, giving momentum into FY24E. The company unveiled new targets to improve pub operating margin by 200bps over the next 2-3 years, with 50bps/£5m already in the bag from HQ savings. We leave FY23E unchanged, but adjust our FY24E and FY25E PBT by 8%, with further scope for upgrades as new efficiency initiatives take hold. Our 75p price target compares to a NAV of 98p, with recent disposals achieved above book, and we expect two-year debt reduction of £115m to transfer further value to shareholders. BUY.
Marston's^ (MARS, Buy at 29p) - FY update: Momentum, cost efficiencies and upgrades
On an IAS 17 basis, over the next two years we forecast over £100m of debt reduction, which equates to 60% of the market cap, and 16% EBITDA growth. The last reported NAV was 98p/share, yet 1H’s disposals occurred at 39% above their NAV. Our 75p target price equates to a 2025E EV/EBITDA (IAS 17) multiple of 8.5x, below the 9.7x historical average.
Marston’s Q3 trading update showed consistently strong LFL sales growth of +10.7% YTD, sustaining the H1 level despite comparatives toughening. This puts the run rate YTD ahead of the sector, and ahead of expectations. We make some minor tweaks to our model but hold back on upgrades given that the weather has deteriorated during July. We expect the shares to be driven upwards by ongoing operational improvement, capex optimisation and steady deleveraging of £50-60m pa this year and next. Our 75p price target compares to a NAV of 98p, with recent disposals above book. Reiterate BUY.
Marston's^ (MARS, Buy at 33p) - Continued momentum; building debt to equity transfer
This year’s forecast debt reduction equates to 27% of the market cap. The NAV is 98p/share, yet disposals continue to occur at a premium to book value. Our 75p target price equates to a 2025E EV/EBITDA (IAS 17) multiple of 9.0x, below the 9.7x historical average due to the macroeconomic backdrop.
This year’s forecast debt reduction equates to 32% of the market cap. The NAV is 98p/share, yet 1H’s disposals occurred at 39% above their NAV. EBITDA is growing and net debt is falling. Combining the two, our 75p target price equates to a 2025E EV/EBITDA (IAS 17) multiple of 9.0x, below the 9.7x historical average due to the macroeconomic backdrop.
Marston’s interims showed steady trading performance, with LFL sales +10.7%, operating margin improved to 10.6% and a small net cash inflow. We expect further progress in H2 with the usual one third: two third weighting putting the company on track to meet our FY23E forecast for EBIT of £132m, which we leave unchanged. We do however increase interest costs to reflect the recent re-financing fees and securitisation step up next year. We expect the shares to be driven upwards by ongoing operational improvement, capex optimisation and gentle deleveraging. Furthermore, recent disposals at 39% above book give confidence in the current NAV of 98p, with a revaluation due in H2. BUY.
Marston's^ (MARS, Buy at 37p) - Interim results
This year, we forecast £64m of debt reduction, equivalent to 30% of the market capitalisation. The NAV is 98p/share, yet 1H’s disposals have occurred on an average multiple of 13x EBITDA, 39% above their NAV. EBITDA is growing and net debt is falling faster than expected. Combining the two trends, a 2025E EV/EBITDA (IAS 17) multiple of 9.5x would equate to an 85p share price.
We believe the debt to equity value transfer opportunity is material if operational initiatives continue to have traction, customers accept price increases and cost control remains strong. This should help reduce net debt and drive up equity value and the NAV. The equity FCF yield (post maintenance capex) is 14%.
Valuation – Following the adjustment to forecasts, the P/E is 6x, falling to 4x over the next two years, with the equity FCF yield at 14%, rising to 20% over the same time period. The shares offer great long-term value, in our view. 3-page note
Marston’s trading update is encouraging, with resilient performance and costs increasingly locked in. LFL sales growth of +4.5% in Q1 vs 2019/20 shows improved momentum and we leave our forecasts unchanged for now. The outlook statement is cautiously optimistic with Marston’s predominantly community-based pubs showing resilience. The stock is currently trading on a CY23E EV/EBITDA multiple of 9.9x but at c60% discount to NAV of 102p – which should rise as debt reduces and covid impairments reverse. BUY, TP 75p (unchanged).
At its interim results on 16 May, Marston’s should also provide detail on the many factors driving its outperformance of the managed pub sector, as well as progress in the tenanted estate, CMBC and how this should drive up equity value, in part through long-term debt reduction. We believe the company is well placed to be at the forefront of the sector’s recovery as inflation falls.
Key Stocks J D Wetherspoon (JDW.L) (Hold, TP 550p) In cash preservation mode Watkin Jones# (WJG.L) (Buy, TP 230p) Are investors returning? Idox# (IDOX.L) (Buy, TP 83.0p) Focus on outlook and M&A pipeline IG Group (IGG.L) (Add, TP 1,065p) Solid performance Rank# (RNK.L) (Buy, TP 90.0p) 1H23 results Stocks Previewed Marston's#, Sureserve, CMC Markets#, easyJet, J D Wetherspoon, Van Elle#, Watkin Jones#, Britvic, Fevertree, Forterra, Greencore Group, Idox#, IG GroupMitie#, Rank#, Wizz Air, Paragon Banking Group#, Ryanair, Restore, Smiths News Macro Highlights Some of the early January ‘risk-on’ enthusiasm has cooled this week. A number of economic activity releases have surprised to the downside, notably in the US; and central bankers have been keen to push back against building market expectations that the pace of monetary policy tightening will be reined back. In the UK, a weak December retail sales reading and an unexpected relapse in consumer confidence highlighted that there are still significant headwinds to household spending. So there may be a greater focus on next week’s survey updates, including the January flash PMIs and a pair of CBI reports in the UK. With the US housing market looking fragile, the home sales volumes are also worth watching. #Corporate client of Peel Hunt
MARS SUR CMCX JDW VANL WJG IDOX IGG RNK PAG RYA RST SNWS EZJ FEVR FORT GNC MTO WIZZ BTVCF
We believe pub sector valuations should re-rate as inflation falls, triggering a multitude of benefits, which should include lower interest rates. The issue is how much this could be offset by forecasts downgrades. In Marston’s case, the equity FCF yield is 15% and we expect minimal change to forecasts following the 1Q update.
Marston’s released its delayed prelims (Sept y/e), which were in line with expectations with revenues of £800m (Lib est £801m), EBITDA of £162.9m (Lib est 163.8m) giving PBT of £27.7m (Lib est £27.7m) and EPS of 4.3p (Lib est 3.6p), no dividend declared, and net debt was £1,216m. Included in this is CMBC profits of £3.3m. Full year LFL sales returned to 99% of 2019 levels, with drinks outperforming food sales. We believe investor attention will focus on additional details on current trading (which has picked up), asset revaluation (NAV increased to 102p) and the outlook statement (cautiously optimistic). We leave our forecasts broadly unchanged but trim our TP to 75p (from 80p). The stock is trading on CY23E EV/EBITDA multiple of 9.9x, but a 60% discount to NAV. BUY
We are holding our 2023E forecasts which assume LFL sales grow by 2.5% YoY vs the 6.8% that was achieved in October and November. The latter includes the adverse impact of VAT rising, without which LFL sales would be up c.10%.
Even without the two c.30% LFL sales days when England played its World Cup games, we estimate LFL sales (YoY) would be up 6% in early 2023E. We expect to hold our forecasts when the company reports its final results.
Travel & Leisure - Trading Comment - MARS Marston's^ (MARS, Buy at 40p) - FY22 results delayed but trading update encouraging, NAV back above 100p?
The tough backdrop for the pub sector continues. In the New Year, it will likely bring a reduction in market supply, even if trading is good during the World Cup and Christmas. Marston’s should survive and eventually thrive through sales growth and debt reduction. The 2024E equity FCF yield is almost 20%.
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Marston’s trading statement showed continued recovery in trading with, reassuringly, no change to cost guidance. LFL sales recovered to +3% vs 2019 outperforming the wider sector and with no discernible changes to customer behaviour. Energy costs are now hedged for at least the next six months and food and drink costs beyond. Labour inflation is in check and interest costs are 86% hedged with debt of £1,216m backed by 82% freehold estate. We see deep value despite the obvious macro challenges. BUY
The impact of inflation on the consumer is not evident in Marston’s LFL sales, which have been improving. This, combined with firm cost control, means that our forecasts are being held, which the share price did not appear to anticipate. In our view, the shares, at half the NAV and on a 13% equity FCF yield (2023E), offer deep value.
Marston’s management of guidance and costs should enable the company to avoid large energy cost downgrades in our view, in contrast to what the share price appears to be assuming. The shares are now at about half the NAV.
High rate of pubs and restaurant closures in the UK since March 2020. The new Market Recovery Monitor from CGA by NielsenIQ and AlixPartners was published at the end of last week. Among its key findings is that one in seven pubs and restaurants have been closed in the City of London since COVID-19, meaning a 14% decline in numbers since March 2020. This is a steeper decline than London as a whole, which saw a 10.5% fall between March 2020 and June 2022. This clearly implies that closures have been particularly high in parts of central London that are dependent on office workers, as well as foreign and domestic tourism. Similar trends have been observed in other key city centres, such as Manchester (-4.5%), Edinburgh (-5.3%), Glasgow (-10.0%) and, to a lesser extent, Liverpool (-1.3%). Pubs and restaurant sales have remained resilient through July 2022. The latest CGA data reported total sales up 7% for pubs and 4.8% in restaurants, respectively, versus July 2019, with LFLs down 0.6% for pubs and up 1.3% for restaurants. These are quite resilient numbers, given the negative impact of the heatwave and transport strikes, also evidenced by the 8% fall in dining-in during the month (delivery and collection were net beneficiaries of the hot weather). However, such revenue increases are still not strong enough to compensate for double digit cost inflation. Smaller chains likely to struggle, benefiting established players. In our recent report It's 5 o'clock somewhere (Aug 8th), we analysed the key success features for pubs to come through the current consumer crisis. Venues should be located in suburban affluent areas, so to benefit from the working from home and staycation trends, should be mostly wet-led, offer flexible and local menus, premium drinks, and be mostly freehold. Also, we argued that, with the end of VAT and business rates benefits in April and the continuous rise in input costs, we expected most pubs and restaurants to struggle, leaving room for market share increases for the bigger, more solid chains. RTN and JDW remain well positioned for the long term. This thesis supports our BUY rating on The Restaurant Group (5.4x CY23E EV/EBITDA, 14.8 P/E), given its strength in the pubs business (17% of FY23E sales), low leverage and proven capacity to out-perform on LFLs. We are also Buyers of JD Wetherspoon (8.5x CY23E EV/EBITDA and 12.9x P/E), given the strong freehold component (68% of the estate) and potential to benefit from undergoing repairs and refurbishments. Through Investec Searchlight, we also follow Mitchells & Butlers, Marston’s, Loungers and The City Pub Group. M&B and Marston’s have the best freehold exposure (both 82% of the estate), City Pub benefits from its presence in affluent areas and Loungers from all-day trading model.
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Still potential growth ahead, especially for established players. There are obvious cost headwinds that will weigh on pub operators’ margins in the medium term. However, pubs turnover in the UK is expected to grow at a 2.3% CAGR in FY22-25, from a starting base of £23bn. Smaller independent players (still over 70% of sites) are likely to struggle, meaning market share gains for established operators. Pubs have been steadily gaining share of the dining-out market in the past 12 months and look likely to continue to do so. M&A is very active, at a premium to the listed market and looking at specific features. The stockmarket has been (understandably) brutal towards UK pub and restaurant stocks (down 30%-50% YtD). However, the private sector has remained extremely active, with deals taking place at c10-11x EBITDA, a significant premium to listed valuations of c8x EV/EBITDA FY23. Features that either PE firms or strategic buyers are looking for are a predominantly freehold estate, locations that fit with the working from home and staycation trends and potential to drive LFL through drinks premiumisation and menu optimisation/customisation. Both RTN Group and JDW score well. BUYs confirmed. Based on the above key success factors, we believe both RTN (BUY, TP 90p) and JDW (BUY, TP 950p) are well positioned. RTN derives only 17% of its revenues in FY23E from pubs (Brunning & Price brand), but 50% of these are freehold, in rural locations and offering local food and premium drinks. At 5.6x EV/EBITDA and 15.8x P/E in FY23E, a strong pipeline, LFL outperforming peers and solid financials (1.6x ND/EBITDA FY23E), RTN is our top pick in the space. We are also buyers of JDW with 68% of the estate freehold, a drink-led offering, significant outside space and potential benefits from improving its venues, it should be one of the long-term winners in the space. Through Investec Searchlight, we also follow Marston’s, Mitchells and Butlers, Loungers and The City Pub Group. With 61% of the estate freehold and a premium food and drink offering in affluent locations, City Pub has a strong mix of features. While Loungers is not the typical pub operator (all day trading for broad demographics), the company’s focus on secondary suburban high streets plays well into the working from home/staycation trend. Marstons’ and Mitchells & Butlers have similar size and the same freehold proportion (82% of the estate), with Marston’s being more wet-led than M&B.
LFL sales were slightly up vs 2019 for most of the last quarter but with food sales dropping off over the last four weeks largely due to hot weather. However, as seen elsewhere, energy costs have risen again putting downward pressure on forecasts. We cut FY22E PBT to £30m (-26%) and FY23E to £52m (-7%) with electricity prices now fixed for winter 2022/23 and gas out to FY25E. The shares, down 40% YTD, should find a floor at these levels, with deleveraging helping to close the gap against current NAV of 71p per share. We retain BUY but lower our TP to 80p (from 90p).
Locking in energy costs 1–3Q LFL sales were -2% vs 2019, exactly in line with the pubs constituent of Coffer CGA Business Tracker (CCBT), on a gradually improving trend. The only change in this update is that MARS has locked in its electricity costs until March 2023 and gas until March 2025. Due to higher cost inflation, we are cutting our PBT forecasts by 15% on average and our target price from 90p to 75p (NAV: 71p/share), which equates to 10x 2023E EV/EBITDA and 9x 2024E on an IAS 17 basis. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
LFLs have turned positive in recent weeks (vs 2019) but inflation is also running higher, most notably energy (now c£10m ahead on an annualised basis). In addition, CMBC profitability has been impacted and is no longer expected to pay a dividend in the current year. As a result, we lower PBT forecasts by 31% in FY22E and 26% in FY23E and cut our TP to 90p (from 100p). The company remains confident it is on track to reduce net debt by £1bn by 2025 and drive sales above £1bn. With gross property assets of £2bn (1/3 to be revalued in 2H), debt reduction is a key tenant of the investment case and we remain BUY.
Marston's H1 results disappointed on profit conversion (100% pass through from revenues), de-leverage and the performance of the Marston's Carlsberg brewing JV. The latter is important, meaning that an anticipated £20m cash dividend will no longer be paid to the group. Along with lower EBITDA forec
Much progress, but costs are hitting forecasts LFL sales were down 3% in 1H but have turned positive in recent weeks (both vs 2019). We are cutting our forecasts for 2022E, and to a lesser extent for future years, to reflect higher costs and a slower recovery at CMBC. Due to the 2023E downgrade, we are cutting our target price from 120p to 90p, which equates to 10x EV/EBITDA 2023E and 8.8x 2024E. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Sales and costs trending up LFL sales were up 1.3% in October/November, prior to Omicron, and are likely to have returned to positive territory in recent weeks, in our view. Despite this and March’s price increases, we expect to cut 2022E and to a lesser extent future years’ forecasts after next week’s interim results. We believe the shares offer deep value vs a true NAV of c.120p/share, but without share buybacks or corporate activity, we see no obvious catalyst for the pub sector at present. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Marston’s delivered resilient trading in the 16 weeks to 22 January, with LFL sales in December +1% and total sales +5% ahead of the UK pub market. Trading has improved throughout January as confidence improves and restrictions begin to ease, with full trading momentum set to return shortly. We see clear upside from its refreshed pub strategy, debt to equity transfer and NAV recovery; however, visibility on the timing and execution remains uncertain at this stage. We trim FY22E EBITDA by 2% to reflect Omicron disruption but leave 90p target price unchanged, which implies 10.7x FY23E EV/EBITDA. HOLD
Reducing debt; forecasts held despite Omicron LFL sales slowed from being up 1.3% in October and November to -8.8% subsequently due to Omicron, ahead of the Coffer CGA Business Tracker. Despite this, and paying £36m of deferred cash flows, debt fell in 1Q. We are holding our forecasts. The shares offer an 11% equity FCF yield based on 2023E. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Managing cash and 2023E prospects are key LFL sales were 1.3% in early 2022E, subsequent to which the pubs constituent of the Coffer CGA Business Tracker fell by 14.8% in December. Pub companies cannot stop the impact of Omicron on 2022E forecasts, but they can still manage cash flow and costs, things that Marston’s has done very well. In our view, this should support forecasts for 2023E, a year when Marston’s currently offers a double-digit equity FCF yield. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
MARS' FY21 results were as expected, with the 48% decline in revenue mirroring closure weeks (54% lost) and the pass-through from revenues to EBITDA contained to 25%. However, the net debt fall (from £1,327m to £1,232m) was funded by the £228m exit from brewing and underlying cashburn was £5m per w
Road map to creating significant equity value revealed Marston’s 2021 results are in line. Despite VAT rising from 5% to 12.5%, managed and franchised LFL sales are up 1.3% in early 2022E. We are holding our forecasts, on which basis the 2023E EV/EBITDA is just 8.2x (IAS 17) and the equity FCF yield is 12.5%. The strategy points to EBITDA recovery and further debt reduction; combined they target raising the NAV/share from a Covid-impaired 64p to 176p over 3-4 years. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Roadmap to creating significant equity value On 30 November, we expect the first set of results with Andrew Andrea as CEO to provide a clear strategy for creating significant shareholder value. Outside a re-rating of the shares or corporate activity, we believe this should have three core elements, detailed below. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Trading momentum is building with LFL sales at 102% of 2019 levels from 25 July to 2 October – in line with management expectations. Cash is flowing back into the business with the target to reduce net debt to below £1bn by FY25E reaffirmed despite a step back up in VAT, capex and IT opex. We cut FY22E and FY23E EBITDA by c3% to reflect a £6m increase in IT opex and inflationary margin pressures. TP to 90p (from 100p) based on an updated SOTP. Hold
Sales are in LFL growth; costs are firmly under control LFL sales are up 2% since 25 July. In 2021E, pub trading was ahead, but we expect associate (brewery) income to be lower due to on trade closures and reorganisation costs. For 2023E, we are only adjusting for a £6m switch from capex to opex. MARS still targets net debt falling from £1.2bn to below £1bn in 2024E. Our target price of 120p equates to 9.7x 2023E EV/EBITDA (IAS 17), in line with the company’s historical average. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Recovery momentum continues with LFL sales currently running at 88% of 2019 levels with further improvements post Freedom day. The pubs are now trading profitably with no significant inflationary concerns or pingdemic interruptions. Importantly, cash flow inflows are already supporting debt reduction, a key tenet of the investment case. We leave forecasts unchanged ahead of the next update on 13 October. The shares trade at a narrow discount to peers on CY22E EV/EBITDA 10.5x (IAS 17 9.8x) but 20% below the previous bid price of 105p. This update should provide valuation support. TP 100p unchanged.
Ahead; forecasts held MARS’ 3Q LfL sales were -12% (ahead of our -20% forecast) despite it being limited to outdoor trading for five weeks and operating at c.70% of capacity for nine of the other 10 weeks. Despite this, the return to positive earnings and cash flow, plus improving trends, we are cautiously holding our forecasts. We believe there is material equity upside from debt reduction and a re-rating from just 8.1x 2023E EV/EBITDA (IAS 17). Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Top value play Since the start of the pandemic, Marston’s has merged its brewing operations with Carlsberg, generating a cash windfall equivalent to c.50% of the current market capitalisation, with no adverse impact on long-term cash flow. It also acquired Brains, boosting EBITDA by 5%, for nil consideration. Despite all this progress, the shares are down almost 40% over the same period and now offer an 11% equity FCF yield on 2023E forecasts. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Despite the obvious value created through the formation of the Carlsberg Marston’s Beer Co (CMBC) joint venture and the Brain’s transaction, Marston’s Enterprise Value remains some £2050m lower than its pre-Covid level. This appears to be at odds with what has been witnessed elsewhere across the sector. We see the Marston’s investment case revolving around the three Rs: Recovery to pre-covid profit levels;, Reduction in net debt to under £1bn; Realising value in CMBC. Successfully executing on the three Rs should, we believe, lead to a material re-rating, and a share price towards 170p on a three-year view. Valuation multiples would then be broadly comparable with pre-Covid levels despite much improved balance sheet and cash flow metrics. BUY.
Down at the virtual Peel Hunt Arms: A pint of port Some of our best conversations take place in the pub. This week we discuss: factors that may have caused the recent sell-off in hospitality and where this has created an attractive buying opportunity; the resumption in international travel and how this affects On The Beach#; how the government is now embedding changes under Covid-19 into the new normal; and new behaviours in the accommodation market. We discuss Airbnb, Loungers#, Marston’s#, On the Beach#, and Young’s, among others. Ivor.Jones@peelhunt.com, Douglas.Jack@peelhunt.com #Corporate client of Peel Hunt To watch the video of Douglas and Ivor down at the Peel Hunt Arms, please open the note and click on the image like the one below.
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Marston’s is on track for a rapid rebound in trading as restrictions are lifted. Its predominantly suburban estate has now fully reopened and is already back to Group EBITDA breakeven. This is a little overshadowed by the extension in the timetable for debt to reduce to below £1bn by FY25E (from FY24E previously). Although this is understandable given the prolonged lockdown, debt to equity transfer is a key driver of the investment case. We cut FY21E numbers to reflect extended lockdown losses, but increase FY22E and FY23E EBITDA by 4% and 3% respectively due to improved recovery and margin outlook. The shares trade on CY22E EV/EBITDA of 10.7x in line with sector averages seen pre-Covid.
Trading well and profitably since 12 April In H1, net debt (ex leases) fell by £99m, due to the brewery transaction with Carlsberg, and subsequently benefited from positive EBITDA generation at pub level since outdoor trading was reintroduced on 12 April. Debt reduction momentum should rebuild over the next few months, growing equity value in the process. We are holding our forecasts. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Next Monday (17th May), marks the next step in England’s (>80% UK population) emergence from hibernation, with the reopening of indoor hospitality. Despite being limited to outdoor space, the performance over the last few weeks has been highly encouraging, with the industry demonstrating pent-up demand and continued premiumisation and so it sets-up nicely for what could be a very strong summer for the trade. Outdoor space and the switch in consumption from city to suburbs is likely to endure, whilst the industry-wide capacity withdrawal should be supportive for incumbents and sustainable margin structures. Stock valuations have typically recovered in anticipation and are arguably now pricing in a rapid recovery in profitability. Two names that should benefit from the trends outlined but would still appear to be pricing in a more modest recovery are Marston’s and, through its Hawthorn estate, NewRiver REIT
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Debt reduction you can Bank on Marston’s interim results are due next Wednesday. In our view, there is a good chance the company has already eradicated its cash burn with 75% of its estate re-opened to external trading. This would put it in pole position to exploit a favourable trading scenario this summer, generating strong cash flow and driving incremental equity value from arguably the most compelling debt reduction investment case in the sector. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Down at the Peel Hunt Arms: A shot of Marston’s We have recorded a short video update on Marston’s to set out our current views. With the reopening of venues underway, we discuss the company’s relative market positioning under the “new normal”, its market-leading qualities, the medium-term attractions of the pub sector, and the equity upside that is possible from debt reduction. We reiterate our Buy recommendation and 125p target price. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com To watch the video of Douglas discussing Marston's, please open the note and click on the image like the one below.
Survive and thrive: supply reduction update We expected licensed retail supply reduction to be weighted to 2021, reflecting cash burn, liquidity and the end of the rent moratorium. This has now materialised, with restaurant supply falling 7.5% in 1Q 2021. This should drive excess demand and support pricing at a time of increased labour and property availability. For those that survive, summer 2021 should be a bumper trading period to expand, or to reduce net debt. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Break up still possible
Valuation: SoP and JV considerations
Marston’s shares have risen up to its current pro forma NAV following confirmation of a bid approach from Platinum Equity Advisors. No firm offer has been made and hence no specific details have been provided while the Board evaluates the proposal. Based on a pre-Covid trailing EBITDA of c£180m, current NAV of 87p, and recent transaction comparatives (Greene King and EI Group), we believe an offer could come at above 100p, however this is dependent on many factors. We move our recommendation to HOLD given the upside risk balanced with uncertainty over whether a final offer can be agreed.
Marston’s Q1 update provides comfort in its liquidity position despite the current pub closures. Liquidity headroom stands at £176m, sufficient to manage over 12 months of further lockdown if required. We expect the simplified business structure will deliver operational upside and accelerate debt reduction in the coming years. The SA Brain transaction provides upside earnings risk to FY22E, with the business well placed for a swift recovery. Shares trade on CY22E EV/EBITDA 9.6x. NAV currently stands at 90p per share which should grow to c120p as trading recovers and debt reduction targets are met.
Plentiful liquidity Due to Covid-19, we believe LFL sales were down c.30% from trading sites in Q1. We are adjusting forecasts to assume a full national lockdown for all of Q2 and a more gradual recovery in Q3. We estimate Marston’s has 13 months of spare liquidity under a full lockdown scenario and believe it is becoming increasingly well positioned to emerge strongly from the pandemic. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Another excellent transaction For no consideration, Marston’s is to operate 156 Brains freehold pubs. Before Covid-19, their outlet EBITDA was £14m. As a leaseholder, Marston’s will pay Brains £5.5m rent pa to operate these sites. Reflecting this and c.£2m of incremental overheads, we are upgrading our 2022E IAS17 EBITDA forecast by £6m+ and 2023E by £8m (after £2m of expected synergies). As a consequence, we are raising our target price from 95p to 105p. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Marston’s simplified business structure should yield further operational improvements, which combined with the revised capital allocation framework, points to further deleveraging and improved NAV per share. This will become more apparent as trading restrictions lift and pro forma adjustments work their way through the financial statements. While winter trading will be challenging, we believe liquidity is sufficient and expect a rapid rebound in profitability from 2H21E. We cut FY21E EBITDA forecasts by c12% to reflect continued regional closures but raise FY22E by c15%. BUY, TP 90p (unchanged).
Net debt continues to fall; forecasts held 2020E adj LBT was £(22)m; we forecast £(30)m (both on an IFRS 16 basis, which took £3m off PBT). Consensus was £(36)m. We are holding our forecasts, which have already been adjusted to reflect national lockdown 2 (NL2) and the new tier structures. LFL sales, which were 7% ahead of the pub sector after NL1, were ahead of the sector again in October. With debt reduction forecast to continue and the vaccine roll-out accelerating, there is scope for the shares to continue to re-rate. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com
Strong medium-term prospects Ahead of Marston’s prelims, we are holding our 2020E and 2022E forecasts, but adjusting 2021E to reflect national Lockdown 2 (NL2) and the new tier structures. We are also converting our forecasts to IFRS 16 (with a reconciliation). LFL sales since NL1 were 7% ahead of the pub sector, and debt reduction has exceeded expectations. We expect more of the same. Douglas.Jack@peelhunt.com, Ivor.Jones@peelhunt.com 2-page note
Marston’s year-end trading update shows outperformance in a difficult environment as it benefits from its suburban /community focus. Post reopening LFL sales are -10% vs pub sector -17% for 13 weeks. We expect things to get tougher over the winter but importantly to remain above breakeven with yet further cost cutting measures underway. Absolute debt levels are also being tackled, now at £1.3bn with £230m due by month end giving additional liquidity headroom. Sentiment towards leveraged operators and the sector remains challenged but we see significant long-term value with shares 60% discount to NAV. BUY
The CMA has cleared the landmark JV with Carlsberg, now due to complete at the end of October. This is a significant milestone; crystallising value, accelerating deleverage and streamlining the business. Further revenue and cost synergies should follow. It values Brewing at £580m with Marston’s set to receive a cash equalisation payment of £273m in two tranches. This compares to its current market cap of £263m. BUY
Marston’s landmark Brewing JV transaction with Carlsberg is now due to complete in Q4 2020, rather than previously expected Q3. The delay is due to an expected procedural review by the UK CMA, however no competition concerns are expected. Whilst the delay is slightly unhelpful news, it should not detract from the overwhelmingly positive deal to crystallise value in the Brewing Business, accelerate deleverage and streamline the business. Nor does it cause any liquidity concerns with pubs now trading and working capital rewinding. The shares trade at an undeserved 60% discount to FY20 interim NAV of 115p. BUY
Marston's, Calisen, Costain, Staffline, Petra Dia
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Marston's, Osram, Calisen, Costain, Staffline, Petra Diamonds, Ma
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Marston’s is preparing to reopen c85-90% of its pub estate on 4 July. Initial trading recovery should benefit from its predominantly suburban locations, diverse split of wet and food-led pubs and notable outside space. This should help entice customers back and relieve some of the social distancing limitations. Break-even should be achieved at between 50-70% reductions in volume with operations simplified and overheads reduced. Its strategy remains focussed on reducing leverage, which will be materially supported by Brewing JV transaction set to complete in Q3 2020, and driving growth within its pub and hotels business. The valuation is underpinned by £2bn estate valuation. BUY
The creation of a brewing JV with Carlsberg solves several near-term issues and should continue to drive value over the medium to long term. It crystalizes value (brewing valued at 13x EV/EBITDA FY19); simplifies the business focussed on higher growth/higher returns pubs; and releases cash to pay down debt.
We have long espoused the attractions of Marston’s Beer Co (including a growing portfolio of quality craft ales and world beers, supported by nationwide distribution) and how these were not reflected by its share price. Carlsberg would appear to agree. From a Marston’s perspective, we see the transaction partially unlocking the inherent value of its beer business (it retains 40%), with a significant cash injection (up to £273m) further reducing leverage ratios (crucial in current climes), and leaving a much larger, ungeared beer business capable of supporting its own growth targets.
Marston’s shares have been hit the hardest across our pub universe, -70% since 21 February. Whilst this is partly understandable given its high leverage (FY19 net debt / EBITDA 6.3x), it does not fairly reflect the 93% freehold backing nor the debt level headroom.
Marston’s enjoyed a strong Christmas with LFL sales of 4.5%, helping offset subdued trading earlier in the quarter, to report overall LFL sales growth of 1.0% for the 16 weeks to 18 January 2020. The National Living Wage increase coming in April of +6.2% is higher than anticipated and is expected to increase costs by £2-3m in H2.
Marston’s trading update for the first 16 weeks of the year showed a continued resilient performance across its pubs and beer division, with LFL sales growth of 1%, although cost pressures continue to weigh. Delivery of free cash generation and debt reduction targets are key, in our view, to unlocking the intrinsic value in the group, and it is encouraging to see further momentum on its disposal strategy, which has been increased to £85-90m. We maintain our full year LFL revenue assumption of c1.5% but make some modest revisions (c4%) to reflect a higher than previously expected increase in the Living Wage (£2-3m) and higher disposals (£1.5m).
Trading in the food-led Destination & Premium pubs remains challenging with covers and margins under pressure. A stronger performance in wet-led Taverns is not enough to compensate and remedial action is required.
Sales weakened over the last 16 weeks (LFLs -2.3%) as Marston’s pubs lapped challenging prior year comparatives (World Cup/hot weather). The slowdown was greater than we anticipated, and we cut PBT forecasts by 3.1% for FY19E and by 3.5% for FY20E.
Marston’s released encouraging results demonstrating relative operating margin stability and improved LFL sales growth of 3.2% over the last 10 weeks with D&P back on par. Revenue was £553.1m (+5%), Underlying PBT £37.0m (+2.0%) and Adj EPS 4.9p (+2.0%) with interim DPS of 2.7p as guided.
Marston's has reviewed its capital allocation strategy with a refocus on core profitability and deleverage now taking priority over expansion. This refined focus on cash preservation should lead to demonstrable deleverage while maintaining the current dividend and improving key valuation drivers (LFL growth, margin and financial gearing).
Trading in food-led outlets remains erratic and a rebound in Destination & Premium pubs has yet to fully materialise with LFL sales growth of +0.1% over the last 10 weeks resulting in -1.2% for FY18E. A strong performance in wet-led taverns was not enough to compensate, which combined with on-going cost pressure, leads us to downgrade our FY18E PBT forecast by 2.5% to £104.3m. The shares remain inexpensive on CY19E EV/EBITDA of 8.3x, PE of 7.1x with a Dividend yield of 7.7%. While this downgrade is disappointing, underlying performance shows significant resilience in the face of challenging conditions with all divisions in profit growth. Momentum in dining pubs is improving and should continue to in FY19E and beyond as new initiatives take hold. We continue to rate the stock BUY with a TP of 130p
Why is Marston's so cheap? It is not often that investors can buy shares in long established, secure businesses where the p/e ratio is lower than the running yield. Rarer still is such an opportunity when the dividend looks to be in no immediate danger of being cut, since the anticipated cover is 1.8 times. Yet this is the position in which Marston's finds itself.
Marston’s AGM update for 16 weeks shows satisfactory underlying momentum in a difficult sector. However, there has been a small adverse impact on profitability from snow in December (the Group’s managed pubs has a midlands bias, the area most affected area by snow in December). Adjusting for the snow, the Group has traded broadly in line in what is a challenging market. Conversely, there is much better commentary around the wet led Taverns and Leased estate. Brewing appears to have had a good start to the year also and cost savings from the Charles Well deal are reported to be on track. The LFL comps ease for the rest of the year to 0.8% in the managed division vs 1.5% in Q1. The snow impact is quantified as a £1m profit hit this morning and we flow this through to our numbers, We also add in a bit more prudence into our FY19 numbers. Net, we lower FY18 PBT by 1% and FY19 by 2%. The shares trade on a FY17 P/E of 8.1x, EV/EBITDA of 8.4x and offer a highly attractive yield of 6.9%. On a 12m view we stay positive but accept the shares may weaken on the back of the downgrade today. Fundamentally, the Groups has an attractive freehold estate with an increasing food and lodging bias which is a differentiator in the market. Given the rating most of the current consumer uncertainty is priced in we feel.
Q1 trading was disrupted by poor weather with Destination pubs adversely affected by an estimated -2.0% LFL and c£1m hit to profit. Outside of the two poor weather weeks, trading was in line with +1.1% LFL to give -0.9% for the period as a whole. Elsewhere the performance was stronger with Taverns LFL +2.6% and owned-brewed vols +33%. New builds remain on track, cost and margin guidance is unchanged. We do not expect to make significant changes to our forecasts. The stock is trading on PE of 8.0x and EV/EBITDA of 8.8x for CY18E with a Div Yield of 6.9%. At these levels, we retain our BUY given its strong track record of margin resilience and with 2H comps easing.
Having updated the market last month, finals are bang in line at the PBT level, implying y-o-y growth of 3%. EPS of 14.2p has come in a smidgen above our 13.8p. For those investors attracted by the stocks yield / progressive DPS policy there is good news re the DPS, with the final up 1% implying 3% y-o-y growth to 7.5p (vs our 7.6p) – 1.9x cover. We also note NAV of 147p at the year-end. Commentary on current trading is reassuring with LFL growth seen in the last 10 weeks, this is reassuring given a weak Q4-17 showing. We make no change to forecasts at this juncture. Overall a reassuring update in our view and a good start to the year. The shares trade on a FY18 P/E of 7.4x with an attractive 7% yield. We stay at Buy with a 120p 12m TP.
Coming into today’s YE update poor sector newsflow over the last 2 months had weighed negatively on the Marston’s share price. In this context a satisfactory update and pro-active steps in the form of cost savings next year should be welcomed by the market today. Whilst trading in the last 10 weeks has been more challenging, due partly to the wet weather, it’s not been a disaster for Marston’s. We do not expect consensus forecasts to change much today, but we are lowering our FY17 EPS by 3% and FY18 by 5%, to bring us broadly inline with consensus. We are now forecasting 9% PBT and 3% EPS growth in FY18. The shares trade on a lowly FY18 P/E of 7.3x and 8.1x EV/EBITDA with a compelling c.7% yield. We expect some relief around today’s update and the shares to react positively. We stay positive on the stock on mid-term growth and yield considerations but lower our 12m TP from 140p to 120p.
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Marston’s is our solitary positive stock pick in the sub-sector. Recent finals reflected a year of further strategic, LFL and earnings progress. We believe it is operationally in a strong shape to make further solid progress in FY17, not least as it does not have the acquisition integration or turnaround issues confronting GNK, MAB and RTN. Moreover, it is relatively better positioned to manage the cost headwinds. We forecast 11% TSR returns in FY17 and feel the shares with a 5.5% historical yield and 12% FCF yield (FY17e) are oversold. We are buyers with a revised 12m TP of 150p.
Marston’s released a solid set of preliminary results with Destination & Premium LFL sales growth of 2.3%, Brewing volumes up 13% which along with 22 new pubs and six lodges helped to lift Operating profit by 4% to £172.7m (PGe £172.1m), Underlying PBT up 7% to £98m (PGe £98m) to give adj EPS up 9% to 14.0p (PGe 13.8p) and final DPS up 4.4% to 4.7p (PGe 4.7p). Current trading remains encouraging and expectations for next year unchanged. The company comments that its exposure to the increase in business rate was low and as planned and that product cost lines are fixed and contracted well into 2018. We expect to trim our numbers by about 2% to reflect general inflation caution however. Trading on 2017E PE of 9.3x and EV/EBITDA of 9.5x with an expected dividend yield of 5.6%, we retain our Buy recommendation and 175p price target.
We expect Marston’s YE trading update to be well received by the market today. It has capped off the FY16 financial year with an in line update, solid LFL sales growth and delivered on the new opening target. This completes a year in which it has successfully navigated a mixed consumer backdrop, wider supply growth challenges and comfortably outperformed the sector on LFL sales growth (2.3% vs the sector at c.1%). We do not envisage making any meaningful changes to our forecasts post today’s update, implying y-o-y EPS growth of 7%. Importantly, this means Marston’s is one of the very few pubs & restaurant stocks that we have not had to downgrade estimates for in the last 12m. Mixed wider sector newsflow and Brexit concerns have understandably weighed on the share price in recent month (-13% YTD) but the positive tenor of today’s YE update highlights the attractions of its proposition. We continue to view Marston’s as a double-digit TSR compounder with a solid 3 year EPS CAGR of 8% (vs sector at 6% and peer GNK at 3%) and a progressive DPS policy. The shares trading on a cal’17 P/E of 9.1x; 9.2x EV/EBITDA; 9.4% FCF yield; and 5% DPS shield are oversold. In a yield hungry world Marston’s is a stand-out candidate in the Leisure sector. We reinforce our Buy with a 182p target price.
Marston’s has reported a pre-close trading update for the period to the end of September with solid trading in line with expectations. Destination & Premium reported LFL sales increase of 2.3% (+1.8% over last 10 weeks), Taverns LFL sales +2.7% (+2.0% over the last 10 weeks) and Leased profits increased 2% whilst Brewing volumes were up an impressive 13%. Importantly trading has continued at similar levels since the year end which is encouraging given the tougher comparatives. Additionally operating margin is in line with last year (PGe 19.5%). Trading on 2017E PE of 9.7x and EV/EBITDA of 9.7x yielding 5.4%, we retain our Buy recommendation and 175p price target.
Marston’s has reported Q3 trading showing LFL growth of 2.5%, in line with expectations. This marks a slowdown from 3.0% in the first half to 1.8% over the last 16 weeks as Euro’16 football hit trading in the more food led pubs but is significantly ahead of the market (CPBT +0.4% YTD) and the company remains on-track to open 22 pubs this year and 6 lodges this year. With outperformance continuing into 2H, we believe our forecasts are well underpinned. Our 2016E estimates which are predicated on 2.0% LFL and currently show Marston’s trading on a 2016E PE of 10.2x and an EV/EBITDA of 9.8x (in line with the sector), with 3YR EPS CAGR of 8% and yielding 5.3%. We reiterate our Buy recommendation and 175p price target.
Marston’s has delivered a strong set of interims, beating our PBT forecast by 5%. This translates into double digit EPS growth of 12%. There is further evidence solid LFL outperformance and a positive directional showing from a net- cashflow and BS leverage perspective. With two-third of profits generated in H2 we make no forecast changes at the juncture. Given fears in some quarters of downside risk to numbers going into these results we expect a positive share price reaction, thereby reversing recent weakness. The strength and tenor of today’s results reinforces the improved quality of Marston’s earnings and strength of the overall offering. We stay at a Buy with a 182p 12m TP.
LFL sales growth was maintained at 3.0% outperforming the market (CPBT c1.0%). This strong trading combined with the acquisition of Thwaites last year, opening of 7 pubs and three lodges lifted Revenue by 11.5% to £428.7m, Underlying PBT 11.8% to £33.1m to give adj EPS up 11.9% to 4.7p and DPS up 4% to 2.6p (covered 1.8x). With momentum continuing into 2H, we believe that there is scope for upgrades to our 2016 estimates which are predicated on 2.0% LFL and currently show Marston’s trading on a 2016E PE of 10.7x and an EV/EBITDA of 9.9x, yielding 5.1%. We reiterate our Buy recommendation and 175p price target.
Marston’s is our steady compounder pick. It has outperformed sector LFL’s for 2 consecutive years whilst at the same time fundamentally improving the quality of its earnings through judicious asset churn and recycling cash to growth segments. We argue its roll-out concepts are less exposed to wider supply concerns. We are not unduly worried about leverage given the significant freehold backing, and feel that negative ST net-cashflow should be judged in the context of the group going through a growth phase. Net, we view Marston’s as a solid 8-10% compounder with an attractive and progressive c.5% yield. We are buyers with a 12m TP of 182p.
Marston’s AGM update demonstrates that the group is trading at the upper end of expectations. It has outperformed strong LFL comps in Q1, the wider Coffer Peach benchmark and had an excellent Christmas trading period. Fundamentally, this demonstrates the much improved quality of the group’s earnings and consumer proposition. In the context of mixed sector newflow in recent weeks we anticipate investors to react favourably to this update. We strongly ague that the shares have been oversold in recent weeks and that on an FY16 P/E of 11x and a 5% dividend yield offer compelling value. We hold fire on forecasts for now but reinforce our Buy and 12m TP of 182p.
Marston's has issued a trading update for the 16 week period to the 23 January, with LFL sales in both the Destination & Premium (D&P) and Taverns division stronger than expected, particularly given recent competitor weakness. D&P LFL sales increased 3.0%, whilst Taverns LFL sales increased 2.7%, with leased profits up 3%. Whilst we do not anticipate any changes to numbers, today's update underpins our FY forecasts based upon c.2% LFL sales growth. We retain our Buy recommendation and 175p price target.
Marston’s recent finals highlighted a number of positives from the three year transformation programme to reposition the estate and improve the quality of earnings. Growth capex is proving to be accretive and being channelled into less competitive locations. We make no fundamental changes to our forecasts but lift our 12m TP from 170p to 182p. Going forward, we view Marston’s as a solid 8-10% compounder, with an attractive and progressive 4.5% yield and an undemanding valuation to play the improving consumer disposable income theme for 2016 – Buy.
Marston's preliminary results mark the successful completion of its three-year transformation programme. This included a comprehensive reorganisation of the pub estate with a 25% overall reduction and a 37% increase in average profit per pub to £100k. But progress is far from over. The company is in a stable state, and able and willing to operate the levers of future growth. The steady improvement in return on capital may not be the most dramatic number compared with the double-digit earnings growth in these results, but holds the key to the assurance investors can place in the prospect of continued income growth.
In a dull sector Marston’s continues to deliver with all key metrics in today’s FY15 finals moving in the right direction. Moreover there is also strong evidence of the three year journey to improve the quality of earnings coming to the fore. PBT for FY15 is in line with consensus but EPS growth of 10% to 12.9p is 1.5% ahead. The group has had a good start to FY16 and we do not envisage much change to consensus expectations. Our Buy stance YTD has served us well with the shares +11%, and we continue to advocate a positive view on the grounds of an improving quality of earnings, high single-digit EPS growth outlook and dividend yield attractions.
Marston’s YE update as anticipated is inline with expectations. The key point is that in a dull sector it has outperformed on the key LFL metrics and not suffered margin decline like most of its peers. Moreover, it has grown EPS by a strong 10% in the year (all organic) in a period when frankly the key peers have eked out anaemic growth at best. The broad tenor of today’s update underpins our Buy stance and target price of 170p.
Marston's has reported a pre-close trading update for the period to the end of September 2015 with trading in line with expectations. Destination & Premium reported a LFL sales increase of 1.7% (2.2% in the last 11 weeks), Taverns LFL sales increased 2.0% (3.1% the last 11 weeks), and Leased profits increased 4%, whilst Brewing volumes increased 5% (Thwaites 15%). Operating margins increased in the year which is encouraging. Post the triennial review of the pension, annual cash contributions are expected to fall from £13m to £7.5m. Post today's update we expect limited changes to forecasts. Trading on a 2016E PER of 11.0x and an EV/EBITDA ratio of 9.9x, yielding 4.8% we retain our Buy recommendation and 175p price target.
Marston’s has had a solid Q3, outperforming peers on LFL’s while lifting margins and making good strategic progress. Overall an inline update vs. our expectations. The impact of the NLW is cited as modest and this should go some way to soothe concerns as far as the group is concerned. We make no underlying changes to our forecasts but trim FY16/17 EPS by a marginal 1.5% to reflect the NLW. We reinforce our Buy stance and 170p TP on growth (3 year EPS CAGR 9%) and yield ground (4.5% FY15e).
Marston's has reported a Q3 trading update with trading broadly in line with expectations. LFL's have accelerated in the period, with Destination & Premium reporting LFL sales growth of 2.0% for the 10 weeks (1.7%: 41 weeks), Taverns 2.0% (1.7%: 41 weeks), Leased profits are flat year-on-year and Brewing (ex Thwaites) is up 4% YOY. We made slight adjustments to our numbers post today's update. We retain our Buy recommendation and 175p price target.
Marston’s needs 2.5% LFL’s in H2 to hit our full year estimate of 2%. We expect a solid Q3 update next week and feel that the 9% 3 year EPS CAGR and improved quality of earnings is not reflected in a cal’16 P/E of 12.5x and a 4.5% yield. We argue that Marston’s is the least exposed amongst its direct peers to the twin sector threats of excess capacity and the National Living Wage. Marston’s is our only Buy in the pub/restaurant sub-sector currently and we reinforce our positive stance ahead of next week’s trading update.
