LIBERUM: Marston's - Profits flatlining as food-led sales struggle, dividend secure
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.
15 Oct 19
Remarkable mixed up times persist
The excellent Times political writer, Matt Chorley, brilliantly sums up the crazy world of the indulgent zoo that is the House of Commons as; This. Is. Not. Normal. Day in, day out this phrase is the most apt chronicle of mixed up times. His mantra also applies to the UK consumer economy where the ONS has released labour market data for the three months to July, which whilst showing a little less positive momentum, reveals the highest employment rate since 1971 and unemployment of 3.8%, whilst ex-bonus earnings rose 3.8%, so UK living standards are rising by almost 2%. And yet consumer confidence as we enter autumn is weak and company updates are more cautious than not. This. Is. Not. Normal! In such times we continue to highlight the investment virtues of liquidity, strong competitiveness, cash compounding, effective international earnings, being good at affordable treats, discounting and online. Within this note we reveal our stock preferences.
MARS FEVR ABF TESO BOO JD/ CPG GVC BOWL SSPG WMH
11 Sep 19
Brexit – sleep-walking in the dark?
The British food system, one that embraces everything from farming and its input suppliers through to café owners and their customers remains in a particularly uncertain and, largely, unsatisfactory position around the outcome of the 31st October 2019. Due to the necessity for a safe and legal food system, the short shelf-life of much produce and human nature’s survival instinct to lead to potential irrational behaviour at times of crisis, leads us to wonder whether as investment analysts covering this system, we are facing nothing out of the ordinary or total chaos around the movement of goods and its availability and cost to the shopper. Clearly, a UK/EU deal of sorts would erase many such worries, but if not, there is the real prospect of food companies having to take on considerable additional cost, for food price inflation and, it should be said, remarkably, distribution controls. Working out the earnings implications of such chaos is well-nigh impossible albeit the big scheme of things the seemingly defensive, staple, food system may yet prove to be quite relatively resilient still from an investment perspective. Noise is the order of the day but the participants of the UK food system, one of the most advanced in the world, need better and deserve better from the political class. As we sleep walk in the dark, which is generally not advisable, investors do need to be aware that all may not be hunky-dory for companies with a heavy exposure to the UK market. Over to you BoJo, what could possibly go wrong?
Marston's J D Wetherspoon
19 Aug 19
Peach Coffer Tracker
The Peach Coffer for July reported a 1.2% increase in LFL revenue for the cohort of 54 pub and restaurant groups against a flat comparative month last year; a period characterised by England’s run to the semi-final of the FIFA 2018 World Cup and sustained hot weather. Unsurprisingly, restaurants performed strongly, with LFL sales ahead 3.8% against weak comparatives (-4.8%), although a flat performance from the pub sector against last year (+2.7%) was encouraging. Overall, we see the July performance, consistent with the LTM, as supportive of a resilient underlying market.
MARS GNK RTN
13 Aug 19
LIBERUM: Best of the Week: Leisure in depth, Strategy Screen of the Week, ASML Holding, XPS Pensions, Sthree
Liberum's most insightful and high-value research and commentary published this past week.
MARS CPC CPG EIG FSTA GNK GYM BOWL JDW LGRS MERL MAB OTB RTN TEG WTB YNGA ASML XPS STEM SSPG
26 Jul 19
LIBERUM: Marston’s - Refocus priorities to bolster existing estate and deleverage
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.
24 Jul 19
LIBERUM: Leisure - Experience is everything
We believe that the leisure sector remains attractive to investors, with long-term secular tailwinds, ongoing innovation and efficiencies combining to overcome short-term economic headwinds. We prefer those companies that have an ‘experiential element’ to their offering and can demonstrate a continually evolving customer proposition, as well as those de-risking balance sheets.
MARS CPC EIG FSTA GNK MAB JDW YNGA CPG LGRS RTN GYM BOWL MERL OTB TEG WTB SSPG
23 Jul 19
Read across from EI Group
It’s fair to say we didn’t see a 285p per share bid for EI Group, formerly known as Enterprise Inns, coming. The all-cash, agreed offer from rival pub group Stonegate values the 4,000 strong tenanted, leased and commercial pub group at £3.0bn or 11.4x underlying EBITDA of £261m. To some degree we struggle to see the commercial logic of combining Stonegate’s managed, predominantly town-centre estate with EI Group’s tenanted estate, beyond the defensive measure of balancing Stonegate’s current position (circuit bars), synergies and property management (including conversions to Stonegate’s brands). Ironically, in a previous research note “Solving the Gordian Knot” (July 2018), we explored the opportunity of combining Stonegate with Marston’s, although the conclusion was that the pro-forma debt metrics appeared elevated. Our long-standing negative recommendation on EI Group has been predicated on high debt levels and limited free cash generation (post-capex free cash flow of c£30-40m), with disposals funding mandatory deleveraging; the result being little earnings growth, no dividends and modest underlying deleveraging, albeit disposals have accelerated this process. Post the agreed offer we upgrade from Sell to Hold.
MARS EIG GNK
18 Jul 19
LIBERUM: Consumer Discretionary - Dealspotting and other news
The uptick in deal activity seen in May has continued into June. Global Fashion Group, Trainline, The RealReal, Chewy and Revolve all successfully listed in their respective markets, raising £1.35bn between them. We hear that Karen Millen is now for sale, among others. Augmented/virtual reality has been a theme, with John Lewis trialing ‘visualise your space’ and ASOS launching a virtual catwalk.
MARS ASC BOO MCLS CARD JOUL LGRS TED WINE MKS NXT SDRY HFD HOTC PETS TPT ZO1 BME ZAL DC/ CPC EIG FSTA GNK MAB JDW YNGA CPG RTN CINE HSW EHG GYM BOWL MERL OTB TEG SSPG
03 Jul 19
LIBERUM: Morning Comment
Diversified Financials - Leveraged Trading Update, Stroer, PureTech Health, Babcock, Compass Group, Scout24, SSP Group, Balfour Beatty, Domino's Pizza Group, Zooplus, Marston's, Keller Group, SigmaRoc, Safestyle
MARS PLUS IGG CMCX SAX PRTC BAB CPG G24 BBY ZO1 KLR SRC SFE ERICB BBOX TRS WIN SOPH SSPG
16 May 19
LIBERUM: Marston’s - Stable trading, disposals and interest savings drive modest upgrades
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.
15 May 19
LIBERUM: Marston's - Refocus on core profitability and deleverage
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).
24 Jan 19
LIBERUM: Marston's - Wet holding up, food challenging
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
11 Oct 18
Gresham Technologies (GHT LN) Improving win-rate in H2 and pipeline underpins confidence in full year | Hargreaves Services (HSP LN)Wolf Minerals Update | Hollywood Bowl Group (BOWL LN) Robust YE update | Marston’s (MARS LN) Slightly soft end to the year | Miton Group (MGR LN) Flow momentum continues into Q3 | Sanderson Group (SND LN) Significant progress in FY18, full year revenue and profit slightly ahead | Scapa Group (SCPA LN) In line H1 trading update | Springfield Properties (SPR LN) Site visit highlights quality offering | The PRS REIT (PRSR LN) Strong deployment continues into Q1 | Walker Greenbank (WGB LN) On track to deliver revised forecasts. Search for new CEO started
MARS GHT HSP BOWL SND SCPA SPR WGB PMI
10 Oct 18
Cenkos: Marston's Plc - The pub landlord
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.
25 Jul 18
Augean (AUG LN) Strong H1 PBT growth; material reduction in net debt | Brewin Dolphin Holdings (BRW LN) Impressive 8% annualised discretionary flows in Q3 | Burford Capital (BUR LN) H1 results – c.15% up on a strong comp – increasing estimates and TP | Earthport (EPO LN) Continued progress with operational changes | EKF Diagnostics (EKF LN) Exclusive agreement with Asahi Kasei expands US products portfolio | IDOX (IDOX LN) Framework in place for improved future performance | Marston’s (MARS LN) Positive Q3 update goes a long way to allay forecast and DPS concerns | Rathbone Brothers (RAT LN) Solid H1 earnings, but still modest organic net inflows | Victrex (VCT LN) Another strong volume performance, FY guidance maintained
MARS AUG BRW BUR EPO EKF IDOX RAT VCT
25 Jul 18
Cenkos: Leisure Sector -- Suspend coverage
Due to a change in sector focus Cenkos Securities plc has suspended coverage of the following stocks (see table 1). Our previous recommendation and forecasts can no longer be relied upon. Please contact Cenkos for further information.
MARS TUI CCL CPG DOM GNK JDW JE/ MERL MAB FLTR PTEC RTN TCG WTB WMH IHG SSPG
20 Jun 18
Augean (AUG LN) Consultation on Colt; group trading in line | Brewin Dolphin Holdings (BRW LN) Solid outturn, margin maintained in H1 | Itaconix (ITX LN) Joint marketing effort defined with AkzoNobel | LiDCO Group (LID LN) Trading update points to increased US traction | Marston’s (MARS LN) Broadly in line interims | Speedy Hire (SDY LN) Earnings momentum continues with results ahead of expectations | Zotefoams (ZTF LN) Placing to invest in (even more) new capacity
MARS AUG BRW ITX LID SDY ZTF
16 May 18
Key takeaways from the Consumer reporting season
With a busy reporting season behind us we use this note to take stock. Stepping back we pull out the key themes which emerged across the sub-sectors we actively follow in the consumer space. On balance there was more cause for optimism. This is supportive of our top-down view that there is scope for a better H2 for consumer related stocks as cost headwinds ease and pressure on disposable income moderates. We also take a close look at 7 stocks we actively research and which reported over March and April. For each we use charts to depict the key takeaways from an investment case perspective.
MARS DOM BAG NICL CHH GOAL RTN GYM CVSG
30 Apr 18
LIBERUM: VIDEO: Spotlight on Pubs & Restaurants - Driven to drink
In these five short videos Liberum's Leisure Analyst Anna Barnfather outlines the outlook for Pubs & Restaurants for 2018, focussing on competitive pressures, cost inflation issues, the outlook for supply and preferred stocks.
MARS CPC GNK RTN YNGA EIG FSTA JDW MAB DOM
02 Mar 18
Mixed start to the year
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.
23 Jan 18
LIBERUM: Marston's - Destination hit by snow LFL -0.9%, margin guidance unchanged
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.
23 Jan 18
dotdigital Group (DOTD LN) In line trading update | Harwood Wealth (HW LN) FY17 adj. EBITDA 8% ahead, strong growth in KPIs | Marston’s (MARS LN) Mixed start to the year | N Brown Group (BWNG LN) Growth over peak, with promos offset by FS margin+ cost improvements
MARS DOTD HW/ BWNG
23 Jan 18
N+1 Singer - Marston's - Reassuring tenor to finals; no further downgrades
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.
30 Nov 17
N+1 Singer - Marston's - YE update not as bad as feared & sensible moves to protect cash and profitability in FY18
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.
10 Oct 17
N+1 Singer - Marston's - Delivering growth and standing out from the pack
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.
30 Nov 16
N+1 Singer - Marston's - Solid YE trading update
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.
12 Oct 16
PBT beat vs expectation and LFL outperformance
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.
18 May 16
Churchill China (CHH LN) Reassuring AGM update | First Derivatives (FDP LN) New verticals impacting sooner than expected | Marston’s (MARS LN) PBT beat vs expectation and LFL outperformance | Midatech Pharma (MTPH LN) Insulin trial disappoints; strong progress in oncology | Zotefoams (ZTF LN) Positive AGM statement
MARS CHH FDP MTPH ZTF
18 May 16
Solid double-digit TSR compounder
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.
26 Feb 16
Festive joy and trading at upper end of expectations
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.
26 Jan 16
Avon Rubber (AVON LN) Q1 update a reminder that revenues can be lumpy | EMIS Group (EMIS LN) Strategic value, but needs growth too | Marston’s (MARS LN) Festive joy and trading at upper end of expectations | Restore (RST LN) Positive conclusion to another very active year
MARS AVON EMIS RST
26 Jan 16
Solid double-digit TSR proposition
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.
16 Dec 15
BLUR GROUP PLC (BLUR LN) CFO joins Board | Brewin Dolphin Holdings (BRW LN) Moving to HOLD following performance post-Finals | Domino's Pizza UK & IRL (DOM LN) Germany – short-term fix but mid-long term growth expectations lowered | Ergomed (ERGO LN) Co-development update: clinical data expected in 2016 | Futura Medical (FUM LN) Extended shelf life for CSD500 achieved: regulatory filing imminent | IDOX (IDOX LN) Stable outlook in all markets; £100m sales target | IQE (IQE LN) Full year in line, as expected | Marston's (MARS LN) Solid double-digit TSR proposition | N Brown Group (BWNG LN) Risk from unseasonably warm weather reflected in downgrade | Skyepharma (SKP LN) Positive development with EXPAREL®
MARS MAIS BRW ERGO FUM IDOX IQE BWNG SKP DOM
16 Dec 15
Programme completed, more to come
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.
27 Nov 15
Solid FY15 finals; small beat; and further evidence of an improving quality of earnings
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.
26 Nov 15
YE update confirms a year of solid progress in a dull sector
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.
14 Oct 15
Reassuring Q3 and NLW commentary
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).
22 Jul 15
Forthcoming Q3 previewed and why we are buyers vs. peers
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.
17 Jul 15