Marston's - The ties that bind...or not?

Marston’s: Amid the industry uncertainty post the tied pub Parliamentary vote last week, we have Marston’s 52-week results to 4^th October 2014. The move towards food led destination pubs and new build continues. They opened 27 new build pubs in FY 2014, (to pass the 100 mark), with a similar number (25+) likely in each of FY2015 and FY2016. They are also expanding in lodging with 700 rooms now available. Of the 1689 strong chain now, 75% of profits come from their managed or franchise style pubs. They believe that this franchise model will not be caught up in the ‘market rent only’ net. 

In brewing their leading portfolio of brands (Pedigree, Brakspear, Banks etc….) continues to perform well and they are expanding in the growing craft beer market. Underlying group revenue was up 1%, but pre-tax profits fell 3.6% to £83m due to disposals of older wet led pubs and a shorter trading period (last year being a 53 week year for them). Underlying eps were 11.7p, slightly down on 12.0p last time. The final dividend was up 4.9% making a 1.7x covered 6.7p for the year, an increase of 5.0%. Looking forward their policy is to be progressive, whilst holding medium term cover around 2x. This is supported by a balance sheet where net debt to EBITDA is on a downward trend at 5.4x, with a 5.0x medium term target in sight. They comment that trading in the current financial year has started well.

At 140p, consensus eps of around 13.0p for September 2015 puts Marston’s on 10.8x, with a dividend circling 7p producing a yield of 5.0%. They seem to spend their time in the shadow of Greene King, but are correspondingly lower rated. Growth may not be stellar, but for a high yield play with dividend growth Marston’s holds its own. (Neil Cumming^, 28^th November 2014)

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