Peel Hunt’s Douglas Jack and Ivor Jones gives their predictions ahead of Marston’s interim results next week.
Peel Hunt’s Douglas Jack and Ivor Jones gives their predictions ahead of Marston’s interim results next week. They estimate continued profit growth, largely due to the impact of the Charles Wells acquisition, with like-for-like sales in the pubs likely to have been hit by the weather. They also explain why they think there is a strong case for slowing the pace of new pub development and increasing acquisition firepower.
The note says: “For the interim results, due on 16 May, we are forecasting PBT being up 7% to £36m, held back by tough trading conditions during January to March 2018. As snow has affected destination food outlets disproportionately, we are shaving 3% off our FY forecasts, which were in line with consensus.
“We still forecast 7% PBT growth in 2018E (largely due to Charles Wells) and expect the dividend (yielding 7%) to be held.”
“Destination & Premium’s (D&P) LFL sales fell by 0.9% in Q1 (16 weeks), although the figure would be +1.1% after adjusting for the impact of snow. We do not envisage there being any improvement on Q1’s trends in Q2: our full-year assumption requires no LFL sales growth. Our £3m PBT downgrade reflects three weeks of snow YTD, and is heavily weighted to D&P, for which we assume margins fall by 90bps over the full year.
“In Q1, trading was stronger in the wet-led Taverns estate than in the food-led D&P estate, repeating last year’s trend. Taverns generated 2.6% LFL sales growth in Q1 (helped by snow having less impact as the venues are not drive-to destinations), ahead of our full-year assumption of 1.5%. We expect a slight slowdown in Q2, but nothing significant due to the estate’s market positioning.
“Leased LFL profits rose by 2% in Q1, ahead of our flat full-year assumption. We expect the estate to still be ahead after Q2.
“Brewing LFL volumes grew by 33% in Q1 2017 due to the Charles Wells acquisition, with synergies on track. Over the full year, we forecast brewing volumes rising by 19% as the total sales growth rate should slow after the anniversary of the Charles Wells acquisition in June. We believe Marston’s should have been a small net beneficiary of supplier disruption elsewhere.
“Marston’s opened three pubs/bars and two lodges in Q1. Previous guidance was for it to open 15 pub/bars and six lodges in 2018E, but, given the market conditions, there is a strong case for slowing the pace of development and increasing acquisition firepower, prior to which we forecast net debt/EBITDA falling from 6.0x pro forma to 5.7x in 2018E.