Leading sector analysts Simon French and Douglas Jack look ahead to the full-year results for Marston’s, the brewer and pub operator, which are due on Wednesday 3 October. French, of Panmure Gordon, said Marston’s is one of the least expensive pub stocks with the highest yield, trading on a CY 2013E adj EV/EBITDAR of 7.9x and yields of 6%. “Hence we reiterate our Buy recommendation and 130p target price, implying c14% upside potential.” “At its Q3 update the group reported LFL sales growth of +2.2% in its managed pubs for the 42 weeks to 21 July and we expect this rate of growth to be broadly unchanged at the year-end. We do not believe the departure of Alistair Darby to Mitchells & Butlers will damage the group’s operations. “At the Q3 IMS, Marston’s reported LFL sales growth of 2.2% YTD in its managed pubs compared to our estimate of c+2% with food continuing to grow slightly ahead of drink. In the last 10 weeks of the period LFL sales increased +1.6% and operating margins for the YTD remained slightly ahead YOY. In tenanted and franchised pubs operating profit was +3.2% YTD a modest improvement from the +3% last reported and in Brewing own-brewed volumes were +2% YTD in line with the half-year performance. “The group is on track to complete 25 new-build pub restaurants this year and continues to guide towards 20-25 per annum going forward. The franchise estate now consists of 450 pubs and continues to perform strongly.” Jack, of Numis, said: “We do not expect much change in underlying trading. However, it would make sense for the company to announce the outcome of its estate revaluation at this stage, highlighting the equity value that is being created by the new build programme. “Managed pub LFL sales were up 2.2% after 42 weeks, ahead of our 1.5% full year assumption, subsequent to which the Olympics and mixed weather are likely to have been more detrimental than helpful to trading. “Marston’s is investing a higher proportion of its capex on new build expansion (where it is achieving cash returns in excess of 18% on freeholds) rather on existing sites. In Marston’s case, this strategy should generate greater long-term shareholder value, but with the disadvantage of being less flattering on LFL sales (relative the peers that orientate capex to the LFL estate). “Tenanted profits rose 3.2% in the first 42 weeks , the strongest performance in that sector, driven by a strong growth in the franchised estate. Our full year forecasts assume a 3.5% increase in tenanted profits, reflecting the improving trend as more sites convert to franchise. “Brewing volumes were up 2% after 42 weeks. Brewing profits grew 3% in H1; our full year forecast anticipates 1% profit growth despite cost pressure easing in H2. “The estate revaluation should raise the value of the new build estate, in our view, but also result in an appropriate adjustment in tail-end tenanted pubs (down) to valuations that should enable an increased pace of estate churn. “This and a slowdown in Franchise Agreement conversions should create excess cash in 2013E, which we believe should be used to support the highly-successful new build programme. “The 2013E outlook is supported by easy weather-related comparatives and costs being largely locked-in at levels that can be offset by a price rise of just 1.2% in the managed estate. These factors should underpin attractive self-financed earnings growth and dividends, which we believe should attract capital rotating back into the sector."