Leading analyst Douglas Jack at Numis has said that he expects trading at Marston’s to have remained positive across all its divisions when it provides its AGM statement next Tuesday, resulting in forecasts being held.
He said: “We forecast a return to double-digit earnings growth this year, with net debt/EBITDA falling 0.3x despite the attractive dividend, yielding c.5%. Although comps will be tough in H1, they ease in H2 and the consumer backdrop is favourable, with Longview forecasting a 5.0% increase in household cash flow this year.
“Even though Marston’s faced tough Christmas trading comps (+3.3%; +9% on a two-year basis), we expect LFL sales across its Premium & Destination sites to have strengthened slightly, aided by a positive sector backdrop. This, avoiding discounting and the opening of higher-margin new builds should have kept margins on the increase.”
25 new builds are forecast to open this year, on a freehold build cost multiple of 6-7x EBITDA.
Jack said: “Marston’s has an additional opportunity to drive growth through increasing its number of co-located lodges (from 22) through developing 15 existing sites which have a lodge opportunity, in addition to a pipeline that offers 3-5 lodge opportunities pa.
“Within Taverns (974 pubs), managed and franchised LFL sales rose 2.0% in the first seven weeks and subsequent trading should have been supported by ongoing investments and disposals. Leased and Brewing should be up, having traded positively during the first seven weeks.
“Partly due to the proposed Market Rent Option (MRO), we expect Marston’s to sell 200 Taverns’ pubs and convert 239 others to franchised (recently at 535 pubs). Only half of Leased profit, or 7.5% of company profit, is exposed to the MRO, for which downside risk should be minimal: only six lessees (out of 343) have opted for free-of-tie pricing in the last six years.
“We expect to hold our 2015E forecasts (PBT £91.8m; consensus £91.6m) which assume 2.5% LFL sales growth in P&D, 2% LFL sales growth in Taverns, 1% LFL profit growth in Leased and slightly positive Brewing volumes. Cost pressures are sufficiently benign such that they can be offset by a 1% price increase.”
