A leading analyst has suggested that an estate revaluation by Marston’s should raise the value of its new build estate and also result in an appropriate adjustment in tail-end tenanted pubs (down) to valuations that should enable an increased pace of estate churn. In a note aimed at the group’s year-end trading statement due on 3 October, Douglas Jack at Numis said that this and a slowdown in Franchise Agreement conversions should create excess cash in 2013E, which he believe should be used “to support the highly-successful new build programme”. He 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).” The group’s 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. Jack said: “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 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.”