Marston’s, the brewer and pub operator, plans to maintain the pace of its new-build openings into 2013 after seeing a continued rise in takings at its new-build sites in the most recent trading period. Average weekly turnover among Marston’s new build sites reached £27,000 for the 42 weeks to 23 July, compared to just under £15,000 for the Inns and Taverns managed division as a whole, chief executive Ralph Findlay told M&C Report. He said the company is on-track to open 20 sites by the end of this financial year. Eighteen of the 25 sites earmarked for new build developments next year have already been acquired, Findlay said. “We are looking at 25 the year after that,” he added. “That’s quite a significant development programme for us.” Findlay said new-builds are likely to increase the food mix across the managed estate from about 41% now to about 45% within the next couple of years; the new-builds’ average wet/dry split is 40/60. Marston’s this morning reported a 2.9% uplift in sales in its managed arm, with food sales up 5% and wet sales up 1.7%. Marston’s approach of expanding its managed business by growing the new-build estate is in contrast to Greene King, which has focused on buying existing pub operators, most recently its £70m swoop for London-based Capital Pub Company. Findlay said: “I’m not persuaded by geography. Geography is not the driving force of our investment plans. London may be hot at the moment but it’s one part of the UK. We look at what’s around, what fits, if the right returns are available.” Within its leased and tenanted division Marston’s Pub Company, Findlay revealed that its 300 sites on the franchise-style Retail Agreement have experienced “double digit growth”, while the 1,000 on long leases are ahead of last year. The 300 sites earmarked for conversion to the Retail Agreement by 2014 saw sales decline. Capex on sites that were converted to the Retail Agreement was £10m. Three hundred pubs have been converted to the Retail Agreement already this year, meaning its ahead of target; Findlay said a “small number” may be completed between now and September. In addition, £15m of maintenance capex and £5m of development capex has been spent in the core 1,000 pubs. Findlay said Marston’s “significantly outperformed” the beer market over the 43 weeks - own brew volumes are up 2%, with premium cask ale up 4%. “Premium cask ale has been really strong for us,” said Findlay, who said “local brands” such as Jennings, Brakspear and Hobgoblin have driven the growth. “It’s encouraging for us that we continue to be up by about 4% in premium cask beer volumes, because that’s our on-trade distribution that has held up the 43 week period.” He said off-trade sales have “weakened” over the past 10 weeks due to comparisons with last year’s World Cup. Issuing a Hold recommendation for Marston’s, Douglas Jack at Numis said the results were “encouraging” following the slowdown in like-for-like sales reported by Mitchells & Butlers last week. “Profitability is reported to be “in line” and we are holding forecasts, having upgraded recently by 3%; we project 13% EPS growth in H211E. With M&B in management turmoil and Greene King’s returns being diluted by acquisitions, Marston’s is our top licensed retailer pick, offering attractive organic growth, improving returns and a 5.5% dividend yield.” “We are holding our full year forecasts which assume managed pub LFL sales +2.5%. We continue to estimate a £16m of upside to forecasts over the next four years if recent average new build returns and Retail Agreement profit uplifts continue. “Marston’s has the similar EV/ebitda rating (currently 8.8x 2011E) as Greene King but we prefer Marston’s organic growth strategy (building freehold pub/restaurants for 5.4x ebitda), which is capable of generating double-digit EPS growth and supporting an attractive dividend, without incurring much change in debt.” Stuart Foreshaw of WH Ireland Securities issued a Buy recommendation and said: “This result is a resilient performance against a difficult trading background and is in line with our expectations. The reported improvement in operating margin is also in line with our estimates.” Geof Collyer of Deutsche Bank issued a Hold recommendation and said: “All in all, a good statement, with progress in the two main businesses and market out performance in the other. “The shares have had a good recent run vs. the rest of the pub groups, outperforming them by between 97% and 18% over the past month, and are supported by a 5.5% div. yield. No change to forecasts. A reasonable Hold, in our view.”

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