Marston’s, the brewer and pub operator, has said it expects trading in the three months to the end of March to be slightly below last year, as it gives details of how it will segment its pub estate for trading updates.
The estate has been segmented into three groups - Destination and Premium (339 sites), which are managed pubs where the food sales mix is high and the primary reason to visit is for dining; Taverns (156 managed pubs, 1,242 tenanted and franchised pubs, including 379 identified for disposal), where drink sales are high but food is increasingly important; and Leased (391 sites), which are high quality independent pubs that benefit from a higher degree of independence.
Leading analyst Douglas Jack said the changes will better highlight the growth in food-led pubs.
Marston’s said snow and exceptionally cold weather throughout the UK in the three months to the end of March “inevitably affected trading across our pub estate and we expect to report operating profit for the first half slightly below that of last year”.
It said that as previously mentioned, the interest charge for the period will be higher, “principally due to the step-up in securitised interest”. “However, our expectations for the overall trading performance for the full year remain unchanged.”
“As part of the operational restructuring described above and our ongoing focus on minimising costs, we expect to reduce operating costs by around £3m per year, with about half of this amount benefitting the results for the second half of this year.”
Marston’s said trading has “started well” in H2 and “we expect to benefit from less challenging sales comparatives for the remainder of the financial year”.
The company has opened nine new pub restaurants in the financial year to date and it anticipates opening at least 20 by the end of the year. This, “combined with the rollover benefit of the back-ended 2012 programme, will generate additional profit in the second half”.
Segmentation
1) Destination and Premium
Destination will include those pubs where the food sales mix is high and the primary reason for a consumer visit is to dine. This group of pubs includes all of the new-build investments in recent years and is intended to be the key focus of investment and driver of future growth, increasing by 20-25 pubs a year. All of these are operated as managed pubs.
Premium includes pubs operating as Pitcher and Piano or Revere and will grow principally through the gradual conversion of selected existing sites. Destination and Premium currently comprises 301 Destination Pub Restaurants, including all of the new-build investments and 38 pubs operating as either Pitcher and Piano or Revere.
2) Taverns
Taverns will include its well-situated high quality community pubs, operated through managed, franchised and tenanted business models. In these pubs, the drinks sales mix is high although food sales are increasing in importance. From a consumer perspective the success of these pubs is achieved through a combination of great licensees, offers, entertainment and amenities appropriate for local consumers.
Marstons’ intention is to increase the number of pubs operating under franchise agreements over time, initially through converting tenanted pubs and then a number of managed pubs.
Taverns currently comprises 156 community managed pubs and 1,242 tenanted and franchised pubs, including 379 pubs identified for disposal.
3) Leased
Marston’s said the leased model is well-suited to high quality distinctive pubs that benefit from a higher degree of independence and committed entrepreneurial licensees. It currently operates 391 pubs under this model.
Marston’s said the changes have no impact on the reporting of Marston’s Beer Company or group results overall.
Jack, of Numis, this morning raised his Target Price for Marston’s from 145p to 160p and reiterated his Buy recommendation.
He said: Although Q2 trading conditions were very tough, the company’s full year expectations remain unchanged (we cut our forecast by just 1%), aided by new cost savings, strong trading from new sites and good LFL trading prospects in H2. These positive underlying trends point to potential upgrades next year, hence we are raising our target.
In terms of the changes to segmental reporting, Jack said: “Sales, EBITDA and operating profit reporting will now be aligned with the way the company is operated, increasing disclosure by adding another pub division.
“This should better highlight the growth in food-led pubs (Destination & Premium), which should receive two-thirds of group capex.”
He added: “H1 2013E EBIT will be slightly below H1 2012’s (we estimate by 1.5%) due to poor weather. Due to a higher interest charge, we estimate H1 PBT will be down 15% to £28.3m. Nevertheless, we forecast FY PBT rising 9% to £95.5m (cut from £96.5m); a 17% underlying increase prior to the 53rd week, snow costing an estimated £4m as well as £5m of extra swap/securitisation costs.
“Our £95.5m PBT forecast (consensus: £95.0m) is consistent with £14m EBIT growth in H2. £12m should derive from: additional new builds (£7m); a 53rd week (£3m); and new cost savings (£2m). 2% LFL sales in H2, which should be achievable against easy comparatives, would give the other £2m.
“2013E’s 17% underlying PBT growth rate implies attractive forecast upside for 2014E (8% PBT forecast growth, excluding 2013E’s 53rd week) given 2014E’s additional cost savings (£1.5m) and the possibility of a return to ‘normal’ weather. Thereafter, 2015E should benefit from a £3m fall in securitisation costs. Given the improving prospects, we would use recent weakness as a buying opportunity.”
