A leading sector analyst has described Marston’s plans to invest in new build pubs as impressive but said the regional brewer would be better served by making further inroads to its debt.
While the £176m rights issue by Marston’s has been broadly supported by analysts, Hugh-Guy Lorriman at Seymour Pierce said the group should do more to reduce its debt of £1.2bn.
He said: “We continue to believe, as per our April sector review (Debt Hangover), that debt and indebtedness is the key issue for the sector.”
Despite being given confidence by leading Marston’s directors taking up their rights in full, he added: “We view the participation of the directors as a positive sign but we feel less positive on the earmarking of cash for investment in managed pubs versus debt reduction.
“We favour the group’s regional brewer business model and its status as a potential M&A target but we are less sanguine on returns and balance sheet on a relative basis.”
However, Mark Brumby at the newly named Astaire Securities – previously Blue Oar – was more positive and said the deal was not a surprise.
He said: “It is an intrinsically conservative company that can be relied upon to use the funds it is raising sensibly and we remain supportive of the shares and retain our buy recommendation.”
Astaire is joint broker to the company.
Marston’s aimed to spend £140m of the £176m creating 60 new-build pubs. The balance of the fund raising, which is being handled by Rothschild and underwritten by RBS Hoare Govett and JP Morgan Cazenove, will be used to pay down long-term bond debt, some of which is trading at up to a 50% discount to face value.
Marston’s follows Greene King and Punch Taverns in raising fresh equity through the issuing of new shares.
Enterprise Inns yesterday reportedly told analysts that it had no need to launch a similar exercise and believes that it will be able to refinance its £1bn bank facility before September 2010 at a reduced size of between £600m and £700m.
