Shares in Marston’s (MARS) dropped 4% to 66.5p on Tuesday despite the pubs group saying positive trading momentum had continued into the new financial year.
The share price decline reflected investor worries that the latest variant of concern could result in further social restrictions being implemented across the hospitality sector.
Since restrictions were lifted in April, like-for-like sales have been tracking at 102% of pre-pandemic levels. Trading since the year end on 2 October was said to be encouraging with like-for-like sales 1.3% above 2019 and Christmas bookings were also at 2019 levels with no cancellations seen since news of the latest virus variant Omicron broke.
While footfall remained below pre-pandemic levels, chief executive Andrew Andrea told Shares there were positive signs that business was normalising with older clients returning to pubs and the appearance of the ‘Wednesday lunch brigade’.
DISRUPTED TRADING
Trading for the full year to 2 October was disrupted by closures resulting in pub revenues dropping 22% to £402 million while pre-tax losses increased to £100 million from £22 million.
At the period end the business had drawn down £190 million of a £280 million banking facility, providing headroom of £90 million and £32 million of cash.
The sale of the beer business (net proceeds of £228 million) helped to reduce net debt to £1.23 billion from £1.33 billion in the prior year.
BACK TO A BILLION
The company outlined its goals in a post pandemic world saying it had a clear target to grow revenues back to £1 billion following the sale of the beer business and to reduce net debt to below £1 billion over the next four years.
Including last year’s purchase of Brains, the target is to grow revenues by roughly £200 million which implies annual growth around 5.7% a year. The company plans to rebalance its estate by reducing the predominantly mass-market food led pubs and converting some of them into ‘signature’ pubs with a premium offering and some into pure wet-led pubs.
The company will also look to augment organic growth by adding ‘capital light’ acquisitions similar to the Brains deal where it acts as operator with partners providing the capital.
The plan is to grow sales and profits above 2019 levels, driving cash flow that can be deployed back into the business, as well as reduce debt and resume progressive and sustainable dividends.
EXPERT VIEW
Shore Capital analyst Greg Johnson said: ‘Stripping out the Group’s 40% stake in the JV with Carlsberg, the pub estate is valued at under 8x fully recovered EBITDA.
‘This is sharply below the historic trading range of 9-11x. On our estimates we see the recovery to pre-pandemic levels within three years, whilst the valuation should also benefit from reduced debt levels and further value creation from Carlsberg JV.’
