Pub group Marston's (MARS) issued a trading update for the 16 and 42 weeks ended 20 July and perhaps unsurprisingly, given tough comparatives, saw a slowdown from a positive 2.2% in the first half to 29 September 2019 to minus 2% in the last 16 weeks.
The shares have been on a good run, up 21% over the last five months, so it is not too surprising to see them down by 7% today to 113p.
Over the 42-week period like-for-like sales growth slowed to 0.5% compared with 2% at the half year stage.
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Chief executive Ralph Findley said ‘We have achieved modest growth during the 42 weeks to date, continuing the long term positive LFL sales trend despite May and June being hampered by relatively poor weather.’
ACCELERATING DEBT REDUCTION PLANS
The company announced that it will accelerate its plan to reduce net debt by £200 in the 2020 to 2023 time frame. It is proposing to defer £70m of new build investment and reallocate £20m to £30m of funds into organic capital expenditure plans, which are currently achieving significantly higher returns.
The earnings impact is expected to be minimal but it will generate £40m to £50m of additional cash flow over the next three years.
Ralph Findley goes on to say ‘We believe that this focus will further enhance our returns from our existing pub business and reduce our debt at an even greater pace.’
Shore Capital analyst Greg Johnson has lowered his 2019 pre-tax profit estimate by 3% to £106m, but sees a 6.6% improvement to £133m in the year to 29 September 2020.
He estimates that free cash flow before expansion capital expenditure, disposals and dividends will hit £80m by 2022, implying a 12% yield, supporting his two-to-three year 160p price target.
