What's new:
■ Beer sales improve in the first half
■ New-build programme on track
■ Trading conditions to remain difficult
Marston's managed a modest sales rise with its first half figures - not a bad performance given the tough trading climate. As owner of 2,200 pubs and bars across the UK and brewer of premium beer brands like Pedigree, Jennings and Ringwood, the group has been working to improve the quality of its pub estate and the range of beers on offer.
That seems to be paying off - new and large pub and restaurants within its managed pub estate helped boost sales by 1.4 per cent and operating margins by 0.5 per cent. Moreover, the trend has continued into the second half, with sales up 1.2 per cent in the group's managed pubs during the six weeks to 15 May.
Still, on the tenanted and leased pub side, trading has been much tougher and a new retail agreement has been introduced that will give Marston's much greater control over such issues as the food on offer and investment in amenities. From the 63 pubs operating this agreement on a trial basis there has been a sustained improvement in volumes - management is now targeting an annual profit improvement of £10,000 per outlet.
Numis Securities says...
Buy. First-half profits were in line with expectations but we expect pub and restaurant expansion and new leased pub agreements to generate double-digit earnings growth in 2011 and 2012. What's more, profits will be boosted from selling 60 underperforming pubs and from an increase in the number of pubs, from 63 to 600, covered by the Retail Agreement. At a targeted £10,000 per pub, this could boost annual profits by £6m. Meanwhile, cash flow has improved, thanks to a favourable tax charge and and working capital movements, so debt levels should decline. Expect full-year pre-tax profits of £72.5m and EPS of 9.8p.
KBC Peel Hunt says...
Buy. The better tone in sales during the first half has been maintained at the start of the second half and we expect Marston's to be among those most likely to benefit from the World Cup - each England match could generate an extra £0.25m in turnover. Meanwhile, tenanted pubs, with their high concentration of community locations, should attract additional business. There's a decent yield and yet the shares, on 10 times expected earnings, are inexpensively rated. Expect full-year adjusted pre-tax profits of £73.7m and EPS of 9.8p.
