Pub group, Marston's - which operates the Pitcher & Piano chain - reported a modest 4.6 per cent underlying pre-tax profit increase, to £73.5m, with its full-year figures to 2 October 2010. What's more the group's managed business saw like-for-like-sales rise 1.7 per cent in the year and, in the eight weeks since the period end, that unit has seen like-for-like sales advance 3 per cent.
But it's a very different story at the tenanted unit. That business saw operating profit fall 3.7 per cent in the financial year, to £78.8m, and management says that, in the eight weeks since the start of October, like-for-like profits are estimated to be down 1.5 per cent per pub. The trouble is that the struggling tenanted side generates most - nearly 60 per cent - of group operating profits. Marston's also remains heavily geared - not helped by an ambitious expansion plan that, for example, saw 15 new build pubs opened in the financial year. As a result net debt fell just £17m to £1.08bn - meaning a hefty 139 per cent gearing ratio.
Execution Noble says...
Buy. The full-year figures were in line with expectations but, as flagged before the results, current trading has been strong. Snow in more recent days will have hampered the trend, but the underlying performance is clearly pleasing. Marston's shares trade on a multiple of 8.2 times enterprise value to cash profits, based on our 2011 estimates, and offer a 6 per cent dividend yield. With the shares down 2 per cent in the last four weeks, the market should take heart from the current trading performance.
Peel Hunt says...
Buy. The decline in like-for-like profits at the tenanted side reduced from a 4.6 per cent fall at the half-year stage to a 3.7 per cent decline. This reflects the success of the retail agreement strategy - where Marston's takes a more active role in the tenanted pubs - compared with a national decline of nearer 7 per cent. We expect tenanted like-for-like sales to move positive in the first half 2010-11. Overall, the group is on course for double-digit growth for 2011 and, combined with the 5.8 per cent dividend yield, the shares offer excellent value, trading on 9.2 times expected earnings. We anticipate adjusted pre-tax profit of £81.7m for 2011, giving EPS of 11p.
