Marston's returns to profit

Marston’s (MARS) posted its first statutory profit since 2018 as revenues recovered to pre-pandemic levels on the back of a “return to more normalised trading”. But there is uncertainty when it comes to the pub operator’s headline sales and net debt targets. By 2026, the company wants to get back to £1bn in annual sales (the FactSet consensus is that this won’t be achieved) and reduce net debt to below £1bn (this target has been pushed back a year due to the macro environment). Only time will tell if these aims are achievable or if management is too optimistic. 

Annual like-for-like (LFL) sales hit 99 per cent of 2019 levels in the period, and in the final 10 weeks of the year were up 3 per cent against the pre-Covid baseline, which is encouraging. This was a solid enough result. And post-period trading looks good. LFL sales at managed and franchised pubs since the year-end grew by 7 per cent against last year, boosted by punters heading to the company’s pubs to watch the World Cup. Christmas bookings are ahead of 2019 levels.

Marston’s also made bullish noises on costs. Gas prices are hedged out to 2025 and electricity costs are hedged for the first half of next year. A significant amount of food and drink costs are under contract. A higher wage bill, which the company estimates will add £2mn to costs next year, will be mitigated through pricing action.

Peel Hunt analysts said that the company’s “recent positive trading represents an outperformance of the sector, a continuing theme since July”. But while trading is promising, the mixed picture on key financial targets and the failure to reinstate the dividend must also be considered. Hold.

Last IC View: Hold, 60p, 18 May 2022