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Distribution the road to growth for Marston's

The brewer/pubco has opened up further commercial opportunities through new distribution contracts
November 30, 2017

Shares in Marston’s (MARS) were in demand after it eclipsed £1bn in revenues in the year to September. That growth was a partial consequence of the £55m acquisition of the Charles Wells Beer Business (CWBB), which brought popular ales such as Bombardier, Young’s and McEwan’s within the Marston’s portfolio.

IC TIP: Buy at 114.3p

However, the Wolverhampton-based brewer/pubco will eventually need to convince analysts that the current squeeze on operating margins will dissipate quickly. That looks likely as the 0.6 percentage point drop reported in these numbers was largely attributable to the cost of converting pubs from tenanted to franchise agreements and the dilutive effect of the CWBB deal. With a sizable proportion of the targeted synergies of this acquisition linked to readily realisable labour savings, management is well on the way to achieving the £4m annual cost savings.

Moreover, external challenges, including energy levies and the national living wage – which will continue to nibble away at margins – are under control. Marston's has long-dated agreements with third-party brewers and food suppliers to mitigate inflationary effects. 

Broker Peel Hunt gives adjusted pre-tax profits forecasts of £110m for the September 2018 year-end, leading to EPS of14.2p, against £100m and 14.2p in FY2017.

MARSTON'S (MARS)   
ORD PRICE:114.3pMARKET VALUE:£725m
TOUCH:114.3-114.9p12-MONTH HIGH:148pLOW: 100p
DIVIDEND YIELD:6.6%PE RATIO:8
NET ASSET VALUE:147p*NET DEBT:143%
Year to    TurnoverPre-taxEarnings Dividend
30 Sep (£bn) profit (£m)per share (p) per share (p)
20130.7867.510.06.4
20140.82-59.2-8.96.7
20150.8831.34.17.0
20160.9480.812.77.3
20171.0110014.27.5
% change+8+24+12+3
Ex-div:14 Dec   
Payment:29 Jan   
*Includes intangible assets of £298m, or 47p a share