The Lemon Fool

Five fold increase in reported revuenue

From £105million loss to a £25.6 million profit

Shares fell 7.2 percent

Can anyone explain this? Seems bizarre

Jon

Jon277 wrote:Five fold increase in reported revuenue

From £105million loss to a £25.6 million profit

Shares fell 7.2 percent

Can anyone explain this? Seems bizarre

Jon

Never forget the old saying: "Sales are vanity, profit is sanity". I assume the profit was less than expected by the market and the forward looking statements were not positive, particularly with regard to input and wage cost inflation.

I forgot to add that when you see what the ONS said about the increase in food and alcohol sales for home consumption, it indicates people are going out less. Not good for Marstons.

All the best, Si

Not one I follow, but the usual reason is that the results, good thought they might be, are not as good as expected by The City.

Investors can be fickle

I don't know anything about them
but generally share prices are not always about what happens today
They are often about future expectation
Was this boost in profits expected and therefore already reflected in the price

Jon277 wrote:Five fold increase in reported revuenue

From £105million loss to a £25.6 million profit

Shares fell 7.2 percent

Can anyone explain this? Seems bizarre

Jon

Shares fell in early trading, but are currently 3.9% up on yesterday's closing.

Jon277 wrote:Five fold increase in reported revuenue

From £105million loss to a £25.6 million profit

Shares fell 7.2 percent

Can anyone explain this? Seems bizarre

Because the market is intelligent enough to see that obviously the comparison with last year is pretty meaningless, the value of the company has some sense of the long term without getting too obsessed with the short-term ups and downs. It's more meaningful to compare with the last ones before the pandemic :

2019-20 : https://www.investegate.co.uk/marston-s ... 00041436R/
2021-2 : https://www.investegate.co.uk/marston-s ... 00048415L/

Marstons are a pretty decent operator who have had a clear direction in dumping city-centre pubs with little scope for expanding their food offering, and reinvesting in suburban dining pubs. The pandemic hit at not a great time for them, and it's a shame they had to hand over their brewing to Carlsberg, but they're doing their best amongst difficult times. But if you compare these results with 2019-20, they may have just about kept the top line flat but you'll see how increasing costs have affected key ratios, for instance the operating margin on the pubs has nearly halved from 18.2% to 10.8%.

Jon277 wrote:Five fold increase in reported revuenue

From £105million loss to a £25.6 million profit

Shares fell 7.2 percent

Can anyone explain this? Seems bizarre

Jon

At a guess. Because it's only comparing FY22 with FY21. And FY21 will have been the covid reporting one!

So the better comparison is one of FY22 to FY20 or FY22 to FY19 and doing the appropriate CAGR. I'm always mindful of this when I compare reports......good guys e.g. Next (LON:NXT) even go to pains to make this quite in their RNSs.

Matt

Jon277 wrote:Five fold increase in reported revuenue

From £105million loss to a £25.6 million profit

Shares fell 7.2 percent

Can anyone explain this? Seems bizarre

Jon

Various points:

* A better comparator is 2019, which the company itself prefers. However, its hands are tied.

* It hasn't swung from a "£105 million loss to a £25.6 million profit". Look at the underlying figure: it's still loss-making.

* Also, cash flow is negative.

So bizarre, no. Disappointing, yes.

MDW1954 (holds)

IMV marstons would be better off under private equity - same with mitchells and butlers.

at the moment they seem to be concentrating on sales and profits. an asset intensive business such as theirs needs to be focused squarely on returns. i.e. driving up returns on capital. selling off non core assets, including land and under performers. they also need a laser like focus on costs, few do this better than PE.

their brewing deal was a masterstroke that allowed them to avoid the dilutive capital raises that every other pubco had to do. the value of marston's to private equity is demonstrably higher than 60p, as 105p was rejected a year ago.

on the other hand the banks are nervous, and private equity require supportive debt markets to make the sums add up. the price is interesting though.

westmoreland9 wrote:IMV marstons would be better off under private equity - same with mitchells and butlers.

at the moment they seem to be concentrating on sales and profits. an asset intensive business such as theirs needs to be focused squarely on returns. i.e. driving up returns on capital. selling off non core assets, including land and under performers. they also need a laser like focus on costs, few do this better than PE.

Actually I think there's a good argument that pubs are one of the industries that PE doesn't work for. They're fragile things, there may appear to be a certain amount of "fat" in the numbers but actually that's needed for the long term. PE do quick fixes which make the finances look great for a year or two, but they forget that the biggest asset in the pub businesss is the human capital that can be destroyed by trying to get too clever with the finances.

I can give you a specific example of a pub that I know, that was always a bit of a weird one, a bit tatty but really well run - multiple awards - that was owned in the bit of Punch that was bought by Patron Capital. It thrived over 10+ years with the old Punch despite a cycle of a new Punch manager coming in every couple of years with grand plans for a new direction, they even had software which allegedly had a 80+% success rate in identifying what pub would suit different areas. And each time the old tenants would have a fight with the new manager and eventually persuade them why the standard model wouldn't work with this particular pub, why it was in the <20% where the model didn't fit, and to let them carry on with their own quirky way.

But then Punch gets taken over and to be fair, their permanent financial crisis had left them with no money for capex, and there should be good payback in investing some money in the estate to make money. So private equity come in, ignore what the old Punch software was saying, and decide they want to spend 6 figures turning it into something completely different, the kind of fancy dining pub that they'd like to go to - and increase the rent accordingly. The tenants tried to point out that a) it's a working-class town that just couldn't support a venture of the kind they envisage, b) certainly not at the planned rent, but a much smaller refresh with a smaller rent increase would work and c) they were already struggling to find chefs locally despite all their local contacts, and certainly couldn't imagine staffing a much bigger kitchen.

To cut a long story, it ended up at Punch board level but the old tenants refused to pay the new rent and moved to another pub nearby. Private equity went ahead with spending ££££ on a big refurb, upped the rent accordingly - but it's been a disaster, all that expenditure has led to sales falling by maybe 60%. Partly because beer prices had to go up 40+%, partly because the locals rather liked the way the old tenants did things and have moved with them to their new place, and partly because this "dining" pub has had no food for half the time because they haven't been able to recruit chefs. So the first tenant gave up in less than a year, and I can't see the new one surviving long. It's a shame, as it's a nicer building than the one the old tenants moved to, maybe they'll end up selling it to them.

So that's my story of a pub and private equity. The guys from private equity may have splashed the cash but managed to destroy the business in doing so. They tried to optimise the rent return in the short term, and thought their spreadsheets knew better than the people on the ground. Most of all, they made the mistake of assuming that the culture and customer loyalty belonged to the building and not the tenants. That's something that the family brewers are rather better at, and they tend to have a longer-term outlook than the typical "City" owner.

But in general it's a pretty common story in pubs, pubcos squeezing out good long-term tenants with a rent rise too far, and then getting a series of tenants who don't last long, perhaps because they don't know what a stupid rent they're paying, and the pubco end up with a series of short-term tenancies followed by voids and less money overall, before they finally sell it for redevelopment or as a supermarket etc.

Going back on-topic, I don't know Marston well, but I get the sense that the old Marston bit has more of that feel for pubs, whereas the Wolves & Dudley bit who now control the company despite the name, don't have it so much. So they'll make more stupid decisions because the spreadsheet says so. On the flip side, one welcome sign is a comment about going to turnover-based rents, which have to be the long-term future of the sector.

There are a lot of problems with pubcos, which is why I have avoided them since my Greene King shares were bought out (that was very lucky ). They have very high fixed costs and debt. The properties are used to secure debt which may be at well above current interest rates (a big liability if debt is at fair value). The pub valuations are often rather dodgy as they are not valued at the open market value of the property but based on a valuer’s assessment of their value as a trading asset. This often shows itself up when pubs are sold and there is a significant loss compared to book value. That does not instil confidence in the robustness of the book value of the remaining pubs. They often need to be ‘refurbished’ and I doubt previous depreciation charges often turn out to be sufficient.

Hallucigenia wrote:

westmoreland9 wrote:IMV marstons would be better off under private equity - same with mitchells and butlers.

at the moment they seem to be concentrating on sales and profits. an asset intensive business such as theirs needs to be focused squarely on returns. i.e. driving up returns on capital. selling off non core assets, including land and under performers. they also need a laser like focus on costs, few do this better than PE.

Actually I think there's a good argument that pubs are one of the industries that PE doesn't work for. They're fragile things, there may appear to be a certain amount of "fat" in the numbers but actually that's needed for the long term. PE do quick fixes which make the finances look great for a year or two, but they forget that the biggest asset in the pub businesss is the human capital that can be destroyed by trying to get too clever with the finances.

I can give you a specific example of a pub that I know, that was always a bit of a weird one, a bit tatty but really well run - multiple awards - that was owned in the bit of Punch that was bought by Patron Capital. It thrived over 10+ years with the old Punch despite a cycle of a new Punch manager coming in every couple of years with grand plans for a new direction, they even had software which allegedly had a 80+% success rate in identifying what pub would suit different areas. And each time the old tenants would have a fight with the new manager and eventually persuade them why the standard model wouldn't work with this particular pub, why it was in the <20% where the model didn't fit, and to let them carry on with their own quirky way.

But then Punch gets taken over and to be fair, their permanent financial crisis had left them with no money for capex, and there should be good payback in investing some money in the estate to make money. So private equity come in, ignore what the old Punch software was saying, and decide they want to spend 6 figures turning it into something completely different, the kind of fancy dining pub that they'd like to go to - and increase the rent accordingly. The tenants tried to point out that a) it's a working-class town that just couldn't support a venture of the kind they envisage, b) certainly not at the planned rent, but a much smaller refresh with a smaller rent increase would work and c) they were already struggling to find chefs locally despite all their local contacts, and certainly couldn't imagine staffing a much bigger kitchen.

To cut a long story, it ended up at Punch board level but the old tenants refused to pay the new rent and moved to another pub nearby. Private equity went ahead with spending ££££ on a big refurb, upped the rent accordingly - but it's been a disaster, all that expenditure has led to sales falling by maybe 60%. Partly because beer prices had to go up 40+%, partly because the locals rather liked the way the old tenants did things and have moved with them to their new place, and partly because this "dining" pub has had no food for half the time because they haven't been able to recruit chefs. So the first tenant gave up in less than a year, and I can't see the new one surviving long. It's a shame, as it's a nicer building than the one the old tenants moved to, maybe they'll end up selling it to them.

So that's my story of a pub and private equity. The guys from private equity may have splashed the cash but managed to destroy the business in doing so. They tried to optimise the rent return in the short term, and thought their spreadsheets knew better than the people on the ground. Most of all, they made the mistake of assuming that the culture and customer loyalty belonged to the building and not the tenants. That's something that the family brewers are rather better at, and they tend to have a longer-term outlook than the typical "City" owner.

But in general it's a pretty common story in pubs, pubcos squeezing out good long-term tenants with a rent rise too far, and then getting a series of tenants who don't last long, perhaps because they don't know what a stupid rent they're paying, and the pubco end up with a series of short-term tenancies followed by voids and less money overall, before they finally sell it for redevelopment or as a supermarket etc.

Going back on-topic, I don't know Marston well, but I get the sense that the old Marston bit has more of that feel for pubs, whereas the Wolves & Dudley bit who now control the company despite the name, don't have it so much. So they'll make more stupid decisions because the spreadsheet says so. On the flip side, one welcome sign is a comment about going to turnover-based rents, which have to be the long-term future of the sector.

interesting read. however since you mention punch, that was recently flipped by private equity generating a huge windfall for the owners.

and yes, being brutally honest i'm talking about making a short term profit. m&b in particular has an estate full of huge, acre plus establishments in residential areas. the share price has gone nowhere despite substantial deleveraging, and the price of residential land is through the roof. these assets can be managed more intensively for the benefit of shareholders.