Marston's (MARS)

[SDN123]

I’m curious that the sale was for £44.9m and the RSN states that the book value was £62.6m - that doesn’t sound like a good deal yet the CEO says “ We are encouraged by the level of market interest that this portfolio of pubs has attracted.”

What am I missing here?

Also I expect debt to be reduced by £44.9m (maybe naively?) so should I expect the NAV to drop by approximately (62.6 - 44.9 =) £17.2m? Give or take market sentiment of course. Or something else?

Thanks to anyone who can help.

SDN

(PS I hold MARS and don’t expect that to change).

[scrumpyjack]

Also puts a question mark over the book value of the rest of their pubs?

[tjh290633]

"Marston's PLC ("Marston's" or "the Group") is pleased to announce it has reached agreement for the disposal of 137 pubs for £44.9 million to Admiral Taverns. This disposal is in line with Marston's plans to reduce its debt in part through the disposal of certain non-core assets"

https://www.londonstockexchange.com/exc ... 92071.html

Moderator Message:
Note that discussion is taking place on the HYP Practical board. Keep it there to avoid duplication.

Moderator Message:
Sorry, no it isn't -- I reacted to a message to move it before I'd read this. Carrying on here is probably best -- I've spent 15 minutes trying to sort this out so far, and have run out of time and options. -- MDW1954

[IanTHughes]

I’m curious that the sale was for £44.9m and the RSN states that the book value was £62.6m - that doesn’t sound like a good deal yet the CEO says “ We are encouraged by the level of market interest that this portfolio of pubs has attracted.”

What am I missing here?

I am not sure that you are missing anything, but first let us get back to basics. What is Book Value?

I am not an Accountant (thank god ) but as I understand it the Book Value for any Asset on a Balance Sheet is constructed with the use of various Accounting Practices and Regulations. It is not therefore entirely surprising that it may differ from the actual Market Value which of course can only be determined when an asset is put up for sale.

Now I am going to make an assumption here, which is that, having seen the details of this transaction, you are now concerned that the Market Value of Company as a whole may be lower than its reported Book Value would indicate.

Company Book Value = Total Assets – Total Liabilities

So, it naturally follows that lowering the Book Value of some of the Assets will lower the Company Book Value. Very true of course but maybe the Market has already taken that into account by lowering the Market Value.

Company Market Value = Company Share Price * No. of Shares Outstanding

I do not know how the Book Value compares to the Market Value and nor do I know how the results of this transaction may affect that. All I will say is:

If a company is trading at a market value which is lower than its book value, it would indicate that there is a lack of confidence. The Market does not believe that the company is worth the value on its books or that there are enough assets to generate future profits and cash flows.

If a company is trading at a market value which is greater than its book value, there is a belief in the power of those assets to generate earnings and of course profits, improving into the future

One final thing to be aware of is, before diving into the Company Accounts to determine if there is any difference between the Market Value and Book Value of the Company, please remember that the Book Value is only relevant at one single point in time, i.e. when the Balance Sheet was produced. The Market Value by contrast is right up to date.

So, getting back to your original question and my assumption that you were worrying about a reduction in Book Value affecting the Market Value, how sure can you be about such a comparison without an up-to-date Book Value?

I do hope that helps but I guess it does not make any answer you may be seeking any easier to find.


Ian

[scrumpyjack]

Asset value is important for pub companies because they tend to have large borrowings secured on those properties, like a homeowner, and there will be covenants in the debentures. Marstons borrowings are too high which is why they are prioritising paying more back. It is therefore a concern if when they try to sell some, they can only get two thirds of their accounting value

I don't hold the shares

[Dod101]

And what is more, they will have to write down the value of those sold because the book value is the value at which they are carrying those assets on their Balance Sheet. Presumably also as has been said it throws into doubt the carrying value of their other properties as well. According to their latest Annual Report, their property assets were last revalued on 28 January 2018, and is revalued at least every three years by external surveyors.

I wonder if their lenders might ask them if they are sure that the current valuation remains valid in the light of this sale?

Dod

[PinkDalek]

According to their latest Annual Report, their property assets were last revalued on 28 January 2018, and is revalued at least every three years by external surveyors.

Note 12 http://www.marstons.co.uk/docs/financia ... t_2018.pdf includes (my bold):

The Group’s properties are revalued by external independent qualified valuers at least once in each rolling three year period. The last external valuation of the Group’s freehold and leasehold properties was performed as at 28 January 2018. The Group has an internal team of qualified valuers and at each reporting date the estate is reviewed for any indication of significant changes in value. Where this is the case internal valuations are performed on a basis consistent with those performed externally.

The interims released 15 May 2019 don't appear to include any additional adjustment for further impairment and/or material changes in value in the six months ended 30 March 2019 http://www.marstons.co.uk/docs/financia ... 052019.pdf

Generally, I don't think this disposal of these smaller wet led pubs should be indicative of anything much in an estate of some 1,500 pubs. After all, the book value of £62million is only some 2.5% of the carrying value of Property, plant and equipment of approx. £2.4billion at 30 March 2019.

Small beer perhaps.

[Dod101]

You are quite probably correct PD, in that they are likely not to be selling their prime real estate. It should also alert them to the possibility that values may have changed since January 2018.

Dod

[scrumpyjack]

Quite true that they are probably selling their less attractive pubs, but to realise one third less than the value ascribed to them only a year ago does not suggest a prudent or robust valuation process!

[SDN123]

According to their latest Annual Report, their property assets were last revalued on 28 January 2018, and is revalued at least every three years by external surveyors.

...

Generally, I don't think this disposal of these smaller wet led pubs should be indicative of anything much in an estate of some 1,500 pubs. After all, the book value of £62million is only some 2.5% of the carrying value of Property, plant and equipment of approx. £2.4billion at 30 March 2019.

Small beer perhaps.

However if their internal valuers got this small sample wrong by one third only 12 months ago), how do we know that the valuation of rest of the portfolio isn't also out by the same amount (which would be an error of £800m) hardly small beer!

I assume that maintaining their balance sheet is important for this company and their internal valuers would be under at least some pressure to estimate generously (just human nature). Especially as the share price was definitely under pressure in Jan 2018 (the the time of the valuation).

This possibility was why I asked what adjustment in theory this sale should make to the share price. If the reaction was much more than the theoretical change - either positive or negative - I was hoping that I'd have an early indication if "the market" was at all concerned about this situation.

Hope that makes sense.

SDN

PS: I have some concerns about monabri's orginal post being removed from HYP-P, effectively divorcing this discussion from readers of that board. I've posted something to that effect in the "Biscuit Bar" if you have any thoughst on that I suggest that you also post their (if relevant in the thread that I started).

[PinkDalek]

Quite true that they are probably selling their less attractive pubs, but to realise one third less than the value ascribed to them only a year ago does not suggest a prudent or robust valuation process!

Nearly two years ago if one is considering the January 2018 professional valuation.

The Year End Trading Update https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/MARS/14265675.html released 15 October 2019 included:

In addition, we are seeking to accelerate our stated debt reduction target of £200 million by 2023. To that end we are increasing our disposals guidance from £40 million to £70 million for the current financial year.

Maybe this batch of sales was accelerated to such an extent that potential full market value was not achieved on a site by site basis.

[simoan]

I think there's a certain amount of missing the point going on here...

These are tail end pubs which are only marginally profitable. Yes, the sale represents a book loss of £17m but each pub on average only generated EBITDA of £30k i.e. they are not typical of the overall estate and the valuation cannot be carried across to other more profitable units. The good news is that the sale proceeds will pay down debt (reducing interest payments) and will increase the average profit per pub by 7%. It seems like a decent transaction to me.

All the best, Si

[barchid]

It is also interesting that a few months ago they announced that they were in talks to sell their Pitcher & Piano bars, this then came to nothing due to not agreeing on a suitable price. Personally I am fairly relaxed that the sale of 137 old wet led pubs did not reach the valuation made 2 years earlier as they are certainly sub prime, but P&P's are not, they are generally in sought after locations

[simoan]

It is also interesting that a few months ago they announced that they were in talks to sell their Pitcher & Piano bars, this then came to nothing due to not agreeing on a suitable price. Personally I am fairly relaxed that the sale of 137 old wet led pubs did not reach the valuation made 2 years earlier as they are certainly sub prime, but P&P's are not, they are generally in sought after locations

Yes, I agree. And of course, with operating costs increasing in the past two years and likely to increase further, this must have a knock on effect on the asset value when sold as a going concern. And it wouldn't take much of an increase in costs to turn these marginally profitable pubs into loss making pubs.

All the best, Si

[Bouleversee]

And don't forget wages are going up.

When valuers do the valuations for book/carrying value, is this done on a pure bricks and mortar basis or in relation to the profits/losses which may be generated in the current climate for that particular industry which could of course be quite different if the property were used for something different?

A lot can change in 3 years on both fronts. It will be interesting to see how this is handled in the next accounts.

[scrumpyjack]

I think Pub company pub valuations are done based on the current use trading value, so it is dependent on the operating profitability of the individual pub and the assumption would be that it is sold to someone else running it as a pub. Not quite the same as the open market value of the bricks and mortar if it could be used for something other than a pub!

[Bouleversee]

Thanks, Scrumpyjack. I rather thought that might be the case. Difficult to get a meaningful valuation on that basis in view of the fact that the number of pubs seems to be diminishing rather than increasing. I think it is quite likely that some will be converted into private residences or, more likely, pulled down and a block of flats built. One local pub was turned into a restaurant which rapidly failed; not sure what is going to happen there next and another has been pulled down and building is going on on the site. Now that wives mostly work and often get work later than husbands, the latter have to be at home sooner if there are young children and so little opportunity for the pinta that was common after work in earlier times. OTOH Greggs is now raking it in, I'm pleased to see. Autres fois, autres moeurs.

[idpickering]

Prelims here; http://www.marstons.co.uk/docs/financia ... 271119.pdf

Also posted on HYP Practical for HYPer chat.

[idpickering]

This from TMF today;

Why I’d buy shares in this FTSE 250 company with a 6% dividend yield

Today’s full-year results report from Marston’s (LSE: MARS) is a handy opportunity for me to revisit the firm. I last looked at the pub operator and brewer in May when the interim results came out.

Since then, the share price is around 20% higher at today’s level around 126p. In the spring, I thought the main attraction of the company was its big dividend. Even now the anticipated yield for the trading year to September 2020 is running just below 6%, so the attraction remains.

https://www.fool.co.uk/investing/2019/1 ... end-yield/

[PinkDalek]

This from TMF today;

Why I’d buy shares in this FTSE 250 company with a 6% dividend yield ...

Yet, once again, doesn't put his money where his mouth is.

KG has no position in any share mentioned.