Marston's (MARS)

[idpickering]

Year End Trading Update.

Trading

Pubs and restaurants were required to close from 20 March to 4 July as part of the general lockdown restrictions to contain COVID-19. This 15-week period of enforced closure inevitably had a material impact on the results for the year.

Group sales for the year were £821 million, 30% below last year.

Total pub sales for the year were £515 million, 34% below last year, principally reflecting the closure period and the impact of the disposal of 168 pubs for proceeds of £61 million in the first half-year.

In Marston's Beer Company, sales for the year were £306 million, 22% below last year. Off trade volumes for the year were up 23%, driven by exceptional demand during the period of pub closure. On trade volumes (excluding the closure period) were 11% below last year.

Since 4 July, we had reopened approximately 99% of our pubs by the year end, though a small number closed subsequently as revised regulations were introduced in Scotland. Managed and franchised like-for-like sales averaged 90% of last year over the 13-week period to 3 October:

Full item here;

https://www.investegate.co.uk/marston-- ... 00021211C/

[johnhemming]

I dont see any info about variations in expenditure, just a massive drop in income.

[PinkDalek]

I dont see any info about variations in expenditure, just a massive drop in income.

No detailed numbers in the Trading Statement but it does include:

However, because of the recent additional restrictions, we have reluctantly concluded that around 2,150 pub-based roles currently subject to furlough are going to be impacted. Furthermore, we have initiated a full review of overhead costs which will be concluded by the end of December. These decisions are difficult but are necessary due to the restrictions placed upon our business at this time.

[PrefInvestor]

Probably wont be a popular view here but I concluded very early on in the CV crisis that all travel, leisure and hospitality stocks were going to be at best severely challenged, if not going to be driven to bankruptcy by the measures being taken to curtail it. Sadly this view has proven all too accurate with (for example) JD Wetherspoons this week declaring their first loss in over 20 years. I used to hold MARS but sold at 80p back in March driven by this view.

I took another look at Marstons when the JV was announced, doing a more detailed review of the accounts. This revealed that they were scarcely making a profit even in the good times and that most of the value in the company lay in the property holdings. I therefore have my doubts if they will ever trade back at their previous 100p elevated level. Even Carlsberg UK, with whom they have been combined in the JV, was loss making in previous years from what I can see - likely why they too saw the JV as attractive ?.

I wish all holders ATB but I have to say that I am not optimistic regarding the future of Marston's until the whole CV pandemic has passed into history, and even then with some reservations based on their very meagre profitability even during the good times. Especially with the ever more drastic measures being put in place now to try and control the virus.

Just my personal views obviously !. Hope I'm wrong in many ways......

ATB

Pref

[dealtn]

I wish all holders ATB but I have to say that I am not optimistic regarding the future of Marston's until the whole CV pandemic has passed into history, and even then with some reservations based on their very meagre profitability even during the good times. Especially with the ever more drastic measures being put in place now to try and control the virus.

Quite possibly true. But when the "pandemic has passed into history" what will the share price be relative to what might have been an available entry point before that? Of course we don't (yet) know, but the whole point of investing for me is a combination of future prospects, and the available share price in combination. Focussing on the former alone isn't a strategy that works for my style of investing.

[johnhemming]

I think they will need more capital that they will find hard to get.

[PrefInvestor]

Quite possibly true. But when the "pandemic has passed into history" what will the share price be relative to what might have been an available entry point before that? Of course we don't (yet) know, but the whole point of investing for me is a combination of future prospects, and the available share price in combination. Focussing on the former alone isn't a strategy that works for my style of investing.

Well my investing style does not include holding on to things that are clearly heading off into the wilderness for a possibly extended period, likely resulting in (more) capital losses and no dividends. I believe in cutting my losses early when it is clear that there are probably more to come and I do not open new positions in anything that I think has a significant risk of a bad outcome.

But that’s just my approach. I wish you ATB with whatever you are doing.

Pref

[dealtn]

Quite possibly true. But when the "pandemic has passed into history" what will the share price be relative to what might have been an available entry point before that? Of course we don't (yet) know, but the whole point of investing for me is a combination of future prospects, and the available share price in combination. Focussing on the former alone isn't a strategy that works for my style of investing.

Well my investing style does not include holding on to things that are clearly heading off into the wilderness for a possibly extended period, likely resulting in (more) capital losses and no dividends. I believe in cutting my losses early when it is clear that there are probably more to come and I do not open new positions in anything that I think has a significant risk of a bad outcome.

But that’s just my approach. I wish you ATB with whatever you are doing.

Pref

No problem with that at all. You will note I wasn't commenting on your "sell" decision. I was commenting on your "regarding the future..."

[johnhemming]

In the early 2000s I bought my way into the board of a listed company to find out its finances were a total disaster. What made me sell MARS last year was all the complex swaps and what appeared to be a risk of a company on the way out also queries about the FCF. It would not surprise me if the lenders were not foreclosing so that they can minimise their losses. That is not unusual.

What Covid does do this I really don't know.

[AJC5001]

RESULTS FOR THE 53 WEEKS ENDED 3 OCTOBER 2020
https://www.investegate.co.uk/marston--39-s-plc--mars-/rns/results-for-the-53-weeks-ended-3-october-2020/202012100700061378I/

"In addition, and as previously announced, given the ongoing uncertainty surrounding COVID-19 no dividends will be paid in respect of financial year 2020. "

Adrian

[scrumpyjack]

Yes I'm glad I stayed well clear of this one. I did look at it a few years ago. I do wonder whether there is a book of director's aphorisms where they can select meaningless phrases to gloss over awful performance! They say they are 'well placed', and despite a £400m loss, covenant breaches and debt well over a billion secured over pubs of dubious value, they talk of having a 'strong financial position'.

Hard to see their lenders allowing them to resume dividends for years.

[dealtn]

Yes I'm glad I stayed well clear of this one.

I guess it depends on your investing style, and time frame.

They are up over 40% in the last 3 months, and over 3-fold from their intra-year low! I am sure there are some that are glad they got involved.

[scrumpyjack]

They were about 130p as I recall when I looked at them, but that was a couple of years ago.

[seagles]

Marstons takes over Bains pubs to save jobs. Was going to ditch my Marstons but feel more inclined to keep them, for the moment.

[dealtn]

https://www.investegate.co.uk/marston-- ... 00036503J/

Marstons isn't taking over the pubs, rather is to operate them. The full financial details will follow but are expected to be earnings enhancing after the first year.

[barchid]

Quite apart from loading up the balance sheet with securitised debt which is virtually impossible to cancel, as per an email conversation I had with RF a few years back, but when the new Chair arrived last year and decided to sell some pubs in order to reduce their short term borrowing which was the first attempt to reduce their debt mountain, those pubs were sold at a discount to book. All in the rns' at the time. To give a further possibly unpleasant whiff to their book values their attempt to sell Pitcher & Piano chain failed due to lack of interest at the price they were looking for.
Not a great springboard from which to claim that these new premises will "earnings accretive" very quickly imho.

[dealtn]

Quite apart from loading up the balance sheet with securitised debt which is virtually impossible to cancel, as per an email conversation I had with RF a few years back, but when the new Chair arrived last year and decided to sell some pubs in order to reduce their short term borrowing which was the first attempt to reduce their debt mountain, those pubs were sold at a discount to book. All in the rns' at the time. To give a further possibly unpleasant whiff to their book values their attempt to sell Pitcher & Piano chain failed due to lack of interest at the price they were looking for.
Not a great springboard from which to claim that these new premises will "earnings accretive" very quickly imho.

Not sure I see the connection with previous debt securitisation and pub disposals (actual or those that fell through) to be honest. Those are both "Balance Sheet" type events. The operating of pubs, their own or those owned by others, will be of the "Profit/Loss" type.

I haven't gone through the details of the scheme that are available, and I suspect much won't be available, but given the transaction is described as being as a result of "Brains' business has been under significant financial pressure ... In order to address Brains' immediate funding requirements ..." etc. you would like to think the financial negotiations would be likely to be more beneficial to Marston than Brains.

As such I can't see any immediate reason not to believe the transaction is earnings enhancing.

[barchid]

The link between debt securitisation & pub disposals is surely rather obvious ?
The interest required on the debt collared at high levels, plus other floating debt made the new Chair want to reduce debt as soon as his legs were under the table. So he did that by selling pubs.
What is not clear there?
The fact that the sales (pre covid) were markedly less than book (please refer to rns) makes me wonder how reliable the "earnings accretive" statement is today. If sales fail to make book value in a good climate, which it was when sales were made, would not any investor start to wonder ?
Furthermore if these pubs Brains are letting them run were good performers why let Marstons take them on is another question I have difficulty with.

[dealtn]

The link between debt securitisation & pub disposals is surely rather obvious ?
The interest required on the debt collared at high levels, plus other floating debt made the new Chair want to reduce debt as soon as his legs were under the table. So he did that by selling pubs.
What is not clear there?
The fact that the sales (pre covid) were markedly less than book (please refer to rns) makes me wonder how reliable the "earnings accretive" statement is today. If sales fail to make book value in a good climate, which it was when sales were made, would not any investor start to wonder ?
Furthermore if these pubs Brains are letting them run were good performers why let Marstons take them on is another question I have difficulty with.

Maybe I wasn't clear enough, for which I apologise, if you can't understand my comment.

I fully understand the dynamics of debt securitisation, and other debts, and the sale and purchase of pubs. But my impression of your criticism was to do with their recent performance on these measures, and therefore conclude an inability for this deal to be earnings additive.

But the areas you have criticism about (which others may disagree with) are to do with Assets and Liabilities, which are "Balance Sheet" items. The operating of (additional) pubs are, well operating items, so are more akin to Cash Flow Statement, or Profit/Loss account. They are not comparable.

I don't think you can take an accounting loss outcome from selling an asset below book value, as indicative of anything to do with operating the pubs.

My view is that Brains have little choice about making some kind of arrangement, if you look at the wording in today's RNS (such as I quoted). As such I would expect the Marston's side of the deal to be the better one.

You appear to be under the impression that Brains are "cherry picking" the pubs involved, and keeping the best ones, offloading the "lemons" to a company with bad management. Where is your evidence for that? It looks more likely to me the deal encompasses the entirety of the Brains pub estate. Furthermore if they didn't find a deal with a partner for that estate, and it closed, the brewing side of their business would lose its biggest customer I imagine. I think I know which of the 2 parties negotiating I would rather be.

[scrumpyjack]

Probably the main benefit of this for both sides is overhead savings. Marstons will be able to run these pubs in addition to their existing estate without much more overhead. Their existing overhead base is spread over more pubs reducing the overhead per pub. The other side can cut their overheads as they are not operating pubs anymore. As has been said this is nothing to do with assets and debt levels.