11th Oct 2022 19:58
(Alliance News) - Pub chain Marston's PLC's "reassuring" trading update was well-received by analysts on Tuesday.
In the financial year that ended October 1, like-for-like sales were down 1% from pre-virus level three years earlier.
"This reflects the impact of trading restrictions in December and January as a result of Omicron and the corresponding impact on consumer sentiment in the first half," the Wolverhampton, West Midlands-based company said.
However, notably, like-for-like sales in the 10 weeks to October 1 were 3% up from pre-Covid financial 2019, and 4% up on last year.
This is better than the wider pub sector, Liberum noted, which recorded minus 0.6% in July and 2.1% in August, according to the Coffer CGA tracker.
Similarly impressed, Shore Capital commented: "The statement highlights that the level of consumer demand remains encouraging and evidence that the investment in the estate and strategy is delivery."
Shares in Marston's closed up 4.4% to 37.48 pence each in London on Tuesday.
Slightly less positively, the company said electricity costs in the final 10 weeks of the financial year were higher than expected.
"This is despite an additional c GBP2 million factored in at the July trading update. Electricity is now hedged for 1H23E (Oct-March), which will be further assisted by the government support package," Liberum noted.
Liberum trimmed its earnings forecasts slightly to account for the higher costs in financial 2022.
While the firm is waiting to review government guidance for the second half of financial 2023 before any further electricity hedging, Marston's confirmed its gas price is fixed until March 2025.
Further, it said inflationary pressures on food and drinks costs remained in line with previous guidance - which Liberum said was "reassuring".
Moving to its balance sheet, Liberum noted its net debt is "creeping down". Year-end net borrowings excluding leases are in line with its expectations of GBP1.22 billion.
"Net debt remains high at 9.6x times FY22E earnings before interest, tax, depreciation and amortisation reducing to 7.2 times in FY23E but is freehold backed (82% of the portfolio) and 86% hedged," the broker commented.
Shore Capital noted the net debt was GBP30 million better than at the end of its first half, and GBP16 million better than the year before, which was in line with the investment's bank expectations.
"We see the improvement in debt as consistent with the group's plans to reduce net debt to below GBP1 billion by 2025," it affirmed.
"Looking into [next year], our starting position is for a further recovery in profitability, reflecting weak comparatives [in the first half], continued investment into the estate and a positive contribution from CMBC [its Carlsberg joint venture]," the investment bank concluded.
Shore Capital expects cost pressures, save for energy, to be broadly offset by pricing and cost initiatives.
Marston's also noted it is well-positioned to reap the rewards of the restriction-free festive period in three years, as well as World Cup trading.
Liberum holds the stock at ''buy' with a target price of 80.0p. Shore Capital maintains its 'buy at 36p' stance.
By Elizabeth Winter; [email protected]
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