The market crash is evident for all to see and where uncertainty ensues, opportunities arise.
The majority of industries out there are affected by the Covid-19 containment measures. However retail, restaurants, pubs, clubs, entertainment venues, and such are worst hit. The government has ordered a lockdown and closure of all non-essential businesses.
These types of businesses come under that remit unfortunately. There are some companies that I would be cautious about in a ‘normal’ market, and some I would highlight as opportunities in this bear market.
Marston’s Plc (LSE:MARS) is a company I see as an investment opportunity, although patience will be key. Short-term pain is to be expected. The market crash caused the Marston share price to fall by approximately 70%. In the longer term, I feel it could recover and be a viable option for your portfolio.
Performance and Covid-19 update
Prior to the market crash, the brewery and pub group announced strong Christmas trading figures. It said that like-for-like sales, which exclude new venues, were up 4.5% on the same period a year ago. Food sales were weaker in its pubs though, and the first three weeks of December saw “subdued trading.” This was to be expected with the bad weather.
Last week, Marston’s decided to announce a further trading update which addressed the impact of the pandemic. For the 24 weeks to 14 March 2020, its like-for-like pub sales were down 1% compared to last year. The beer arm of the company fell in line with expectations. The last couple of weeks do not show the significant dip in sales which it is expecting in the coming week and potentially months.
Marston’s has not made a final decision on its interim dividend in May, but is currently leaning towards not paying it, which would save £20m. Marston’s also commenced a debt reduction programme, with a target to reduce debt by £200 million by 2023. I am always dubious about companies with large debt levels but somewhat appeased by its attempts to manage this.
The numbers
Generally speaking, the business has grown at a healthy rate since 2014. Its revenue has increased by 9% year on year and profit is up five-fold.
Share prices over the last year, prior to the crash, had increased by approximately 25%. Analysts expect profit and revenue to continue growing over the next two years, although this will be affected by current events. The Marston’s dividend per share has not increased in the past three years, which some may view as a deterrent.
What I would do now
I often review restaurant and pub chains a bit more meticulously as there are so many factors affecting performance. The current closure of all such venues will impact performance so be prepared for a risk. I wrote about JD Wetherspoons a couple of days ago and came to a similar conclusion.
There is opportunity here but expect short-term pain. The major risk factor here is the length of the lockdown and impact of coronavirus. If you have an appetite for risk and a strong stomach, this may be one for you to add to your portfolio.
