A cocktail of rising inflation, stagnating wage growth and worsening consumer confidence has turned the screw on some of Britain’s largest pub operators as we have moved through 2017.
The impact of these triple troubles has been reflected in batches of data from researcher CGA in recent weeks, illustrating how takings across the UK’s leisure sector have suffered. Like-for-like takings across the country’s pubs, bars and restaurants fell 0.9% in September, the biggest drop for a year. A 0.3% sales rise in October was far from reassuring either.
Concerns over the health of our listed publicans ramped up several notches last week after Mitchells & Butler said that it would not be paying out an interim dividend in the current year “pending assessment at year-end of capital allocation and prospects.” The All Bar One owner has been hit by tough business conditions, including what it called “unprecedented” cost headwinds.
Marston’s (LSE: MARS), for a long time a favourite among dividend chasers, sank to fresh five-and-a-half-year lows around 100p per share in the wake of the news. But a bubbly trading statement on Thursday has seen stock-pickers pile in with gusto again — it was last dealing 10% higher at pixel time.
Dividends still growing
Marston’s continues to largely brush off the difficulties affecting many of its rivals (including Greene King, which was last 3% lower today following a trading statement of its own), the company advising that underlying revenues improved 10% year-on-year to £992.2m. This helped shove underlying pre-tax profit 3% higher to £100.1m.
And as a result it elected to raise the full-year dividend to 7.5p per share, up 2.7%.
In a welcome divergence from the gloom seen across much of the sector, chief executive Ralph Findlay commented: “While political and economic uncertainty is likely to continue, we remain confident that our proposition founded on providing great customer experiences, the very best service and value for money, leaves Marston’s positioned to deliver further growth in the year ahead.”
Building for the future
The FTSE 250 business opened 19 pubs and restaurants, as well as eight of its lodges, in the last fiscal year (it acquired a cluster of pubs from Whitbread too). And in a sign of its confidence in the market, Marston’s has no plans to dial back its ambitious expansion plans, with an additional 15 pubs and bars and six lodges in the pipeline for the current year alone.
The Wolverhampton firm’s growing stable of pubs is not the only reason to be impressed as demand for its own-brewed ales continues to fizz. Its wide range of brands, which include favourites like Hobgoblin and Pedigree, continue to outperform the broader market and, with the firm having snapped up Charles Wells brewery last year, it can look forward to further healthy sales growth here.
City analysts agree that Marston’s remains in great shape to beat the murky sales outlook and rising cost considerations affecting the wider industry, and to keep its growth record going with a 1% rise in fiscal 2019. This may not be exciting but a projected 7.8p per share dividend, yielding a mighty 6.9%, certainly is.
Clearly Marston’s isn’t without its share of risk, but I reckon this is more than baked into its forward P/E ratio of 7.9 times. In my opinion the beer behemoth is a terrific stock selection today.
