Pub stock Marston’s (LSE: MARS) is up 15% in today’s trading. This follows an unsolicited acquisition proposal from Platinum Equity Advisors, a private equity firm.
Will it get acquired?
I’m not sure, however, if the uptick seen today will persist if Marston’s doesn’t respond favourably to the proposal. In its last update earlier this month, it was confident of the liquidity at its disposal. In the same vein, it said “we remain confident in our ability to navigate the current difficult environment”.
As a long-term investor, I’m not sure that it’s a good time to buy Marston’s even if it is likely to be acquired. An acquisition can be a long, drawn out process and the eventual company valuation may or may not be lucrative for the shareholders.
But if we put the prospect of acquisition aside for a moment, there are reasons I’m considering buying Marston’s stock:
#1. Marston’s financials can improve
Marston’s update in December last year showed the potential to bounce back once the lockdown is lifted. In the last quarter of 2020, its like-for-like sales (sales for the same pubs measured over time) were at 90% of that in 2019. MARS is also reducing debt by borrowing less and cutting back on expenditure. This bodes well for its financials.
It is worth remembering, however, that it has slipped up in the past, with a loss in 2019. So we are looking at two bad years in a row for the pub now.
#2. Consumer demand set to rise
Marston’s own experience shows that consumer demand for pubs remains strong. Moreover, after extended periods of staying at home, I think we can entertain the idea that demand may even be stronger once the lockdown lifts.
The one big hitch to consumers going all out is, of course, the state of the economy. The real impact of the corona-crisis on the economy will show up only after the government schemes are withdrawn. It may be worse than we imagined.
Like all pubs and restaurants, Marston’s too has suffered from the three lockdowns this year. 97% of its staff is on furlough and it’s availing the government scheme for the same. If things turn out worse than expected, it could be pretty bad for pub demand and the Marston’s share price.
Yet, I think the future will lie somewhere between these two extremes. The International Monetary Fund has just forecast the UK economy to grow by 4.5% in 2021 and a faster 5% in 2022. If this is indicative of consumer demand, then we should expect companies like Marston’s to see a better two years compared to 2020.
The takeaway
On the whole, I reckon that MARS is a stock to consider buying after careful research, which includes mulling over alternative options. But it’s a somewhat risky bet. At the very least I’ll wait for the acquisition story to play out before deciding what to do next.
