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Marston's sees stronger trading performance in second half of the year

Given the hot weather and England's extended run in the World Cup, it should be no surprise that the brewing and pubs group has seen an uplift in business
Pints of beer
Some doubts over the sustainability of the handsome dividend were assuaged by management's comments

The World Cup and the hot weather provided a boost to pubs and brewing group Marston’s plc (LON:MARS) in June.

As in previous years when a big football tournament has been taking place, Marston’s found that an increase in demand for booze was offset slightly by a decline in demand for food.

READ: Marston’s and Mitchells & Butlers resilient in face of ‘Beast from the East’ but margin worries remain

The recent hot spell has been most welcome after trading in the first half of the year was hit by poor weather, and with about 10 weeks of the trading year to go Marston’s is confident it will deliver underlying earnings in line with market expectations.

Total managed and franchised pub sales were up 5.2% year-on-year in the 42-week period, with like-for-like sales up 0.3%.

In the most recent 16 weeks, like-for-like sales were up 0.9%, helped by good weather and the football, but with some offset from poor weather in April. Overall like-for-like sales growth over the last 12 weeks has been 2.0% with the group’s Destination and Premium pubs’ performance continuing to improve while the hot weather has boosted pubs in the Taverns category.

On the brewing side, total volumes in the first 42 weeks of the financial year were up 61% year-on-year, reflecting the addition of the Charles Wells brewing business to the group.

"We are encouraged by our stronger trading performance in the second half-year, including the benefit of recent good weather and the impact of the World Cup in our Taverns estate and in Marston's Beer Company,” said Ralph Findlay, the chief executive officer of Marston’s.

"We have a strong pipeline of sites which will contribute to continued growth in pubs, and see further opportunity in brewing following the acquisition and successful integration of Charles Wells Brewing and Beer business in 2017. Our strategic objectives and progressive dividend policy remain appropriate for current market conditions and we remain confident of delivering underlying earnings in line with expectations for the full year," he added.

Shore Capital Markets described the trading update as “solid”.

“As expected there was a mix effect from the weather and World Cup with D&P [Destination and Premium] LFL [like-for-like] sales down 1.2% for the last 16 weeks (-1.5% after 42 weeks) and the more wet-led Taverns ahead by 5.0% (+3.8% after 42 weeks); encouragingly D&P trading has said to have improved to broadly flat in recent weeks with no change in guidance for modest margin declines,” the broker noted.

“Elsewhere, Leased LFL net profits are said to be +2% for 42 weeks with Beer & Brands reporting ‘good underlying business’, which we read as volume growth, with further market share gains,” it added.

For many investors, the primary appeal of Marston’s shares is the eye-catching 7.7% dividend yield; a yield that high normally signals that a cut is on the way but Shore has forecast that the full-year dividend would be held unchanged; following comments from the chief executive about the progressive dividend policy, the broker sees scope to raise its dividend expectations by a token amount.

“Longer-term, we continue to believe that cash flow is set to improve, especially should the group be able to refinance the securitisation debt and once the pension deficit is cleared,” Shore said.

At least one other broker said it believes the dividend is sustainable and has a ‘buy’ recommendation based on the attractiveness of the dividend.

Marston’s shares were up 1.1% at 98.9p in early trading.

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