Pubs plainly had a better Christmas than some had feared. Mitchells & Butlers reported like-for-like sales growth of 1.7 per cent a couple of weeks ago. Now Marston’s, probably positioned a little bit upmarket from M&B, has announced that like-for-likes at its Destination and Premium pubs were up by 1.5 per cent, while beer volumes for brands such as Pedigree and Hobgoblin were up by 3 per cent, with a particularly strong performance in the off-trade.
This suggests that both companies comfortably beat the industry as a whole, the available statistics showing a 0.8 per cent rise in sales in the last quarter of last year.
This is a strong outcome from Marston’s because it does not have much exposure to London, where those statistics suggest a 5.2 per cent rise as the trade rebounded from the previous Christmas, which was affected by the terrorist attacks in France.
The company is opening its fifth pub in the capital shortly, but this is a very crowded market and Marston’s prefers to concentrate its new outlets in places where there is less competition. It is on track to open at least twenty pub restaurants, five lodges and three Premium bars in the current financial year to the end of September.
The pub chains have not been too popular with investors in recent months and Marston’s has underperformed with the rest. There is concern over consumer spending, inflation and upward pressure on wages.
Yet Marston’s is probably better insulated than most, because its middle-market position gives it more flexibility than the low-cost operators to raise prices, while it has forward contracts in place for food and energy running into next year. During the holidays, trading operational margins held up where they were the previous year.
The shares have come back from above 150p in the autumn and fell another 2½p to 134¾p, for no obvious reason, after the trading update. Marston’s performance over the holiday is unlikely to be matched by all the others in the sector.
The shares sell on a reasonable 9.5 times’ earnings, while the fall in the price has left them yielding an attractive 5.6 per cent. Sentiment looks set to remain negative for the sector as a whole, though.
My advice Avoid
Why Marston’s is as well placed as any and Christmas trading was strong, but market sentiment is still against the pubs sector
Laird
The newish management at Laird are doing all they can to combat the problems that hit the company last year, and there are slight signs of an improvement into the fourth quarter. Laird, which supplies Apple and Samsung, put out a profit warning in October relating to a slowdown in orders for parts for smartphones and problems at Novero, part of the wireless systems division that was bought in start of 2016.
The company said in December it would be raising £185 million in a rights issue next month to clear part of its near-£300 million debt and binning the final dividend. The year-end trading update showed fourth-quarter revenue growth of 9 per cent across the group, an improvement from a decline of 0.4 per cent in the year to date. The progress came at both divisions, with the work on those smartphones coming back at its performance materials side. There is much more to do before a firm decision can be made over a possible sale of this part of the business.
The shares added 18¾p to 163¼p. They sell on about 13 times’ earnings, but there seems no reason to chase ahead of the rights issue.
My advice Avoid
Why It still seems too early to buy the shares
BT Group
The abrupt plunge in the BT share price tells us more about the general sentiment in the market than it does prospects for the telecoms provider. It looks like an overreaction, therefore.
The main headlines are around the Italian accounting scandal, but more important is the news smuggled into the tenth paragraph of the release that the outlook for the UK public sector, as budgets come under pressure and contracts are not being renewed, and for international corporate customers has deteriorated. With the FTSE 100 still tracking record levels, any piece of bad news will be taken amiss, especially if it seems to threaten the dividend yield available from income stocks such as BT. Just look at the fall in Pearson last week.
The slowdown and need for further Italian writedowns means that about a fifth of BT’s cashflow will disappear this year, at a time when the company is seeking to plug its pension deficit and reassure Ofcom, the regulator, that it can invest in Openreach, the copper and fibre network.
There is no denying that BT is in a mess. The question is whether the dividend, which offers a 5 per cent yield at the present price, off 79½p at 303p, is safe. The company insists it is. This column recommended the shares for their income at the end of last year at 367p. The payment would seem to be well covered by cashflow even at the lower level and a cut would be pretty earth-shattering. Unless you believe this in prospect, there is every reason to hold for a recovery.
My advice Hold
Why If dividend is safe, the fall looks to be overdone
And finally . . .
XLMedia, which provides digital marketing for gambling companies, has just produced its ninth consecutive positive trading update since floating on the Alternative Investment Market in March 2014, including a 15 per cent rise in revenues last year. The company is trying to diversify out of gaming and recently bought Greedyrates, a Canadian credit card comparison website. The shares, which were floated at 49p in order to carry out acquisitions, closed at 110½p last night.
