Marston’s is now the highest-yielding pub operator on the stock market, although to be fair there is not a lot of competition, what with several of its rivals being precluded from paying a dividend at all because of heavy debt burdens.
The company is also approaching the end of a wide-ranging restructuring under which it has ditched hundreds of drinks-led boozers and focused instead on pubs selling food. In this Marston’s is merely going along with the rest of the sector, but the company is more interested in building new pubs, about 25 each year, rather than competing with rivals in auctions for existing stock.
This makes sense; in the financial year to the end of September, more than 200 pubs were sold, on an average of 7.5 times earnings. The booming property market has helped this, because about two thirds of these were converted to other uses. Roughly the same will be divested this year.
By contrast, Marston’s reckons that new freehold sites can be built on about six times’ earnings, even in the competitive market in the southeast, where it is relatively under-exposed.
Its pre-close trading update showed some slowing in sales growth in the last three months, after similar statements from its rivals Greene King and Mitchells & Butlers. August was always going to be difficult, up against hot weather and good trading a year before and containing the washout summer bank holiday.
Still, over the year like-for-like sales at its Destination and Premium pubs, those focused on food, were 3.1 per cent ahead, while even in its poorer-quality leased estate, profits were up by 3 per cent, helped by the disposal of those underperforming assets.
By this time next year, the restructuring will be complete and about half the company’s profits will come from those Destination and Premium pubs. It reckons to have new sites under contract or identified to take it to 2017.
The shares, off 1¼p at 139½p, have done little over the past year, but much the same can be said for the sector as a whole. They sell on about 11 times this year’s earnings, although the main support will come from that 5 per cent dividend yield.
New sites to be built this year 25
3.1% Rise in sales at food-led estate
My advice Hold
Why Marston’s has one of the most attractive estates in the pub sector and will benefit from restructuring while the dividend yield is a plus
To sceptics, Mothercare has the look of one of those retailers in the wrong place at the wrong time, selling goods on the high street that are available more cheaply in the supermarkets or on the internet: think HMV or Game Group, in their earlier incarnations.
Nevertheless, shareholders will be given the opportunity today to grant the company another lease of life when they vote in favour of a £100 million rights issue. This is on a nine-for-ten basis on a thumping great discount to the market value, at 125p against a closing price yesterday of 238p, down 6¾p.
The money is desperately needed to shrink the British business, which accounts for just under 40 per cent of sales but lost £21.5 million in the latest financial year. There are about 220 UK stores. This will fall to about 160, with the cash being used to extract Mothercare from onerous leases and to refurbish the remaining estate, which has not had much spent on it of late.
This reorganisation and a greater emphasis on online sales should push the British business back into the black, a task that will be helped a couple of rivals shrinking or exiting the market entirely, taking some of the pressure off from excess discounting. Mothercare has just been signed up by Debenhams to put franchises in several stores on a trial basis.
The latest trading statement saw the profitable international business back to double-digit growth, yet doubts over Mothercare’s long-term place in the market remain. The shares are a straight punt, and not a terribly attractive one, then.
Size of rights issue £100m
My advice Best avoided
Why Its chosen market is difficult and competitive
Fund management ought to be a relatively straightforward business, providing that you get the basics right. As assets under management increase, staff costs will do so, but at a slower rate. Therefore the bigger you are, the better the margins.
So it seems to be proving at Liontrust Asset Management. It was losing money a few years ago; today, it is achieving margins in the 30 per cent area, with the prospect of reaching 40 per cent, the sort enjoyed by its larger rivals, within a few years as assets under management reach £7 billion.
To do this, Liontrust will have to follow those larger rivals into Europe and, indeed, the company is setting up a distribution office in Luxembourg. Getting to that £7 billion figure, though, will follow a slow and lumpy trajectory. In the three months to the end of September, those assets grew to £3.8 billion, net inflows of £94 million being offset in part by an adverse market movement of £59 million.
In the days since, Liontrust has added another £320 million, winning an institutional mandate. I have suggested before that the shares, up ½p at 214½p, are only for the patient.
Assets under management £3.8bn
My advice Hold
Why Prospects are good, but progress may be slow
And finally...
Punch Taverns’ restructuring seems to have been grinding on for years, but finally it is complete, leaving existing holders with only 15 per cent of the new equity. The shares, a penny stock already, fell another 7 per cent to 8¼p yesterday. The restructuring will leave the bondholders with most of the equity and no particular reason to sell; institutional holdings will be very light. Now the hard work begins. The heavy level of debt has, of necessity, constrained much-needed spending on the estate.
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