New brewing contracts boost Marston's 60%'

by The PMA Team Three new beer-supply contracts will see beer volumes at Wolver-hampton & Dudley's Marston's Brewery increase by around 60% in the coming year. Wolves has signed supply deals with Mitchells & Butlers, Interbrew ­ to brew 130,000 barrels of Bass each year ­ and a five-year contract to supply JD Wetherspoon, which is selling Marston's Burton Ale for £1.29 a pint as a key part of its autumn marketing initiative. The three contracts are expected to boost brewing at the Marston's brewery from its current 50-60% capacity utilisation to near the 90% mark ­ the brewery has a 400,000 barrel-a-year capacity. "Supplying beer to pubcos is always low margin but this is all incremental business," chief executive Ralph Findlay said. Analysts think the contracts will offset a £5m rise in external costs ­ items like increased Sky subscriptions and the minimum wage ­ in the coming year at Wolves. The news of the brewing contracts came as W&D revealed, in a end-of-year trading statement, that like-for-like sales at its managed Pathfinder division had increased by 3.6% in the 26 weeks to 25 September ­ up from 2.8% in the first half. Improving beer gardens and patios at 120 pubs, costing £750,000, boosted sales by around 2% at each site, Findlay estimated. Like-for-like sales in the tenanted Union division were 4.3% ahead on the same period last year. Union acquired 20 new pubs during the year and has more than 500 lessees signed up to its Open House lease agreement. The company is also finalising a valuation of its property estate ­ the first since 1999 ­ that is likely to mark a 25% increase in pub values since 1999. The net increase in asset values is expected to be in excess of £160m. Chief executive Ralph Findlay said: "We have again demonstrated that our focus on good-quality community pubs and great beers is paying dividends, with the planned returns on our investment programme being achieved. The pub sector is mature and under legislative and cost pressures, but we are performing and developing good momentum." What the analysts are saying Geof Collyer (Deutsche Bank): HOLD "I have given W&D the benefit of the doubt in my forecasts going forward, assuming they will hit their targets. The overall gap between (Greene King and Wolves) is closing as W&D's restructuring, post the failed bid by Pubmaster three years ago, begins to pay off." Doug Jack (Panmure): HOLD "We are retaining our hold stance and 900p target. The revaluation of the estate, bringing a 25% uplift should reduce gearing from 115% to 85%. From this basis, the company can afford to be acquisitive, enhancement from which would provide the catalyst for upgrades and a more bullish stance." James Wheatcroft (Investec): STRONG BUY "Overall, a slightly more positive statement than we had expected. As with other pub owners, concern about a total smoking ban persists. However, the threat of an outright ban appears to be receding." (Target price: 926p)