Analyst backs Marston's growth
A leading sector analyst has said that he is impressed by the progress of Marston's and that its management was right to shift in 2009 from a dividend play to growth story but warns the brewer and pub operator not to rest on its laurels.
Nigel Parson, of Evolution, also said that he sees the group's much-heralded Re-tail Agreement for its tenants "as a stop-gap" as the group "waits for better conditions to sell the houses".
Parson said: "Its 2009 rights issue marked an apparently radical strategic shift from dividend play to growth story, and a spooked stock market sent Marston's stock to Coventry in response. Looking back, we think management was right — its previous strategy was unsustainable.
"Success in this new direction should see investors rewarded with a rising dividend and share price appreciation. We are revising our recommendation to 'buy' (was 'add') and boosting our target price to 140p (was 120p), implying 30% upside."
Parson said that although he had been more impressed with the progress at Marston's managed house division than he had expected, there was a risk that the company could "sit on its laurels now; at precisely the moment it should be placing the foundations for a broader-based growth platform".
However, the analyst said he suspected that "little will change until Marston's is generating sufficient surplus cash to fund the required initiatives in the absence of a more major disposal".
Building to success
Parson outlines the key ongoing issues that Marston's still needs to address, which include more defined concepts/brands, a clearer high-street strategy and "building its way to success".
He said: "We get no sense of new concept development projects at Marston's, as all energies and resources have been poured into the new-build programme. We are hopeful that new non-executive Robin Rowland, chief executive of YO! Sushi, can make a difference to Marston's concept development.
"The F-plan and new-build programme have overshadowed broader portfolio development within the estate, and the separate identities of Marston's Inns, Marston's Two for One, Tavern Table, Taverner's Carvery and Service That Suits Me seem to have been down-played."
Managed house distraction
Parson said that he was concerned that the group's Retail Agreement initiative would be a distraction for the managed house management, as staff and time are diverted to ensuring that the tenanted initiative succeeds.
He said: "Marston's argues that it is leveraging its overhead and back-office capability, but we would be happier if resources were more focused on some of the issues outlined in this section."
On the group's high-street strategy, Parson believes that this has "shrunk to that of containment and the company needs to either reinvigorate this area, or exit". He estimates that the three brands — Pitcher & Piano, Bluu and Que Pasa — are worth £35m-£70m in total.
