Marston's PLC, the pub group listed on the FTSE 250, has released an encouraging trading update for the 52-week period ending in September.
The update highlighted strong underlying sales momentum and outlined plans for further cost savings and margin improvements.
Brokerage Shore Capital has reiterated its 'buy' recommendation for Marston's, emphasising the company's robust sales and cost-efficiency measures.
Strong sales
Marston's reported an 11.3% increase in total retail sales for the year ending in September 30.
The like-for-like (LFL) sales, a measure that compares sales performance in existing locations, also showed a 10.1% increase.
This robust performance not only demonstrates the resilience of Marston's business model but also the broader pub sector's strength. The company is also focusing on expanding its food-led franchise model, which has shown significant sales growth in trial locations.
Marston's aims to roll out this model to 50 more locations by the financial year 2024 (FY24).
Cost-efficiency
The company has already secured a significant proportion of its food and drink costs for the upcoming year and expects a year-on-year reduction in energy costs.
Marston's has identified an additional £5 million in head office cost savings and aims for a margin improvement of at least 200 basis points in the next two to three years.
Debt reduction
Although Marston's reduced its net debt by £31 million to £1,185 million, it fell slightly short of Shore Capital's forecast of £1,160 million.
Nevertheless, the company is on track to reduce its net debt to £1 billion by 2026 and aims for a further £60-70 million reduction in FY24.
Three Rs
Shore Capital's investment case for Marston's is predicated on the "Three Rs": Reduction in debt, Returning profitability to pre-pandemic levels, and Realising value in its 40% stake in CMBC (Carlsberg Marston's Brewing Company).
If Marston's successfully delivers on these fronts, Shore Capital estimates the share price could surge to over 130p per share in the medium term. This would be based on a 9x Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) multiple for the pub operations.
The stock fell 3.3% to 27.9p on Wednesday.