Marston’s PLC (LSE:MARS), the pub company, is undervalued in the eyes of analysts, who argue the key positives surrounding the company are being overlooked because of the high levels of debt it has taken on.
Shares in the former brewing company fell over 1% to around 33p on Tuesday, despite the company issuing a “short and sweet” festive trading statement in which a like-for-like sales increase of 8% was reported for the 16 weeks to January 20.
During Christmas Day, Boxing Day and New Year’s Eve, the hospitality firm achieved revenue growth of 9.6% compared to 2023 and a jump of 14% when seen against pre-Covid comparatives.
However, analysts at Shore Capital reckon the lack of share price movement, and the consistently low valuation, has been led by the group’s debt pile.
In December, Marston’s revealed that at the end of the 2023 financial year, its net debt sat at over £1.1 billion.
Its market capitalisation sits at £210 million.
Yet, Shore Capital argues the market is failing to account for the “optionality held on the balance sheet”.
The London-listed company’s flexibility arises from both its £2 billion property estate and its 40% stake in the Carlsberg Marston Beer Co, which brews brands like San Miguel and Hobgoblin.
Marston’s also trades on a price-to-earnings ratio of 5x and a 65% discount to its net asset value.
“With current trading resilient, ongoing margin improvement and deleveraging targets, we continue to see the valuation normalising over time,” Shore Capital concluded, before rating the stock a ‘buy’.