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Marston's fizzes higher after reporting strong trading and 'progress' with debt

Improved momentum in the second quarter was being maintained into the second half of the year, with strong Easter trading across all segments of the brewer and pubs operator's business
In January Marston's slimmed down its expansion plans due to an “increasingly uncertain” economic backdrop

Marston's PLC (LON:MARS) shares rose on Wednesday as the brewer and pubs operator returned to profit growth in the first half of its financial year as it enjoyed improving trading momentum.

Revenue in the 26 weeks to 30 March of £553.1mln was topped up by 5% compared to the same period last year, with adjusted profit before tax up 2% to £37mln. On a statutory basis, the group swung back to a profit of £19.1mln from a £13.4mln loss last time.

READ: Marston’s unsteady as it scales back expansion plans amid ‘increasingly uncertain’ backdrop

Operating cash flow bubbled up by 6% to £66.8mln as underlying earnings per share inched 2% higher to 4.9p, with reported EPS flipped to 2.6p from a 2p loss per share a year earlier.

The group said momentum was being maintained into the second half of the year, with strong Easter trading, Marston's chief executive Ralph Findlay said, with continued growth across all segments of the business.

“Our Taverns wet-led community pubs have built on the strong trading performance last year and it is particularly encouraging to see our food-led pubs once again achieving increasing momentum in profitable like-for-like sales growth.”

Group like-for-like (LFL) sales rose 2.2% across the combined managed and franchised pub estates, with the wet-led Taverns up 3.9% versus 1.2% growth for the food-led Destination & Premium (D&P) estate. Over the second quarter, combined LFL sales were up 3.2%, with Taverns up 5.2% and D&P up 2.1%.

Helped by new distribution contracts and continued growth of market share, the brewing business increased own-brewed volumes 4%, leading to its profits rising by 8% even though margins remained flat.

Going to plan

In January, amid what it felt was an “increasingly uncertain” economic backdrop, Marston's scaled back its long-term expansion plans and said it would slash debt by £0.2bn by cutting its new-build investment and selling off £80-90mln of “non-core assets” by 2023.

As part of these new plans, an interim dividend of 2.7p per share was maintained, with Findlay saying “good progress” was being made on improving cash generation and reducing leverage, even though net debt ended the period at £1.44bn, up from £1.39bn at the year-end due to payment timings. 

He added: “Whilst the backdrop of ongoing uncertainty around Brexit continues to be challenging, opportunities for growth remain and we are confident of delivering another year of profitable growth for our shareholders.”

Broker Peel Hunt said it was holding its underlying profit forecasts, even though Marston’s is currently trading ahead of its full year assumptions of 1% LFL sales growth and flat margins for the combined managed estate.

“However, we are upgrading our PBT forecasts by £1m in 2019E, and £3m in both 2020E and 2021E, to reflect the company smoothing out its debt amortisation profile using SWAPS.  This process should be NPV neutral over 15 years, with interest costs down at the beginning and up towards the end.”

Peel Hunt reiterated an 'add' rating and 115p price target on Marston's shares which in late morning trading were up 5.2% at 106.50p.

 -- Adds target price, share price --

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