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Fri 11th May 2018 - Update: Douglas Jack on Marston’s and M&B, Christie Group
Douglas Jack – Marston’s likely to have been held back by the snow: Peel Hunt leisure analyst Douglas Jack has forecast that Marston’s interim results are likely to have been impacted by adverse weather at the start of the year. He said: “For the interim results, due on 16 May, we are forecasting profit before tax being up 7% to £36m, held back by tough trading conditions during January to March 2018. As snow has affected destination food outlets disproportionately, we are shaving 3% off our FY forecasts, which were in line with consensus. We still forecast 7% PBT growth in 2018E (largely due to Charles Wells) and expect the dividend (yielding 7%) to be held. Destination & Premium’s (D&P) like-for-like sales fell by 0.9% in Q1 (16 weeks), although the figure would be +1.1% after adjusting for the impact of snow. We do not envisage there being any improvement on Q1’s trends in Q2: our full-year assumption requires no like-for-like sales growth. Our £3m PBT downgrade reflects three weeks of snow YTD, and is heavily weighted to D&P, for which we assume margins fall by 90bps over the full year. In Q1, trading was stronger in the wet-led Taverns estate than in the food-led D&P estate, repeating last year’s trend. Taverns generated 2.6% like-for-like sales growth in Q1 (helped by snow having less impact as the venues are not drive-to destinations), ahead of our full-year assumption of 1.5%. We expect a slight slowdown in Q2, but nothing significant due to the estate’s market positioning. Leased like-for-like profits rose by 2% in Q1, ahead of our flat full-year assumption. We expect the estate to still be ahead after Q2. Brewing like-for-like volumes grew by 33% in Q1 2017 due to the Charles Wells acquisition, with synergies on track. Over the full year, we forecast brewing volumes rising by 19% as the total sales growth rate should slow after the anniversary of the Charles Wells acquisition in June. We believe Marston’s should have been a small net beneficiary of supplier disruption elsewhere. Marston’s opened three pubs/bars and two lodges in Q1. Previous guidance was for it to open 15 pub/bars and six lodges in 2018E, but, given the market conditions, there is a strong case for slowing the pace of development and increasing acquisition firepower, prior to which we forecast net debt/Ebitda falling from 6.0x pro forma to 5.7x in 2018E. Marston’s has a wide range of profit streams, most of which are stable and cash-generative. Thus, in a weak consumer environment and during a period of inclement weather, only P&D traded behind in Q1; the other three divisions were ahead, which is a good result in our view. We expect a similar outcome in Q2.”

Christie Group adds Victoria Muir to board of directors: Christie Group has added Victoria Muir to its board of directors with effect from 14 May 2018. Muir joins the board as an independent non-executive director. She has over twenty years of experience in financial services, including asset management and inter-dealer broking. Her experience covers a wide range of products and services including investment trusts, segregated accounts, pension funds, insurance products, VCTs and hedge funds and a wide breadth of asset classes across both traditional and alternative investments. Muir is a chartered director and a Fellow of the Institute of Directors and is an FCA Approved Person. She has held a variety of executive positions within the financial services sector, most notably with Royal London Asset Management Ltd and some of its sister companies, before pursuing a career as a non-executive director. She currently holds a number of non-executive directorships, including Invesco Perpetual Select Trust, Sterling ISA Managers and Premier Global Infrastructure Trust. David Rugg, chairman and chief executive, said: “We welcome Victoria Muir who is steeped in the provision of financial services and asset management and an experienced non-executive director.”

Douglas Jack – we expect M&B’s profits to be down slightly: Peel Hunt leisure analyst Douglas Jack has forecast Mitchells & Butlers profits to be down slightly when it reports interims next week. He said: “For Mitchells & Butlers’ interim results, due on 16 May, we forecast profit before tax falling by £3m to £76m. Like-for-like sales were good, up 2.2%, over Q1 (14 weeks to 6 January), with management’s actions starting to “bear fruit”. Although like-for-like sales are likely to have softened in Q2, we expect to hold our 2018E forecast that requires 1.5% like-for-like sales. We view the shares, on a 13% equity FCF yield, as being undervalued. M&B’s like-for-like sales rose by 2.2% in Q1 (14 weeks) although the run-rate was 3.0% prior to December’s snow. Drink sales were slightly stronger than food sales, and both were driven by spend per head, reflecting the impact of pricing and the increasing premiumisation of the estate (premium brands should grow from being 41% of the estate in 2016 to 47% in 2019E), supported by rising service standards. Although food-led pubs account for 74% of M&B’s estate, the ability to offer events and operate in local communities, away from retail parks, has limited the company’s exposure to the problems created by the restaurant sector’s oversupply, delivery and discounting. The company has been right to reposition into the premium segment, the strongest part of the pub and restaurant sectors. The shortened refurbishment cycle (from ten-12 to six-seven years) should drive like-for-like sales over the next three years, during which the share of sites that are uninvested should drop from 44% to just 20% of the estate. This year, M&B expects its costs to grow by c£60m, of which another £26m should be offset by cost savings. With this level of mitigation, we estimate 2.5-3.5% like-for-like sales (subject to price/volume mix) would hold profits flat. Our forecasts assume like-for-like sales rise by 1.5%, with average sales up 2.5%. Like-for-like sales should be supported by circa 270 remodels and conversions over the full year. The shares, offering a 13% FCF yield by our estimates, are undervalued, in our view. The potential catalysts to spur a re-rating are stronger like-for-like sales and rising bond yields reducing the pension deficit. We believe investors’ patience should soon be rewarded.” 

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