Marston’s PLC (MARS) is a Wolverhampton, United Kingdom-headquartered company which is engaged in running pubs and beer brewing and is the leading brewer of premium cask and bottled beers. The company owns and manages fashionable town centre bars, family pub restaurants and traditional locals, with six breweries producing over 60 of ales at its sites in the West Midlands, Bedford, Hampshire, Cumbria, Oxfordshire and Trent. The company also owns 40 inns all over the country and operates a range of traditional and contemporary breweries, which supply and distribute beers to its estate, supermarkets and other pub businesses across the nation. The operations are differentiated in three operating segments, namely Destination and Premium, Taverns and Brewing.
In the 42 weeks to 20 July 2019, like-for-like managed and franchised pub sales increased by 0.5% and volumes were in line with last year and continued to outperform the market. Operating margins were in line with the expectations, and the group continued to remain disciplined in terms of pricing, discounting and promotion. In Taverns, like-for-like sales for the concerned period grew by 1.1% over the last year, while in Destination and Premium, like-for-like sales increased by 0.1% in comparison to the prior year. The company remained on track to hit its 2019 cashflow and debt targets.
Financial Highlights (H1 2019, in £m)
Reflecting the benefits of new-build pub-restaurants and bars and like-for-like sales growth of 1.2%, the revenue of the Destination and Premium segment increased by 2.4% to £215.7 million. Due to an increase of 3.9% in managed and franchised like-for-like sales, revenue from Taverns increased by 4.0% to £154.2 million, while the continued growth in own-brewed and licensed volumes helped to post revenue increase of 8.3% to £183.2 million in Brewing. Its beer business achieved 4.4% growth in own-brewed and licensed volumes, while total managed and franchised like-for-like sales grew by 2.2%, driving underlying revenue to increase by 4.7% to £553.1 million. Underlying operating profit of £76.1 million (H1 2018: £74.3 million) was up 2.4% and group underlying operating margins were 0.3% behind last year, while total operating profit was £66 million, down from £133.4 million reported in the last year. Reflecting growth in each of its trading segments offset by higher finance costs, underlying profit before tax was up 1.9% to £37.0 million (H1 2018: £36.3 million), while total profit before tax declined to £19.1 million from £54.3 million reported in the prior year, reflecting the non-recurrence of the non-cash accounting adjustments relating to the estate valuation. Basic underlying earnings per share was were up 2.1% on last year to 4.9 pence per share (H1 2018: 4.8 pence per share) and basic earnings per share were 2.6 pence per share (H1 2018: 2.0 pence loss per share). With the ratio of net debt to underlying EBITDA of 4.8 times at the period end (H1 2018: 4.8 times on pro-forma basis), net debt excluding lease financing was £1,082 million and net debt at the period end was £1,438 million. Reflecting the guidance provided in the January 2019 Trading Update, the company declared an interim dividend at 2.7 pence per share.
Share Price Commentary
On 14 October 2019, at the time of writing the report (at 3:33 pm GMT, before the market close), MARS stock was trading at GBX 123.4, up by 1.56 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 131.70/GBX 89.70. The company’s stock beta was 0.19, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around £770.33 million, with a dividend yield of 6.17 per cent.
The company was confident of meeting its earnings expectations for the full year, driven by a strong Easter trading, which would help the company to maintain momentum into the second half of the year. Using long term relationships with suppliers and fixed-price contracts, the company has protected a significant proportion of its cost base, and there are no material changes to the cost trends. Through a reduction in interest and pension costs, £120 million of disposals and reduced capital expenditure, the company aims to reduce net debt by £200 million in the period 2020-2023. Consequently, the group has decided to reallocate £20-30 million of funds into its organic capital plans and defer £70 million of the new-build investment planned for the next three years. This would reduce debt at an even greater pace and enhance its returns from existing pub business and help to generate an additional £40-£50 million of cash flow over the next three years.
Merlin Entertainments PLC
Merlin Entertainments PLC (MERL) is a Poole, United Kingdom-based entertainment company, which is one of the leading companies in the world offering location-based, family entertainment. As a multi-format international operator of strongly branded and IP-led location-based entertainment, the company serves millions of guests by ensuring a balance of international and domestic visitation and indoor and outdoor attractions. Its midway attractions include indoor attractions in the city centres, Theme parks, and resorts. The company’s theme parks include LEGOLAND parks and resort theme parks which offer outdoor attractions such as rides, accommodation, shows, and interactive experiences to teenagers, families, and young adults. The company’s operations are differentiated in three operating segments: Midway Attractions, LEGOLAND Parks and Resort Theme Parks.
Financial Highlights (H1 2019, in £m)
(Source: Company Filings)
Despite a decline in LEGOLAND Parks, growth in the Midway Attractions and Resort Theme Parks Operating Groups helped the company to post revenues growth of 2.3% on a like for like basis, or £16 million, while reported revenue was £763 million and grew 6.5% on an organic basis. Reported revenue grew by 8.1%, and the number of visitors rose by 3% to £30.8 million. Gross profit during the period rose to £624 million from £580 million recorded in the prior year. Underlying operating profit declined by 10.8%, or 14.2% on a constant currency basis to £79 million, while reported operating profit declined to £77 million from £88 million recorded in the previous year. The decline reflected the expectation of growth in EBITDA to be weighted towards the second half of 2019 and as a result of the roll-out of new attractions and accommodation and continued investment in the existing estate, depreciation and amortisation grew by 12.1% (10.9% on a constant currency basis). On a reported basis, underlying EBITDA was up by 1.4%, but decreased by 0.8% at constant currency to £191 million, while reported EBITDA was reported at £189 million against £188 million in H1 2018. Due to the decline in like for like revenue in LEGOLAND Parks and continued significant investment in Midway attractions with lower rates of short-term return, underlying EBITDA margin declined from 26.7% to 25.0%. Underlying profit before tax declined by 21.6% to £34 million from £43 million in H1 2018 and reported profit before tax was £32 million. Reported profit for the period was recorded at £66 million against £28 million while underlying profit attributable to shareholders from continuing operations was down by 24.4% to £25 million. Adjusted earnings per share were down by 24.7% to 2.5p (2018: 3.3p), while basic earnings per share were 2.4p (2018: 3.3p). The company did not declare any dividend. The company delivered operating free cash of £110 million in the period (2018: £107 million), and net debt decreased by £10 million from the year-end to £2,163 million.
Share Price Commentary
On 14 October 2019, at the time of writing the report (at 3:35 pm GMT, before the market close), MERL stock was trading at GBX 453.6, up by 0.02 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 460.70/GBX 304.40. The company’s stock beta was 1.10, reflecting more volatility as compared to the benchmark index. The outstanding market capitalisation was around £4.64 billion, with a dividend yield of 1.21 per cent.
The threat of Brexit has a potential negative impact on the company’s operations as travel friction in the early months following a disorderly exit might result in lower visitors at sites operated by the group, and extreme movements in foreign exchange rate might impact underlying costs. The group faces competition from new or existing providers of location-based entertainment and growth potential could be impacted if guests consider its offerings as outdated. Domestic and global economic and political uncertainties can impact the performance of major European attractions including those in the UK, and since expenditure on discretionary items depends on the global economic growth, any downturn risks affect the growth trajectory.
Comparative share price chart of Marston's PLC and Merlin Entertainments PLC
(Source: Thomson Reuters)
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