The importance of looking beyond the headlines of a trading update was amply demonstrated by pubs and brewing group Marston’s (MARS) when a solid looking announcement was not all it seemed to be.
The update, marking the year end of October 4, kicked off with news of “sound progress” that would bring in underlying profits “broadly in line with expectations”. These words seemed fully justified by figures showing revenue for premium sites 3.1% ahead of last year on a like-for-like basis, taverns 2.1% higher and leased pubs 3% ahead.
The franchise business continued to perform strongly and with new pub-restaurants being opened, creating 1,350 jobs, it looked like solid if unspectacular progress.
What the announcement failed to mention, however, was that sales growth figures are actually declining. Premium sales were 5.7% ahead in the first half; the figure had dropped sharply to 4.1% by the next trading update after 41 weeks; now it is just 3.1%. There has been no growth in the second half.
Similarly, like-for-like sales in taverns were 3.8% higher in the first half, falling to 3% after 41 weeks and now to 3%. Only the smallest section, leased pubs, has stuck consistently at 3% profit growth, which may tell us something about management at Marston’s. Unfortunately the opening of new outlets comes at a price, leaving net debt uncomfortably above £1 billion as we head towards interest rate rises.
I looked at the latest trading statement and initially felt tempted to buy, given that the price/earnings ratio is an undemanding 10 and the yield an attractive 5%. Fortunately for me, I have used up all my 2014/15 ISA allowance and the dividends received still standing in my account are too small, so I stopped to look more carefully, as investors should.
Marston’s shares fell on the day of the announcement followed by a further fall. We all like to put the best gloss on things but I cannot feel confidence in a company that fails to be upfront with its shareholders. Phrases such as sound progress and broadly in line with expectations are pretty meaningless in the face of harsh reality.
Markets React to Health Scare
The ebola scare has hit shares in airlines and holiday companies in particular and the market generally. At the risk of sounding heartless when wretches who live in enough misery already are dying, the question for investors is whether this presents a buying opportunity.
Ebola is, so far, pretty well limited to three West African countries little visited by Westerners. The situation so far was summed up by a letter in the Daily Telegraph pointing out that flu, which is far more contagious than ebola, kills 500,000 worldwide every year and we manage to live with that.
However, the two are not the same. Most of us contract and survive flu; ebola carries a far higher risk of death. It has been called the next Aids epidemic. Yet we have, over the years, come to live with and contain Aids and we will no doubt do the same with ebola. Developed nations that were quite prepared to sacrifice three unimportant African countries as long as they kept ebola to themselves have far greater resources to cope now it is clear that the disease will spread. Armageddon is not here yet.
As far as shares generally are concerned, the further fall this week makes the case for equities even more compelling. I cannot, though, shake off my distrust of the travel sector. These black swans – unexpected adverse happenings – have a nasty habit of recurring.
Those who fancy the sector should certainly consider buying now while share prices are down and fuel prices are tumbling. Just be prepared for that old cliché: Fasten your seatbelts, we’re in for a bumpy ride.
Investor Shows North and South
I hope readers of this column will come up to me for a chat at the London Investor Show at Olympia on October 24 and attend my talk at 3pm. If you live too far north, I there will be a repeat performance in Leeds on November 21.
