Is cheap pub stock Marston’s now a screaming buy?

Paul Summers — Fri, 26 Jun 2020 09:44:03 +0000

With Boris Johnson giving pubs the go-ahead to reopen their doors on 4 July, now’s the perfect time to buy a pub stock like Marston’s (LSE: MARS), right?

I’m not so sure. Before explaining why, let’s look at today’s interim results from the company — originally intended for release in mid-May.

Revenue hit

Of course, a lot of this morning’s numbers won’t really matter all that much since they only reflect trading in the 26 weeks to 28 March – not long after the UK went into lockdown.

Nevertheless, at £510.5m, revenue was almost 8% down compared to the same period in the previous year. Underlying pre-tax profit was even worse, tumbling almost 72% to just £9.4m. This was despite sales to the end of February being “broadly in line” with the previous year.

To its credit, the company has done what it can to minimise the impact of the lockdown on its finances. Expenditure has been slashed and 93% of its staff have been furloughed, with the remainder taking a 20% hit to their salaries. It’s also made use of government grants and reliefs where possible.

Taking all this into account, what are the arguments in favour of taking a stake now?

Glass half full

First, it seems at least some UK drinkers are desperate for pubs to reopen. As a result, the idea that revenues may bounce back seem logical. Whether this happens in practice is something entirely different, of course.

Second, the recently-announced deal to combine its brewing business with Carlsberg UK should allow management more time to focus on its pubs and accommodation.

It’s also good for its finances. Assuming the deal goes through, Marston’s will have a 40% stake in the new company. It will also receive a cash payment of £273m, which can be used to reduce debt.

Third, it’s worth highlighting, as Marston’s did today, that its pub estate is mostly freehold and located outside city centres. The fact that nine out of 10 of these pubs have outside space could prove very important as drinkers adapt to the new ‘normal’.

Last, it’s certainly possible the company could actually grow market share as more competitors go out of business.

Glass half empty

On the other hand, there are some solid reasons for continuing to give Marston’s a wide berth for now. Another round of the coronavirus can’t be ruled out. And while a second lockdown seems unlikely, this would be a nightmare for an already-wounded industry.

Even if a second wave is avoided, the psychological impact of the virus could prove a drag on earnings for a while.

In addition to all this, you have a number of more general issues facing the pub industry. These include rising costs and the fact that an increasing number of us, particularly young people, are choosing to ditch alcohol completely.

The great unknown

As investors, we’re told to be “greedy when others are fearful.” As profitable this strategy has been for investing legend Warren Buffett, I’m not feeling the urge to snap up Marston’s right now. Even if the share price is still roughly 50% below where it was at the start of 2020.

With such an uncertain outlook — and no dividends to tide investors over — this is one for the watchlist at best.

For me, there are far less risky ways of making money in the market.

The post Is cheap pub stock Marston’s now a screaming buy? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Marstons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

3 things investors can do during a stock market crash

Michael Baxter — Wed, 08 Apr 2020 12:37:05 +0000

The crisis that has engulfed the world is awful, and none of us feel good about it. In such times it is hard to see beyond the bad news. But I think there are three options for investors wondering what to do during this stock market crash.

It is important to remember that stock market crashes create buying opportunities. There are, however, aspects to this crisis that are quite unique. Many companies will go bust. Yes, buying opportunities will be created, but tread with care. Just because a company is cheap, it doesn’t mean it’s a bargain. It may be cheap because it is struggling to survive. I also happen to think that this crisis has a lot longer to go. We are nowhere near the bottom yet.

Here are three things I think that an investor can do during this particular stock market crash.

Acceleration of digital

First, l think the Covid-19 crisis will see an acceleration in the move towards digital. Remote working has increased enormously for obvious reasons. I feel that many companies, when this crisis is finally over, will want to continue encouraging some remote working as much as possible.

That means companies that provide technology that supports remote working will flourish. This trend will be good for cybersecurity companies such as Sophos. And BT Group is becoming a major player in cyber security too.

But be careful as we are already seeing reports of a reaction against some digital services because of concerns regarding inadequate cybersecurity and privacy safeguards.

Asset Diversification

Secondly, remember that some assets can perform quite well in times of uncertainty. Ask yourself what funds do with their cash when they sell equities. They will often buy low-risk or safe-harbour assets such as government bonds or some ultra-safe corporate bonds. As a general rule, such bonds often increase in price when equity prices fall. I am not suggesting put all your money into these assets, but you could think of investing some of it this way.

Patience

Finally, be patient. Remember what Warren Buffett said: “The stock market is a device for transferring money from the impatient to the patient.”

I think that right now, investors are worrying that they might miss out on a market recovery.

History, tells us that markets fall rapidly and recover slowly. Predicting the point when markets have reached bottom is impossible unless you have a time machine!

Assuming you do not have such a device, you can limit your downside risk by drip-feeding your money into stocks. I would say there is some seriously bad news on the global economy to come. Until then, pick your investments with even more care than normal.

And a saying

I will finish today with a saying. The time to buy is when all but the most bullish of investors have become bears. The time to sell is when all but the most bearish of investors have become bulls. For my money, there are far too many bulls around to rush back in indiscriminately. But there are also some solid companies with strong recovery prospects trading at attractive prices.

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