Marston's profits from improving pub estate and ale appeal

Full year results from Marston's confirmed the brewer's strong profits growth and revealed an encouraging start to new financial year and confidence about growth in 2017.

Assisted by helpful summer weather, the pub estate finished the year to 1 October in effervescent form, with profit per pub up 8% and group profit before tax bubbling up 158% to £98m on revenue up 7% to £905.8m.

Earnings per share of 14.0p were up 9% and the final dividend raised 4.4% to 4.7p made for a 7.3p payout for the year as a whole.

Net debt fell by £24m to £1.27bn, with the ratio of net debt excluding lease financing to EBITDA down to 4.8 times.

Numbers were in line with expectations, having been well signalled by management.

The brewing arm remained strong, with profits up over 12% driven by the acquisition and integration of the Thwaites business and the rise of Hobgoblin to become the third most recognised beer brand in the UK, while the whole Marston's brand is due to be 'energised' with a marketing campaign in 2017 to capitalise on an apparently growing appeal among younger consumers.

Among the pub estate, which has been transformed in recent years into a smaller but better-quality entity with the sale of non-performing pubs and opening of 150 new pub-restaurants since 2009, the Destination and Premium pubs drove like-for-like sales up 2.3% and though margins remained flat there was a 7.9% increase in earnings before interest and tax.

In the Taverns division, LFL sales were up 2.7% and EBIT was up 0.2% thanks to disposals and a strong performance from franchised pubs,

The year saw 22 pubs opened, as well as six new lodges that took the estate to over 950 rooms, with the new-build programme being said to remain the key growth driver.

On Brexit, chief executive Ralph Findlay said there has been "no discernible change in the spending habits of our customers" and as the business has forward contracts in place for 2017 and much of 2018, this should mitigate the risk of higher input costs due to the pound's recent collapse, while stressing the company has lower exposure to on business due to its minimal London presence.

"We have a high quality pub and beer business which is displaying positive momentum and is consistently outperforming the market. We believe that, despite some continuing market headwinds, our expansion plans for new pub-restaurants, lodges and Revere bars will further enhance our ability to deliver attractive returns," he said.

Analysts were satisfied, in the main.

Broker Canaccord Genuity noted cashflow was improving but "still has some way to go", with net debt/EBITDA including lease financing 5.6x but should decline gently to 5.4x by the 2018 financial year assuming EBITDA growth is delivered.

Shore Capital said: "The disposal and capital investment programme has repositioned Marston’s towards a higher quality estate, with greater direct control and a burgeoning beer business. The trading backdrop appears stable (albeit uncertain) and costs remain manageable in our view. The ongoing new build programme is delivering attractive returns and we estimate is capable of delivering mid-single digit earnings growth and further margin progression. "