The market does not fully appreciate the transformation of the brewer’s business
Thursday 06 Jun 2019 Author: Martin Gamble

The tough market backdrop may have blinded investors to the impressive re-positioning of pub and brewing firm Marston’s.

Free cash flow is expected to rise from £47m in 2019 to more than £80m in 2022, according to broker Shore Capital, and this helps underpin a 7%-plus dividend yield.

We see potential for the stock to perform strongly as the strengths of the business become more widely appreciated.


Greg Johnson, analyst at Shore Capital, says: ‘We continue to view Marston’s Beer Company as a jewel in the crown, with less than 10% of volumes now distributed through its own pub estate.’

Marston’s owns six national breweries and a significant bottling and canning operation. An £8m investment last year in new canning and state-of-the-art bottling lines mean that the company now packages 40% of the UK bottled ale market.

The company has a significant and logistics operation, delivering to one-in-four of all pubs in the UK. In the last 18 months it has won new contracts from the likes of Punch and Young’s (YNGA:AIM).

In addition, Marston’s is the UK’s largest exporter of beer, and the first half of 2019 (the company’s year-end is 29 September) saw volume growth of 17%.

The company is developing a very impressive portfolio of owned and licenced beers, such as Estrella Damm.

There are clear growth opportunities to develop other third-party brands as management recently revealed at the half year results (15 May). They identified the potential for £20m of extra profit in the medium term.


The company has two strategic priorities: to increase cash generation and reduce debts by £200m. Recent results show that the company is delivering on these goals. For example, cash from operations grew by 6% to £66.8m at the interim stage, much higher than the reported operating profit growth of 2.4%.

Capital expenditure is expected to be 20% lower in the next two years, while the expected proceeds from disposals are expected to be £129m in the 2020-2023 period, higher than previously guided.

Shareholders benefit very nicely from deleveraging. Lower interest charges mean that equity owners keep a greater proportion of the profits. In theory this should see the shares should settle at a more premium valuation over the medium term.

Marston’s currently offers good relative value, with a dividend yield of 7.3% compared to the 5.2% on offer at Greene King (GNK). Management has committed to keeping the dividend at current levels while it reduces the company’s debts.

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