Famed investor Howard Marks is fond of saying that good businesses do not always make good investments and vice-versa. In other words, start with what the market has already priced in.

Shares believes there is too much doom and gloom priced into Marston’s (MARS) shares, leaving plenty of scope for recovery in both the valuation and the fundamentals of the business.

Marston’s is trading at half book value while the shares are roughly 70% below pre-pandemic levels. Historically the shares have only traded at such a large discount to book value during the depths of prior economic crises.

There are clear pathways to rebuild the Covid-19 related mark-downs in book value which should allow the excessive discount to book value to narrow, supporting the shares.

The latest trading update was encouraging with 3% like-for-like sales growth over the 10 weeks to 2 October compared with the last uninterrupted trading period in 2019. Drinks outperformed food, reflecting resilience in the ‘community-led’ estate.

This is an improvement on the 2% drop seen in the prior 42 weeks, albeit the period did benefit from unseasonably warm weather. Total sales across managed and franchised pubs are around 2% above 2019, while management reaffirmed full-year guidance.

Shore Capital analyst Greg Johnson increased his full-year pre-tax profit estimate by 3% to £28 million and expects 2023 pre-tax profit to reach £51.7 million.

The new financial year which began on 2 October should benefit from the football World Cup later this month bringing more people into its pubs – a significant proportion will be showing the games – as well as the first uninterrupted Christmas trading period in three years.

Around 85% of Marston’s borrowings are long-term, asset-backed and securitised to 2035. As of 1 October, net debt (£1.22 billion) was £16 million below the prior year.

Johnson believes the reduction in debt and second half weighting should allow some partial recovery of the Covid-19 impairments which have totalled £380 million over the last two years.

Given a net asset value of 71p per share at the halfway stage Johnson sees scope for a ‘significant’ uplift in net asset value towards 100p per share.

Marston’s is targeting a reduction in net debt to below £1 billion by 2025 which should benefit shareholders as more cash is available to invest in the business and pay dividends.

Longer term the company plans to ‘get back to a billion’ of annual revenues. Johnson sees the potential for Marston’s to increase like-for-like sales by around 2%-to-3% a year, implying above market growth.

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