In a recent development, Marston’s announced that their CEO, Andrew Andrea, would step down, and Justin Platt, the former chief strategy officer at Merlin Entertainments, would replace him in January. This leadership change comes as Marston’s share price struggles to recover to pre-pandemic levels.

Marston’s Annual Results and Performance

Marston’s annual results revealed a 10.1 per cent rise in like-for-like (LFL) sales against the previous year. The food and drink spend also increased by 8.1 per cent and 8.6 per cent respectively. However, LFL sales growth slowed down after the year-end to 7.4 per cent. But the management is hopeful as they have reported that Christmas bookings are ahead of last year.

On a positive note, Marston’s joint venture with Carlsberg brought in a threefold increase in income to £9.9mn. However, despite the growth in revenue that brought the company closer to the £1bn annual sales mark, Marston’s still faced losses. The losses of £21.6mn on interest rate swap movements and £31.2mn of property impairment charges are significant contributors to the deficit.

Future Outlook and Analysis

In the upcoming term, the management has set a target of a 200 basis point increase in margin. The underlying profit margin remained flat at 14.3 per cent in the previous year, with operating profits reaching £125mn. However, the upcoming 9.8 per cent increase in the national living wage in April could pose challenges. Nonetheless, analysts at Peel Hunt believe that this can be mitigated by adjusting prices due to one of the lowest price points in the sector and accelerating the cost efficiency programme.

Marston’s valuation is considered cheap as the shares are currently trading at four times forward consensus earnings. However, this hefty discount to net asset value could also indicate market disinterest. Therefore, holding onto the shares might be the best option for investors at this point.

Viewpoint

The transition to new leadership is a crucial phase for Marston’s, especially given the company’s current market position. Their share price is struggling to rebound to pre-pandemic levels, and the company has fallen into the red due to substantial losses. However, the increase in LFL sales and a promising outlook for the year-end holiday season may offer some relief.

The planned 200 basis point increase in margin indicates an optimistic medium-term strategy. However, the increase in the national living wage poses a significant challenge. The potential price adjustments and cost-efficiency programmes could be pivotal in mitigating these additional costs.

Despite the low valuation, Marston’s share price represents a substantial discount to its net asset value. While this could be considered a buying opportunity for some investors, it may also reflect market disinterest due to the company’s recent performance. Consequently, it might be prudent for investors to hold onto their shares until a more definitive trend emerges in the company’s performance.

Marston’s path to recovery will heavily depend on its strategic decisions in the upcoming period. The new leadership will have to navigate through these challenges to rejuvenate the share price effectively. It is crucial for potential investors to closely monitor these developments to make informed decisions.