There’s plenty of smart money still going into Marstons (LSE: MARS) at the moment. The public house operator’s share price has risen by almost a quarter since the turn of 2019, and there’s little sign of it running out of steam yet. Indeed, Marstons hit fresh record peaks above 115p per share this week.
Undoubtedly, market makers are expecting more great news when the FTSE 250 leisure giant unpacks fresh financials on 24 July, their enthusiasm no doubt buoyed by another strong set of results last month. I reckon this is a train that could continue chugging skywards too, given the company’s dirt-cheap valuations.
Back in May, Marstons declared another uptick in revenues for the six months to March, up 5% on an underlying basis and further proving its ability to defy the rising strain on British consumer confidence. This top-line resilience was not the only thing to celebrate, though. Equally impressive was news underlying pre-tax profit nudged 2% higher in spite of higher finance and operating costs including larger wages for its staff.
A life of leisure
A quick glance at how Britain’s retailers are faring would suggest it’s becoming harder and harder to pry consumers from their cash. For the leisure sector, however, this couldn’t be further from the truth.
Indeed, recent research from Deloitte showed that “despite a sustained period of political uncertainty following the EU referendum, consumers have shown that their passion for leisure has continued over the last three years with their reported net spend… remaining broadly stable.”
The researcher’s analysis showed 96% of UK consumers spent on leisure in the first quarter of 2019, edging 1% higher from a year earlier. And its rationale behind the rise was interesting, i.e. that changes to our mindsets and our growing tendency to share our experiences on social media et al is supporting sector spending. It certainly explains why leisure operators are thriving while the retail segment finds itself in dire straits.
Great value. Huge dividends!
This idea’s certainly reinforced by Marstons and its ability to keep sales moving higher over the past few years. And Deloitte has some good news for the pub and eateries owner in the months ahead. According to the consultancy, Britons expect their net spending on eating out and drinking in pubs and bars to rise 4% and 3%, respectively, in the current quarter.
Now Marstons isn’t expected to punch any lightning profits growth anytime soon. City analysts are predicting a bottom-line increases of 4% for the current fiscal year alone.
Such predictions do, however, lend themselves to predictions of another 7.5p per share dividend though, and this leaves the firm wielding a jumbo 6.5% dividend yield. Mix a rock-bottom forward P/E ratio of 7.9 times into the equation, and I reckon the share’s a brilliant buy today.
