A pub stock for the future: 1 FTSE 250 stock I’d buy now

Is this a bargain at the current price? Ash Karandawala takes a look at the long-term potential of FTSE 250 stock Marston’s.

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Pubs and bars have been dealt a hard blow to sales and revenue during lockdown. However, some hospitality companies are coping better than most and are showing signs of greater long-term potential. Marston’s (LSE:MARS) is one of these companies and a FTSE 250 stock I would invest in now. Marston’s operate 1,400 pubs, bars, and restaurants across the UK, along with its own brewing business, and employs around 14,000 people.

It acted swiftly in March to reduce capital expenditure and scrap its 2020 dividend to save cash, but in previous years dividend yields have been high.

While on-trade sales through pubs and bars have dropped massively in recent months, I expect Marston’s off-trade sales to supermarkets to be far higher than normal. More people have been buying alcohol to enjoy at home, and Marston’s business allows them to benefit from this and maintain some, albeit smaller, revenue streams. This also gives it an edge over competitors with no off-trade sales.

FTSE 250 stock vs FTSE AIM UK 50 share

In the UK, the demand for beer and ale is secure. It’s not affected by fashionable demand like some spirits and mixers. Take Aperol Spritz for example, huge in the 1950s, then unheard of for decades, only to make a sensational comeback in 2019.

Fevertree Drinks is one company suffering after the gin and tonic fad seems to have come and passed. I view Fevertree as an acquisition target while its share price is almost 50% lower than its peak a couple of years ago. Focusing back on Marston’s, I believe there will always be a high demand for lagers and ales in the UK.

Marston’s biggest news has been that of its joint venture with Carlsberg UK last month. A partnership with a giant like Carlsberg signifies the long-term growth potential of FTSE 250 stock Marston’s. As part of the deal, Marston’s will receive a cash equalisation payment of up to £273 million, which will help reduce debt and provide some financial flexibility. On top of this, synergies between the two companies will allow expected value creation and cost savings of around £24 million by the end of 2023. Good news all round for the future.

The delayed interim results released on 26th June held no surprises. First-half profits fell by more than 70% after a £40 million hit to revenues led to a drop in the share price. However, the whole sector is suffering, and while smaller businesses crumble, the larger companies will be able to hold their own and likely gain market share. That’s why I believe now is a good time to buy this FTSE 250 stock while the share price is relatively low.

Foolish final word

The recovery starts soon. The UK government announced that on 4th July, pubs can reopen their doors with certain restrictions. Marston’s benefits from 90% of its pubs having outside space which means they can accommodate to these restrictions better than most.

I think it is far from last orders for this FTSE 250 stock and I predict a bright future. I’d pick Marston’s for strong share price growth and healthy dividends in the years to come.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Ash Karandawala owns shares in Marston’s. The Motley Fool UK has recommended Marstons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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