The Motley Fool

Why I think today’s news suddenly makes this 7%-yielder look too cheap

Image source: Getty Images.

In many towns and villages, you’re likely to find a tired-looking building with boarded windows and dandelions sprouting up in front of the door threshold. Closer inspection will likely reveal that the forsaken building was once a pub.

According to the BBC, The Campaign for Real Ale (CAMRA) said there were 476 pub closures in Britain in the first six months of 2018. Pub industry figures show the rate of closures at 18 per week. CAMRA reckons the high cost of drinking out means more people are drinking at home, and pub businesses are struggling under a “triple whammy” of high beer duty, rapidly rising business rates, and high value-added tax (VAT). On top of that, 16-24 year-olds are less likely to drink than any other age group. So why would you want to invest in a firm such as Marston’s (LSE: MARS), which describes itself as a leading pub operator and independent brewer?

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Out of favour

I think that’s a question that many investors have been asking themselves in recent years because, at the recent share price of 103p, the forward price-to-earnings ratio is just over seven for the trading year to September 2019, and the forward dividend yield sits a little over 7%. Marston’s looks cheap but, in fairness, earnings and the dividend have been stagnant for the past few years, so perhaps it should be.

Yet, there are signs that the business is showing resilience and flickering into life. Today’s full-year figures reveal that underlying revenue grew 15% year-on-year, profit before tax rose 4%, and earnings per share declined 2%. The directors held the total dividend for the year at last year’s level. Meanwhile, around 43% of underlying operating profit came from the firm’s Destination and Premium arm, which includes upmarket pubs, food service, and accommodation. The ‘wet-led’ Taverns division delivered 41% of operating profit, and 16% came from Brewing.

Underlying business performing well

Despite the difficult backdrop in the industry, the company declared it had achieved five consecutive years of like-for-like pub sales growth, and even opened 14 pub-restaurants and seven lodges during the period. There was also “strong growth” in Brewing, with total volume up 47% during the year, due mainly to a previous acquisition. The company said in the report it has “clear plans” to grow in the current trading year, which includes the establishment of 10 pub-restaurants and bars, and five lodges. The company also expects to acquire 15 pubs from Aprirose, and invest in a canning line in its Brewing division and a new distribution centre in Thurrock.

I think the growth in the Brewing division looks promising and it could expand to offset some of the more cyclical risks in the rest of the business. But all divisions seem to be doing quite well at the moment. Meanwhile, the company declared a net asset value of £1.51 per share, which arose because of the valuation of its property estate, and because of a £10m reduction in the pension funding deficit, down to £40m. I think the asset figure sits well against the share price and could be supportive. Suddenly, Marston’s looks in pretty good shape and maybe the shares are selling too cheap. Perhaps it’s time to take a chance with that fat dividend.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.