Sunday share tips: Marston's, Begbies Traynor
By Josh White
Date: Sunday 29 Sep 2019
(Sharecast News) - In her 'Inside the City' column for the Sunday Times, Sabah Meddings mused over what was attracting retail investors to Marston's, quipping that it could be the 20% discount shareholders receive on food and lodging, or, more likely, the brewer and pubco's hefty dividends.
The company distributed £47.5m last year, making for a yield of 5.7%, which Meddings said made the firm an attractive investment prospect, so long as it remains committed to such payouts.
But that is also where the group could become unstuck, as it is saddled with a large £1.4bn net debt position, with the board saying it would pay down £200m of that by 2023 in its annual report last year.
However, in July, 18-year chief executive Ralph Findlay said he was putting plans to build new pubs on hold in a bid to speed up Marston's debt repayment, which Meddings said was likely a response to investor concerns over the company's liability.
Findlay did commit to keeping the dividend steady until 2023, however.
The company's shares slid 12% after that, and floundered for several weeks until its rival Greene King was gobbled up by Hong Kong tycoon Li Ka-shing - the second British brewer to be wooed by an Asian suitor this year, after Japanese brewing giant Asahi bought Fuller's for £250m.
Marston's shares have leapt 26% since the Greene King deal was announced, finishing last week at 130.8p and giving the company a valuation of £829.3m.
Whether an overseas offer for Marston's would be forthcoming remained to be seen, however, with Meddings saying industry murmurs were that Mitchells & Butlers would make a more attractive target.
Looking at its debt pile, Marston's is believed to have appointed advisers from Christie & Co to sell off 150 of its tail-end pubs for around £45m to help pay off the liability, in a process titled 'Project Harvest'.
The initial bids were due on Friday, but the deadline was pushed out until the end of this coming week, with Meddings pointing out that 2019 had not been too kind to small pub deals, with Marston's itself calling off the sale of its Pitcher & Piano operation in recent weeks.
Looking at the books, Meddings said the company was making use of some "flattering" accounting, noting that its 3.9% improvement in pre-tax profit to £104m last year did not account for £7.3m of "reorganisation and integration costs", which the board said were related to the Charles Wells brewery acquisition in 2017.
She said that while the firm could well argue that the costs were a one-off, they had become a bit of a feature for Marston's, with the company reporting £5.5m of them in 2017 and £3.8m in 2016.
"Marston's is a good dividend stock," Sabah Meddings wrote.
"Yet its shares are still trading on the Greene King premium, and tackling the debt pile is going to be some feat. Avoid."
Over in the Mail on Sunday, Joanne Hart was recommending looking at a firm that boomed while others were going bust - AIM-traded insolvency specialists Begbies Traynor.
The company leads its sector in the UK, handling more than 1,500 cases last year, which Hart claimed was more than double its nearest competitor.
Its shares were currently at 74p, and were expected to rise this year and beyond, according to Hart, with executive chairman Ric Traynor said to be determined to expand the business amid the current turbulent economic climate.
She pointed to 2009, when the financial crisis saw more than 26,000 firm go insolvent in a single year, before super-low interest rates and more stable economic conditions saw the number fall to a historic low of around 14,000.
Now, however, the number was creeping up again, with around 16,000 UK firms expected to go over the brink this year, and rising further in 2020.
The numbers, Hart said, made bleak reading for British business, but were likely to be a boon for companies such as Begbies Traynor, which primarily works with small and medium-sized businesses, and is usually appointed by creditors such as banks.
Its job, Hart explained, was to work out what went wrong, ensure directors had not hidden money under any mattresses, and see if there was any cash left in the business.
She said the task can be painful for businesses, but was a necessity, adding that many firms apparently found it "reassuring" to have an independent specialist take over their affairs.
But Begbies Traynor was not solely reliant on the misfortune of other companies, with it diversifying into two new divisions - BTG Advisory and Eddisons.
BTG provides guidance and support for companies while they are still solvent, assisting them when they face problems and when they were seeking growth, while Eddisons is a chartered surveying firm, offering straightforward surveying services as well as specialist office property and equipment sales services, when companies are looking to raise funds.
That expansion and diversification was paying off for Begbies Traynor, with the company's revenue rising nearly 15% to £60m in the year ended April, helped by a £17m contribution from its property division.
Its profits were ahead 26% at £7.1m.
Looking at the current year, brokers were looking for turnover of more than £66m and profits reaching almost £9m, with dividends also on the rise with a 2.8p distribution pencilled in for the current year, following the 2.6p-per-share payment for the year ended April.
Growth was also on the agenda for Ric Traynor and the board, with the company buying an Exeter-based insolvency specialist last week, with more acquisitions believed to be likely.
"After 30 years at the helm, [Ric] Traynor is as committed to Begbies Traynor as ever," said Joanne Hart.
"He is determined to take revenues to £100m over the next three years and increase profits substantially along the way, through organic growth and acquisition.
"Tough economic and political conditions are likely to help him achieve his ambitions. At 74p, Begbies shares are a buy."
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