ii view: Marston’s confirms suspended dividend

Covid-19 has left shareholders of this highly indebted pub operator needing a drink. 

Covid-19 update

• Agreed £70 million of additional liquidity through an increased bank facility
• Confirmed no payment of dividends the current financial year

ii round-up:

Pub operator and brewer Marston’s (LSE:MARS) today confirmed that it will not be making any dividend payments during the current 2020 financial year. 

Its 1,300 plus pubs remain closed under Covid-19 restrictions, although could reopen in July given recent government guidance. 

Agreement regarding an additional £70 million of cash liquidity has also been reached with its banks. In April, it secured a waiver from its banks regarding potential breaches of its debt commitments. 

Marston's shares were little changed in afternoon UK trading having fallen by more than 75% year-to-date. Shares of rival Wetherspoon's (LSE:JDW) have halved in 2020 while owner of the All Bar One brand Mitchells & Butlers (LSE:MAB) has seen its shares fall by 70%. 

Marston’s had net debt of almost £1.4 billion as of late September 2019. It has been pursuing a strategy to reduce debt by £200 million by 2023, a goal now constrained by the corona crisis. 

Despite the closure of its pubs, sales of its beers including Pedigree, Bombardier and Hobgoblin to the off trade like the supermarkets, are still generating income.

This, combined with government measures such as deferred tax payments and business rate relief, leave management convinced that it has sufficient liquidity to meet its obligations beyond the end of the financial year - even if its pubs stay closed until then.

Around 93% of its approximate 14,000 staff have been furloughed with directors taking temporary pay cuts. 

A meeting of its bondholders is scheduled for 29 May in order to seek a number of technical waivers and amendments. Half-year results are expected in June. 

ii view:

For Marston’s and rivals like Fuller Smith & Turner (LSE:FSTA) and Wetherspoons, events outside of management’s control, such as the weather, regularly influence sales. Sporting events, such as the football World cup, also play their part in shaping customer demand. Now, Covid-19 has forced an unprecedented complete closure of pub outlets.  

For investors, and what now seems like a long time ago, a Brexit-hit pound and the takeover of rival Greene King gave some previous food for thought. Management action to conserve cash and boost liquidity also offers some reassurance. 

But the removal of the dividend is a major blow, while the group’s level of debt leaves Marston’s shareholders very much secondary to its banks. For now, and despite a savaging of the share price, the shares are now only for high-risk long-term investors. 
Positives: 

• Diverse brand portfolio
• Actions to amend lending criteria

Negatives:

• High net debt
• Suspended dividend payment

The average rating of stock market analysts:

Hold