Marston's Share Discussion Threads

[trytotakeiteasy] 28/2/2017 09:44

exel, JakNife - yes about estate transformation. But Marston's have been increasing debt in recent years due to their new build pub programme. They never talk about balance sheet ratios or reducing debt. I looked at their accounts before the financial crisis in about 2007 and the focus then was also on opening new pubs. Nothing wrong with that but I think they should also reduce debt.

[exel] 28/2/2017 09:42

interesting points, all 3 above, thanks - but its surely not just 'going for growth' - blindly - its 'going for estate transformation'. also (and I can't know this, but sense it) with any roll-out of say 15 to 25 new units per annum, they are bound to slow/speed/modify this development rate, in relation to performance of those units now opening or in year 1 or 2 etc - and in relation to new site availability that meets their investment criteria, and their geographic coverage. Finally, they have (a tad expensively, to be fair) secured long term borrowings/rates so may as well add the sorts of units (at the top) that they 'really want' in place, long term, while shedding a few (at the lower end) if/as appropriate (which I sense has largely been completed). In essence, theirs has been a migration & growth plan, not just growth, per se.

[trytotakeiteasy] 27/2/2017 23:34

Market is saying that Marston's should cut debt and reduce the expansion programme... management don't care and are going for growth....

[r ball] 17/2/2017 20:43

Agreed. In good shape but out of favour. Yield offers support

[exel] 17/2/2017 20:11

This stock seems to be bouncing around, at its recent lows and resistance level of circ 132p., but (Punch apart) the sector is hardly 'flavour of the month' right now. I personally sense this gloom is a tad overdone, notably for MARS, but of course - who knows? especially with wider market uncertainties abounding! Wider recognition of the Interest Rate SWAPS cost/overhang here (as very well covered above - thanks all!) has probably proved a bit of a drag on the price and (arguably) still a bit of a problem going forward, but this will work through over time, and I do feel sure that the BoD will be working to manage/mitigate this risk/cost factor, and also to work gearing down, as with real interest rates, over time, as the pubs/lodges estate is gradually migrated to where we all want to be, from where it was circa 5 years back. Also, slackness of demand in hospitality generally (notably higher upwards in the food chain) has to be a restraining factor - with public appetite for discretionary spend a tad more restrained? given looming Brexit and rising Inflation etc. Still, I guess it'll be a slow grind?, but I finally met the 132.5p level today (actually better than that) and topped up again, materially. As pints are drunk, rooms are booked and meals are eaten, tonight & tomorrow, I'll lose little sleep tonight. Medium to longer term, the omens still look very good, and this Group will probably become a very serious target for a major player (like Heineken was for Punch) once it has done most of the heavy lifting to get to the estate platform & debt profile/cost to where we long term holders would all feel just that bit more comfortable. ex

[redartbmud] 16/2/2017 20:26

I don't believe that rates rebasing is an issue , following comments made at the AGM.

[r ball] 16/2/2017 19:43

Significant drag: inflation, living wage. Rates rebasing.

[racg] 15/2/2017 15:45

I hope so too. But If not, will add.

[hopefuldave] 15/2/2017 14:44

Well I've made my decision and bought in. I like the pub/restaurants and also the fact that most of there pubs are not in London and won't be too affected by higher rates, and I like the dividend yield. So , I'm hoping I've made a good decision.

[racg] 12/2/2017 18:49

Maybe.....

[racg] 12/2/2017 18:48

Yes it is time to buy.

[hopefuldave] 12/2/2017 12:23

Is lt time to buy?

[rhomboid] 10/2/2017 22:08

I've voted it up for you Red..good post

[redartbmud] 10/2/2017 21:32

aldgatee

Excellent post. Typical ADVFN, unable to vote it up.

[olliemagern] 10/2/2017 10:51

Thanks Aldgatee.

[aldgatee1] 09/2/2017 18:54

I believe the hedges will be for the length of the loan and they can't be closed in the way that a simple option could be bought or sold on the market.

In the case of the securitisation, the debt lasts well into the 2020's. To close the hedge would cost the difference between actual and hedged rates, times the number of years left. That would be tens and tens of millions of pounds, hence the provision, the 'mark-to-market' that has gone through the P&L & is in the balance sheet.

GNK closed some of their hedges. It cost a fortune but wouldn't have come as a shock as their 'loss' had also been provided for a few years ago when interest rates fell. They rolled the cost into the accounting during the Spirit purchase, I think. It was convenient to lose it that way. I don't mean that in an underhand way as the data was always in the accounts to see.

Both companies, and many, many others, did what they thought was sensible in providing against what could have been life-threatening potential rises in interest rates. The banks kind of made them do it as a condition for getting these loans. Smaller 'victims' of this (terrible, terrible) advice have the right to sue but big companies were deemed to have been old enough and ugly enough to look after themselves.

Well, as we know, interest rates didn't rise, to say the very least. They actually fell like a stone & the professionals on the other side of the swaps made a mega-killing. They will probably have been the usual suspects, banks, particularly American investment banks etc.

[olliemagern] 09/2/2017 14:46

Considering the £185M loss over the last decade, the management would be wise to at least halve the amount of interest rate hedging they do.

[ianood] 09/2/2017 10:50

Jeffian - Thanks for the expansion which also fleshes out our thoughts!

[jeffian] 08/2/2017 23:53

I'm certainly not a qualified accountant (I'm a Chartered Surveyor actually) but these SWAPS are not the rocket science they are made out to be. As a commercial property developer, we used them all the time in a period of high and volatile interest rates to give ourselves a known/fixed cost of money against a known cashflow.

Basically, a SWAP is a deal between you and a counterparty where you wish to cap your interest cost at >x% and they want a return of x%. Thus if interest rates fall below x (as they have done now for years in this low-interest regime), you pay them the difference and if interest rates rise above x, they pay you the difference. Typically, a pubco might aim to fix its finance costs at around 6-7% and achieve 18-20% ROC. Yes, MARS have been stumping up well over 'market' rates for years, but they know that they still have a good margin on that and, most importantly, they will not get caught out by future rises in interest rates (and I speak as someone who completed on their biggest ever development site purchase in the week of Black Wednesday!).

Some years ago, accounting standards were changed to require companies to show in their P&L accounts the 'loss' they had suffered as a result of paying x% instead of a lower market rate, but the issue to focus on is the margin between their total finance cost (including hedge) and their ROC. As long as that's positive, what's the problem?

(Edit: While I was typing that I hadn't seen ianood's shorter and more concise explanation!)

[ianood] 08/2/2017 23:28

jbfnfn - agreed, when stripped down to fundamentals its actually no different to a fixed rate mortgage at a personal level. When put in place it presumably enabled a positive margin to be locked in against the estate.

[jbfnfn] 08/2/2017 20:11

olliemagern

Interesting posts about hedges.

I've worked out its nothing to do with box or privet.

They are hedging interest rates. They borrow at a variable rates and then use interest rate swaps to fix the rate. The cash flow hedging stuff appears to be how you deal with it in the accounts. There is quite a lot of stuff in the annual report about it but unfortunately I understand very little of it.

With low or falling interest rates you lose money hedging, I guess, but if rates eventually go up it could pay off?

Looking at the GNK accounts they hedge too. Is what MARS is doing with hedging worse than GNK? If you borrow a billion plus is hedging interest rates standard practice? Is it forced on you by the lender? Is it part and parcel of a 'modern balance sheet'?

There appears to be a sprinkling of qualified accountants on the board so you would hope they understand it fully.

One thing that attracted me to pub companies is that I thought it was a simple business I could understand. I'm off to the library tomorrow to check out some books on derivatives.

[olliemagern] 06/2/2017 10:25

Janekane, most of us are guilty of focusing on or believing the under-lying eps of 14p.
To get the full picture we need to also take into account the real eps of 6p, after £40m loss on cash flow hedging.
Another figure that should also be considered is the total effect on the business, that is the dividend plus or minus any change in net assets. That means the business really had net eps of 2.3p last year. Either way the dividend is certainly not covered. See my last post.

[exel] 03/2/2017 20:11

M, nice one!