Derek Pain: I'll raise a glass to Marston's even if stock market goes flat


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The Independent Online

Is the stock market once again going to let down the optimists? At the start of this year there was a widespread belief that the benchmark Footsie index would climb to new highs with some experts advocating it could hit 7,500 points.

With more than half the year behind us I am beginning to wonder whether shares will even manage to achieve a new record during the remainder of 2014. On a number of occasions Footsie has threatened to top its earlier peak of 6,950 only to tumble and lose momentum. It is, as I write, around 6,790 and once again could be in sight of exceeding its previous high, achieved at the turn of the century during the madcap internet boom.

But the strength of the pound, increased competition and pressure on prices are taking an inevitable toll, manifesting itself in a string of company profit warnings, the longest quoted display for three years.

Shares under such limitations are unlikely to soar unless, of course, there is a proliferation of generous takeover activity. Although mergers and acquisitions seem to be occurring with renewed frequency it could require a veritable deluge of glamour bids to nullify the caution created by profit warnings. And, to pile on the uncertainty, the stock market legend is that any dramatic upsurge in deals very often signals the end of anything approaching a bull run. It seems investors have become more alarmed by downgrades than they were earlier this year, with accountancy firm EY reporting an average share price fall on alerts in the second quarter of 15.9 per cent against 11.8 per cent in the opening three months.

There are bound to be further warnings as the year progresses, which can only increase investor nervousness.

At the start of the year I was in the optimistic chorus, although my suggestion was Footsie reaching 7,200. I have an impenetrable excuse – my index predictions over the years have been awful. Perhaps, with Britain's economy now looking stronger than it was before the 2008 financial crisis, it is surprising that the stock market is the subject of so many downgrades.

Yet besides competition on the home front there is also the downward pull of the European Union's moribund economy and the so-called emerging markets have endured some problems. Still, in the US shares have established record levels and, at one time, London was often accused of hanging on to Wall Street's coattails.

Marston's, the brewer and pub owner, is the no pain, no gain portfolio constituent providing action. It has rolled out a fairly cheerful trading update describing the impact of the World Cup in Brazil as "broadly neutral".

The group, producing such traditional English beers as Pedigree and Brakspear, says its top pubs lifted sales by 4.1 per cent in a 41-week period with the leased outlets up 3 per cent. Profits at its franchised pubs rose by 3 per cent. All told, Marston's embraces around 1,800 establishments and is on track to open a further 27 pub/restaurants this year.

The shares have been as high as 165.5p but are now 143p. The portfolio recruited them at 95p. They have not been an outstanding investment but Marston's has made solid progress and I expect further headway. Their statement seems to have resulted in six stock market analysts saying "buy", seven on "hold" and two advising a "sell|". Beaufort Securities upgraded its recommendation from hold to buy and Numus Securities has a 185p target on the shares.

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